As filed with the Securities and Exchange Commission as of March 1, 2018

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑K

(Mark One)
☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File No. 1‑34062

ILG, Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	26‑2590997 (I.R.S. Employer Identification No.)
6262 Sunset Drive, Miami, FL (Address of Registrant’s principal executive offices)	33143 (Zip Code)

(305) 666‑1861

(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $0.01 par value per share	The NASDAQ Stock Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒  No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐  No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act. (Check one):

Large accelerated filer ☒	Accelerated filer ☐	Non‑accelerated filer ☐
Smaller reporting company ☐	Emerging growth company☐	(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☒

As of June 30, 2017 the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $2,892,928,788. As of February 22, 2018, 124,202,932 shares of the registrant’s common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's proxy statement for its 2018 Annual Meeting of Stockholders are incorporated by reference into Part III herein.

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	2
Item 1A.	Risk Factors	24
Item 1B.	Unresolved Staff Comments	42
Item 2.	Properties	42
Item 3.	Legal Proceedings	43
Item 4.	Mine Safety Disclosures	43
	Executive Officers of the Registrant	43
PART II
Item 5.	Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	44
Item 6.	Selected Financial Data	46
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	50
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	97
Item 8.	Financial Statements and Supplementary Data	99
Item 9.	Changes in and Disagreements with Accountant on Accounting and Financial Disclosure	161
Item 9A.	Controls and Procedures	161
Item 9B	Other Information	164
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	164
Item 11.	Executive Compensation	164
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	164
Item 13.	Certain Relationships and Related Transactions, and Director Independence	164
Item 14.	Principal Accountant Fees and Services	164
	Executive Officers of the Registrant	165
PART IV
Item 15.	Exhibits and Financial Statement Schedules	167

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Throughout this Annual Report on Form 10‑K, the terms “ILG,” “Company,” “we,” “us” and “our” refer to ILG, Inc. and, except as the context otherwise requires, its consolidated subsidiaries. The “Hyatt Vacation Ownership” business or “HVO” refers to the group of businesses using the Hyatt® brand in the shared ownership business pursuant to an exclusive, global master license agreement with a subsidiary of Hyatt Hotels Corporation (“Hyatt”). The Vistana Signature Experiences business or “Vistana” uses the Westin®  and Sheraton® brands (and to a limited extent the St. Regis® and The Luxury Collection® brands) in vacation ownership pursuant to an exclusive global license agreement with Starwood Hotels & Resorts Worldwide, LLC (“Starwood”). All brand trademarks, service marks or trade names cited in this report are the property of their respective holders. Solely for convenience, trademarks, trade names and service marks referred to in this report appear without the ®  or™ symbols, however such references are not intended to indicate in any way that we or the owner will not assert, to the fullest extent under applicable law, all rights to such, trademarks, trade names and service marks.

The information found on our corporate website, www.ilg.com, or any other website referred to in this report, is not incorporated into this Annual Report or any other report we file with or furnish to the United States Securities and Exchange Commission.

PART I

Cautionary Statement Regarding Forward‑Looking Information

This annual report on Form 10‑K contains certain statements which may constitute “forward‑looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Statements that are not historical fact are forward looking‑statements, and are contained throughout this document. These forward‑looking statements reflect management’s views and assumptions as of the date of this annual report regarding future events and operating performance. The use of words such as “anticipates,” “estimates,” “expects,” “intends,” “plans,” “potential,” “continue,” and “believes,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may,” “might,” and “could” among others, generally identify forward‑looking statements. These forward‑looking statements include, among others, statements relating to: our future financial performance, our business prospects and strategy, anticipated financial position, liquidity and capital needs and other similar matters. These forward‑looking statements are based on management’s current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict.

Actual results could differ materially from those contained in the forward‑looking statements included in this annual report for a variety of reasons, including, among others the risks and uncertainties discussed in Item 1A “Risk Factors” of this report. In light of these risks and uncertainties, the forward looking statements discussed in this report may not prove to be accurate. Accordingly, you should not place undue reliance on these forward looking statements, which only reflect the views of our management as of the date of this report. Except as required by applicable law, we do not undertake to update these forward‑looking statements.

Item 1.    Business.

Overview

ILG, Inc. is a leading provider of professionally delivered vacation experiences and the exclusive global licensee for the Hyatt, Sheraton and Westin brands in vacation ownership. As of December 31, 2017, we have a total of 43 resorts within Vistana Signature Experiences (Vistana) and Hyatt Vacation Ownership (HVO) businesses, manage approximately 250 resorts overall, while serving more than 2 million members through our various membership and exchange programs. We operate in the following two segments: Vacation Ownership (VO) and Exchange and Rental.

VO engages in sales, marketing, financing, and development of vacation ownership interests (VOIs); the management of vacation ownership resorts; and related services to owners and homeowners’ associations (HOAs). The sales, marketing, development, and financing services are provided through Vistana and HVO. We provide management services to more than 200 vacation ownership properties and/or their associations through Vistana, HVO, Vacation Resorts International (VRI), Trading Places International (TPI), and VRI Europe. The VO segment represented approximately 65% of ILG’s consolidated revenue for the fiscal year ended December 31, 2017, and approximately 58%

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of ILG’s consolidated revenue for the fiscal year ended December 31, 2016, reflecting the May 2016 acquisition of Vistana.

Exchange and Rental offers access to vacation accommodations and other travel‑related transactions and services to leisure travelers, by providing vacation exchange services and vacation rental, working with resort developers and HOAs as well as operating vacation rental properties. Vacation exchange services provide owners of vacation interests with flexibility and choice by delivering access to alternate accommodations through exchange networks encompassing a variety of resorts. Our principal exchange network administered by Interval International (referred to as Interval) is the Interval Network, in which nearly 3,200 resorts located in over 80 nations participated as of December 31, 2017. We also operate additional exchange programs including the Vistana Signature Network with 21 resorts and Hyatt Residence Club with 16 resorts, in each case as of the end of 2017, as well as exchanges through TPI. This segment provides vacation rental through the Aqua‑Aston business as part of a comprehensive package of marketing, management and rental services offered to vacation property owners including hotel and condo hotel owners, primarily of Hawaiian properties, as well as through the Interval Network and branded clubs. The Exchange and Rental segment represented approximately 35% of ILG’s consolidated revenue for the fiscal year ended December 31, 2017, and approximately 42% of ILG’s consolidated revenue for the fiscal year ended December 31, 2016, reflecting the May 2016 Vistana acquisition. For information regarding the results of operations of ILG and its segments on a historical basis, see Note 20 to the Consolidated Financial Statements of ILG and the disclosure set forth under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

History

ILG was incorporated as a Delaware corporation in May 2008 under the name Interval Leisure Group, Inc. in connection with the spin‑off of IAC/InterActiveCorp, or IAC, into five separate publicly traded companies. ILG commenced trading on The NASDAQ Stock Market in August 2008 under the symbol “IILG” and since October 2016 trades under the symbol “ILG.”

The businesses operated by ILG’s subsidiaries have extensive operating histories. Our Interval International business was founded in 1976, the Aqua-Aston business traces its roots in lodging back over 65 years, Trading Places International was founded in 1973, Vacation Resorts International in 1981; the Hyatt Vacation Ownership business began in 1994 and Vistana was established in 1980.

On May 11, 2016, we acquired the vacation ownership business of Starwood, now known as Vistana. At closing, Starwood spun-off Vistana to its stockholders immediately prior to the merger of Vistana with and into a wholly owned subsidiary of ILG. In the merger, ILG issued approximately 72.4 million shares of ILG common stock to the holders who received Vistana common stock in the spin-off. Additionally, ILG directly purchased certain Mexican entities and a note receivable for total consideration of $128 million. In connection with the acquisition, Vistana entered into an exclusive, 80-year global license agreement with Starwood for the use of the Westin and Sheraton brands in vacation ownership. The global license agreement may also be extended for two 30-year terms, subject to meeting certain sales performance tests. Also, Vistana has the non-exclusive license for the existing St. Regis and The Luxury Collection vacation ownership properties and an affiliation with the Starwood Preferred Guest program.

Industry Overview and Trends

The hospitality industry, which includes vacation ownership and vacation rental, is a major component of the leisure travel industry.

Vacation Ownership

Vacation ownership generally offers a long-term or perpetual usage right in a resort-style villa or hotel style accommodation and encompasses traditional timeshare regimes, fractional products, private residence clubs, condo hotels and other forms of shared ownership, and vacation home ownership. Vacation ownership products offer many alternatives that allow vacationers to choose the product that best suits their lifestyle and travel preferences, including location, size of accommodation and time of year. Relative to hotel rooms, vacation ownership units often offer more

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spacious floor plans and residential features including a living room, fully equipped kitchen, dining area and other residential features.

According to the American Resort Developer Association, referred to as ARDA, vacation ownership sales (excluding sales of fractional, private residence club, destination club and whole ownership products) in the U.S. for 2016, the last year for which data is available, were approximately $9.2 billion, representing an 8% compounded annual growth rate from 2014 sales of $7.9 billion. Notably, ARDA reports that U.S. timeshare resorts had an average occupancy of nearly 79% in 2016 significantly higher than average occupancy of approximately 66% at U.S. hotels for the same period.

As of December 31, 2016, the U.S. traditional timeshare industry was comprised of 1,558 resorts, representing approximately 206,080 units and an estimated 9.5 million vacation ownership week equivalents, according to ARDA. The most recent ARDA study on vacation owners describes the average timeshare owner as having a median household income over $81,000. Most owners are married and nearly half have children under the age of 18 in their home.

In addition to sales, the vacation ownership industry provides financing or facilitates access to third‑party financing for customers. Customers that choose to finance their purchase generally make a down payment of 10% to 20% of the purchase price for a five to fifteen year loan. Larger timeshare companies will access the securitization markets to obtain long‑term capital and liquidity. Upon a loan default, the vacation ownership company may recover on the ownership interest securing the loan and remarket the interest for sale.

Vacation ownership resorts in the United States typically form not-for-profit homeowners’ associations, or HOAs, which serve at the direction of elected boards of directors. The HOA is responsible for administering the property on behalf of the owners which includes overall asset maintenance, long-term planning and, in many cases, monitoring that capital needs are met. In most resorts, the HOA hires a management company to operate the resort on a day-to-day basis. To fund the ongoing operational costs of the vacation ownership resort, each owner is required to pay a maintenance fee equal to his or her pro rata share of operating and capital expenses. In addition to operating costs, these costs often include management fees and expenses, taxes, insurance, reserves and other allocable costs. If an owner fails to pay the maintenance fee, a default occurs that may result in the loss of the owner’s interest. Upon a payment default, an HOA will endeavor to find a new owner that will pay its share of the resort costs. As such, HOAs may seek the services of a management company or other provider that has marketing and distribution capabilities to re-sell recovered ownership interests.

Management companies may provide a range of services to HOAs, including the following:

· administrative services for reservations, front desk, board and owner meetings,

· fiscal services for budgeting, maintaining books and records, billing and collection of assessments, and reporting,

· quality assurance inspections, maintenance, capital planning, and on-site resort operations services,

· risk management, and

· sales and marketing of HOA defaulted inventory.

Exchange and Rental Services

Vacation exchange and rental businesses offer leisure travelers vacation accommodations at villas, condo hotels, hotels, vacation ownership units, vacation homes, and condominiums, as well as other travel‑related products and benefits. In addition, this fee‑for‑service business provides services to owners of vacation properties and developers.

Vacation ownership users have the opportunity to enjoy the flexibility to exchange their usage rights in a given year for stays in other resorts within the developer network or with a third-party exchange company. Many vacation ownership resort developers and managers provide internal exchange services to owners within their resort systems, such as Vistana Signature Network and Hyatt Residence Club. There are two principal providers of external vacation ownership exchange services, Interval International, an ILG business, and RCI, LLC, a subsidiary of Wyndham

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Worldwide Corp. TPI and several third parties also operate in this industry segment with a significantly more limited scope of available accommodations.

The fragmented vacation rental market includes both managed properties and those offered by owners. In general, the managed properties are better able to engage in market‑based pricing and offer hotel‑like services. Vacation rental accommodations offer value to travelers seeking more than a nightly stay by often providing greater space and convenience than traditional hotel rooms and offering separate living, sleeping and eating quarters. Rental companies also facilitate the rental process by handling most, if not all, aspects of interaction with vacationers. In addition, alternative lodging marketplaces, such as Airbnb and HomeAway, operate websites that market available furnished, privately‑owned residential properties for nightly, weekly or monthly rental.

DESCRIPTION OF BUSINESS SEGMENTS

Vacation Ownership

Our VO segment engages in sales, marketing, financing, and development of VOIs; the management of vacation ownership resorts; as well as related services to owners and associations. Our businesses include the exclusive global licensees of the Hyatt, Sheraton and Westin brands in vacation ownership pursuant to long-term license agreements with Hyatt and Starwood.

Revenue

Revenue from the VO segment is derived principally from:

· sales of VOIs by Vistana and HVO,

· interest income earned for financing these sales,

· fees for resort operations and HOA management services, and

· rental and ancillary revenues, including from hotels owned by Vistana and HVO.

Sales and Marketing of VOIs

Vistana and HVO sell, market, finance, and develop vacation ownership resorts currently located in the United States, Mexico and the Caribbean. Our resorts are located in attractive destinations and offer upscale accommodations with studio, one-, two- and three-bedroom options. They generally include spacious living and dining areas, master bedrooms with upgraded master bathrooms, in-unit kitchens and laundry facilities, combined with resort amenities that vary by property and may include swimming pools, a lazy river, restaurants and bars, marketplaces, fitness facilities and spas, as well as sports and recreation facilities and activity programming appropriate for a variety of vacation lifestyles. Our purchase prices vary depending on the product: number and type of points; or resort, season and unit type. The branded vacation ownership business model provides for the collection of annual maintenance fees and the establishment of capital reserves that allow our high-quality standards to be maintained.

Vistana and HVO sell VOIs that convey direct or indirect legal ownership interests in the underlying real property either as deeded ownership interests or certificated ownership interests. These ownership interests provide a mandatory membership in an HOA along with ownership points or a traditional weekly interval that offer usage for a one‑week or other time period at a specific resort or group of resorts. One of these multi-site points programs, Sheraton Flex, was launched by Vistana in January 2015 and allows owners to have preferred access to a group of resorts that currently includes resorts in Orlando, Florida; Myrtle Beach, South Carolina; Scottsdale, Arizona; Steamboat Springs, Colorado; and Jensen Beach, Florida. HVO launched a similar multi-site program, the Hyatt Residence Club Portfolio Program, in June 2017 that currently includes inventory from resorts in Key West, Florida; Bonita Springs, Florida; San Antonio, Texas; Carmel, California; Aspen, Colorado; Lake Tahoe, Nevada; and Sedona, Arizona. Also in June 2017, Vistana launched the Westin Aventuras program which currently includes The Westin Los Cabos Resort Villas & Spa and The Westin Lagunamar Ocean Resort Villas & Spa.  Each purchaser from HVO is automatically enrolled in the Hyatt Residence Club and purchasers from Vistana generally are automatically enrolled in the Vistana Signature

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Network, both of which allow owners to trade some or all of their usage rights as described below in “Description of Business Segments–Exchange and Rental.”

In addition, we receive fees for sales and marketing, brand licensing and other services provided to properties where the developer is not controlled by us. We have global master license agreements with Hyatt and Starwood which provide us with an exclusive license for the use of the Hyatt, Sheraton and Westin brands, respectively, in vacation ownership, as described below. The Vistana Signature Network and Hyatt Residence Club resorts are able to use their respective brands through agreements with us. In the event a master license agreement terminates or following a transition period after its expiration, the applicable resorts will no longer be able to use the brand name, and any of the resorts may also lose the rights to the name in the event it does not maintain certain standards or otherwise breaches its agreements with us.

Marketing and Sales Activities

Generally, we sell VOIs to prospective purchasers who attend a resort tour and sales presentation at one of our sales preview centers and learn about the benefits of ownership of our VOIs from one of our sales associates. As of December 31, 2017, we operate 25 active sales preview centers with an additional sales gallery at The Westin St. John that is currently closed.

Our marketing to attract potential purchasers focuses primarily on guests of our resorts and nearby same-brand hotels, existing owners and potential customers targeted through our marketing programs. We utilize a number of marketing channels to attract qualified customers to our resorts, including preview packages, trial programs, local marketing desks, partner marketing and online channels.

An important component of our direct marketing activities is focused on offering members of the loyalty programs associated with the Sheraton, Westin and Hyatt brands (currently the Starwood Preferred Guest Program (“SPG Program” or “SPG”) and the World of Hyatt program, as applicable) and other databases of prospective owners a subsidized branded vacation preview package to one of our resorts or a nearby hotel, to introduce these guests to the benefits of vacation ownership. Sales guests who do not purchase VOIs during their initial tour are offered a special package for another stay at one of our resorts through a trial package whereby they will participate in a subsequent sales tour. These return guests are typically twice as likely to purchase a VOI as a first-time visitor. This program provides the opportunity to experience some of the features of ownership and returning trial program guests can typically apply the package price to their ownership down payment. We also market selectively via off-premises contacts, local marketing centers in high-traffic locations near our resorts. In addition, we use a variety of partner marketing approaches and business alliances with travel, retail and financial companies. Finally, we leverage digital and social channels to connect with our customers throughout the year. We deliver valuable vacation information and create an ongoing stream of new customers while building an affinity for our vacation networks and our brands.

We take great care in ensuring we deliver informative and branded sales presentations. Consumers place their trust in the Hyatt, Sheraton and Westin brands and preserving that trust and building on the strength of those brands will continue to attract qualified customers to our products in the future. Our premium sales gallery environments are designed to showcase our brand affiliations, travel options and destinations to allow our sales guests to explore the world through a visual presentation.

Whether presenting to existing owners or prospective owners, we deliver a personalized presentation in a sophisticated and comfortable environment where the customers’ level of interest drives the process. These activities are delivered with care and accuracy across our sales gallery system and we survey customers who have attended a tour to capture their feedback through our quality assurance process.

We strive to attract, train and retain a superior sales force. We extensively train our sales representatives through strong on-boarding processes and periodic recurring training programs. Our sales executives are regularly evaluated for presentation consistency, professionalism and performance.

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Inventory and Development

One way we plan to grow our revenue and operations is through increased VOI sales volume. Our pipeline of VOI inventory includes completed VOIs currently owned by us or our joint ventures, reacquired VOIs and additional VOIs that we currently plan to develop at existing locations, which represents approximately $6.5 billion of projected remaining inventory sales volume available as of December 31, 2017, including estimated returns and price increases.

We reacquire existing VOIs in several ways including loan defaults, HOA payment defaults, exercise of certain rights of first refusal and open market purchases. In the event of a loan default, we are able to recover and return to inventory the underlying VOI. In the event of a maintenance fee default, the HOA will recover the owner’s VOI. We have entered into inventory recovery agreements with certain of our HOAs that provide us the right to purchase those VOIs. Terms of those agreements vary, including the purchase price.

Recovered VOI inventory may be sold by us to new customers or existing owners at full retail value. Once we reacquire a VOI, we are generally responsible for paying that VOI’s share of maintenance dues beginning in the year after we take title until the product is sold. Although the volume of VOIs that we recover could fluctuate in the future for various reasons, in each of 2017, 2016 and 2015, we have recovered in the ordinary course of business through these sources less than 5% of the total VOIs cumulatively sold to and owned by our owners at the beginning of each respective year.

During 2017 we opened nearly 700 units, The Westin Los Cabos Resort Villas & Spa (179 units), The Westin Nanea Ocean Villas (390 units), as well as additional phases at The Westin Desert Willow Villas, Palm Desert (16 units), and Sheraton Steamboat Resort (112 units). We had also completed additional units at The Westin St. John Resort Villas, however, due to Hurricane Irma, the entire resort remains closed. Additional units completed at Hyatt Wild Oak Ranch (24 units) and The Westin Desert Willow, Palm Desert (26 units) opened in early 2018.

Additionally, we began conversion of the The Westin Cancun Resort & Spa and the Sheraton Kauai Resort, that had previously been operated as hotels. We also began development of additional phases at Hyatt Residence Club Coconut Plantation and are planning to develop additional phases at several resorts over the next three to five years.

Costs incurred to date and expended in the future to complete the development of these properties is recorded in either inventory or property and equipment, net on our consolidated balance sheets. The costs recorded to property and equipment, net are related to the developer retained assets within the projects. See “Risk Factors” for further discussion of risks associated with real estate development activities.

In the future, we may pursue growth opportunities targeting the acquisition or development of inventory in new locations. We may pursue these opportunities independently, with third-party developers or outside capital sources.

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Our Resorts

The following tables describe the resorts included in the Vistana Signature Network and the Hyatt Residence Club as of December 31, 2017.

Vistana Signature Network – Vacation Ownership Resorts
Resort Name	Location	Completed Units	Planned Units (1)(2)	Total Units
Sheraton Vistana Resort	Orlando, FL	1,566	—	1,566
Sheraton Vistana Villages	Orlando, FL	892	734	1,626
Vistana’s Beach Club	Jensen Beach, FL	76	—	76
Sheraton PGA Vacation Resort	Port St. Lucie, FL	30	—	30
The Westin Nanea Ocean Villas	Maui, HI	390	—	390
The Westin Ka’anapali Ocean Resort Villas	Maui, HI	280	—	280
The Westin Ka’anapali Ocean Resort Villas North	Maui, HI	258	—	258
The Westin Princeville Ocean Resort Villas	Kauai, HI	173	—	173
The Westin Lagunamar Ocean Resort Villas & Spa	Cancun, MX	290	—	290
The Westin Los Cabos Resort Villas & Spa	Los Cabos, MX	179	—	179
The Westin St. John Resort Villas (3)	St. John, USVI	252	—	252
Harborside Resort at Atlantis (4)	Nassau, Bahamas	198	—	198
Sheraton Broadway Plantation	Myrtle Beach, SC	342	160	502
The Westin Mission Hills Resort Villas	Rancho Mirage, CA	158	—	158
The Westin Desert Willow Villas, Palm Desert	Palm Desert, CA	220	80	300
The Westin Kierland Villas	Scottsdale, AZ	149	—	149
Sheraton Desert Oasis Villas	Scottsdale, AZ	150	—	150
Sheraton Mountain Vista	Vail Valley, CO	78	—	78
The Westin Riverfront Mountain Villas	Vail Valley, CO	34	—	34
Sheraton Lakeside Terrace Villas at Mountain Vista	Vail Valley, CO	23	—	23
Sheraton Steamboat Resort	Steamboat Springs, CO	165	—	165
	Total	5,903	974	6,877

Vistana Signature Experiences – Hotels
Resort Name	Location	Hotel Rooms	VO Units Upon Conversion
The Westin Resort & Spa, Cancun	Cancun, MX	379	248
The Westin Resort & Spa, Puerto Vallarta	Puerto Vallarta, MX	280	139
Sheraton Kauai Resort	Kauai, HI	394	126
	Total	1,053	513

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Vistana Signature Experiences– Fractional Residences
Resort Name	Location	Completed Units	Planned Units (1)(2)	Total Units
The Phoenician Residences, The Luxury Collection Residence Club	Scottsdale, AZ	6	—	6
The St. Regis Residence Club, Aspen	Aspen, CO	25	—	25
The St. Regis Residence Club, New York	New York, NY	31	—	31
	Total	62	—	62

Hyatt Residence Club
Resort Name	Location	Completed Units	Planned Units (1)(2)	Total Units
Hyatt Residence Club Aspen	Aspen, CO	53	—	53
Hyatt Residence Club Sedona, Piñon Pointe	Sedona, AZ	109	—	109
Hyatt Residence Club Carmel, Highlands Inn(5)	Carmel, CA	94	—	94
Hyatt Residence Club Lake Tahoe, Northstar Lodge	Truckee, CA	2	—	2
Hyatt Residence Club Beaver Creek, Mountain Lodge	Avon, CO	50	—	50
Hyatt Residence Club at Park Hyatt Beaver Creek	Avon, CO	15	—	15
Hyatt Residence Club Breckenridge, Main Street Station	Breckenridge, CO	51	—	51
Hyatt Residence Club Bonita Springs, Coconut Plantation	Bonita Springs, FL	72	264	336
Hyatt Residence Club Key West, Beach House	Key West, FL	74	—	74
Hyatt Residence Club Key West, Sunset Harbor	Key West, FL	40	—	40
Hyatt Residence Club Key West, Windward Pointe	Key West, FL	93	—	93
Hyatt Residence Club Sarasota, Siesta Key Beach	Siesta Key, FL	11	—	11
Hyatt Residence Club Maui, Ka’anapali Beach(4)	Maui, HI	131	—	131
Hyatt Residence Club Lake Tahoe, High Sierra Lodge	Incline Village, NV	60	—	60
Hyatt Residence Club Dorado, Hacienda del Mar(3)	Dorado, PR	81	—	81
Hyatt Residence Club San Antonio, Wild Oak Ranch	San Antonio, TX	120	168	288
	Total	1,056	432	1,488

(1) These properties are entitled for vacation ownership use and are currently either in development, planning or evaluation stages.

(2) Excludes additional developable land in Florida, Hawaii, St. John, Mexico and Colorado, which is not included in Vistana’s near term development plans but is under evaluation for longer term needs.

(3) Currently closed due to hurricane damage from September 2017.

(4) Unconsolidated joint venture.

(5) Also includes 48 hotel rooms.

Consumer Financing

In connection with the sales of VOIs, we provide financing to eligible purchasers collateralized by the VOIs. These loans generally bear interest at a fixed rate and have a term of five to fifteen years. As of December 31, 2017, our consolidated loan portfolio consisted of approximately 57,000 loans with an outstanding balance of $722 million, net of allowance for loan losses on originated loans, and a weighted average interest rate of 13.4%. During the last two years

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(including Vistana’s experience prior to the acquisition), approximately 70% of our consolidated sales were financed, while typically about 32% of loans we issue are repaid in full within 180 days based on average historical experience.

As loan payments are made, the nature of these generally fully-amortizing loans establishes an increasing level of owner financial commitment in their purchase which reduces the likelihood of default. When a customer defaults, we ultimately return their VOI to inventory for resale, and that customer no longer participates in the applicable network. For the twelve months ended December 31, 2017, our loan portfolio had an actual default rate of 4.5%.

For those customers seeking financing, we apply the credit evaluation score methodology developed by the Fair Isaac Corporation (FICO) to credit files compiled and maintained by a credit reporting bureau. Higher credit scores equate to lower credit risk and lower credit scores equate to higher credit risk. As of December 31, 2017, the weighted average FICO score of our vacation ownership notes receivable at the time of origination for the past twelve months was 737.

In underwriting each loan, we obtain a credit application and review the application for completeness. We generally require a minimum down payment of 10% of the purchase price on all sales of VOIs. Our down payment requirements from borrowers are influenced by their length of credit history, country of residence and credit profile.

Our underwriting standards are influenced by the changing economic and financial market conditions. We have the ability to modify our down payment requirements and credit thresholds in the face of stronger or weaker market conditions. Our underwriting standards have resulted in a strong, well-seasoned consumer loan portfolio. As of December 31, 2017, our serviced VOI customer loan portfolio exhibited the following characteristics:

· Weighted Average Original Length of Loan: 11 years

· Weighted Average Remaining Length of Loan: 9 years

· Delinquency Rate on Originated Loans (31-120 days past due): 3.5%

We have a skilled consumer finance team. This team is responsible for loan customer servicing, which includes billing, collections and credit reporting, reacquisition of inventory collateralizing defaulted loans, and monitoring portfolio performance. Our in-house training program includes product and sales information, purchase documents, consumer privacy, system security, state and Federal legislation and department procedures related to loan servicing and collection. Accounts more than 30 days past due are reported as delinquent. A loan that is more than 120 days past due is charged off for financial accounting purposes (for originated loans) and may then be recovered through foreclosure or a deed-in-lieu of foreclosure. In the deed-in-lieu of foreclosure process, the customer deeds (or assigns, in the case of any certificated membership interests) the VOI back to us. For domestic owners, this process takes approximately 60 to 90 days. At the end of the recovery process, we return the VOI into inventory.

Management and Ancillary Services

We provide management services to over 200 vacation ownership properties and/or their associations through Vistana, HVO, TPI, VRI and VRI Europe. As of December 31, 2017:

· Vistana provides management services to 24 vacation ownership resorts in the United States, Mexico and the Caribbean; and

· HVO provides management services for 16 vacation ownership resorts throughout the United States.

· VRI Europe manages 26 vacation ownership resorts in Spain and the Canary Islands, the United Kingdom, France and Portugal, including resorts developed by our joint venture partner, CLC World Resorts,

· TPI and VRI provide property management, HOA management and related services to nearly 150 vacation ownership resorts in the United States, Canada and Mexico.

All of these businesses provide resort management services for vacation ownership resorts, which, in the United States are governed by a board of directors comprised of owner or developer representatives that are charged with ensuring the resorts are well-maintained and financially stable. Our services may include day-to-day operations of the

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resorts, maintenance of the resorts, preparation of reports, budgets, HOA administration, risk management, quality assurance and employee training.

Our management services are provided pursuant to agreements with terms generally ranging from one to ten years (with several indefinite-lived contracts in Europe) many of which are automatically renewable. For the Vistana and HVO resorts, retaining us as the manager provides the properties with continued use of the Hyatt, Sheraton or Westin trademarks and the owners with continued access to the Vistana Signature Network and SPG Program or the Hyatt Residence Club and World of Hyatt program, in accordance with our agreements with Starwood and Hyatt and subject to compliance with brand standards. Management fees are negotiated amounts for management and other specified services, and at times (including for most of the Vistana and HVO properties) are based on a cost plus arrangement. Generally, our management fees are paid by the HOA and funded from the annual maintenance fees paid by the individual owners to the association. These maintenance fees represent each owner’s allocable share of the costs of operating and maintaining the resorts, which generally includes personnel, property taxes, insurance, a capital asset reserve to fund refurbishment and other related costs. The management fees we earn are highly predictable due to the relatively fixed nature of resort operating expenses. We are reimbursed for the costs incurred to perform our services, principally related to personnel providing on-site services.

In addition, if a property owner defaults on payment of its maintenance or management fees, the HOA has the right to recover the defaulting owner’s VOI. As a service to the HOA, we may assume the defaulted owner’s obligations in exchange for an agreed purchase price or assist the HOA in contracting with a third party to resell this inventory.

Most of VRI Europe’s revenue is based on a different model. Typically, VRI Europe charges vacation owners directly an annual fee intended to cover property management, all resort operating expenses and a management profit. Consequently, VRI Europe’s business model normally operates at a lower gross margin than the other management businesses, when excluding pass‑through revenue.

Vistana, HVO, TPI and VRI also offer vacation rental services to HOAs and, in some cases, individual VOI owners as well as renting owned inventory in vacation ownership resorts and hotels. Rentals of branded units are made through Hyatt or Starwood distribution channels, third party online travel agencies and our marketing channels, while VRI and TPI inventory is rented online directly to consumers through our websites, www.vriresorts.com, and www.tradingplaces.com,  andthird party online travel agencies as well as through Interval for use as Getaways. Rental expenses include maintenance fees on owned inventory, subsidy payments to property owner associations at resorts that are in the early phases of construction or sales where maintenance fees collected from the owners are not sufficient to support operating costs of the resort and marketing costs and direct operating and related expenses in connection with the rental business (e.g., housekeeping, credit card expenses and reservation services). We provide food and beverage, retail, golf, spa and other services to our owners, guests and customers and earn fees and other revenues typically associated with these activities and experiences.

Master License Agreements

We have license agreements with each of Starwood and Hyatt that provide:

· Vistana the exclusive global use of the Westin and Sheraton brands in vacation ownership and use of the St. Regis and Luxury Collection brands for specific fractional resorts; and

· HVO the exclusive global use of the Hyatt brand in vacation ownership.

Pursuant to the terms of these license agreements, the relevant business may continue to develop, market, sell and operate existing vacation ownership projects as well as new Hyatt, Sheraton or Westin branded vacation ownership projects agreed to by us and either Starwood or Hyatt, as applicable. HVO must comply with designated Hyatt brand standards and Vistana must comply with designated Westin and Sheraton brand standards, with respect to the operation of the applicable licensed business. The Vistana license has an initial term through 2095 with two 30-year renewals and the HVO license has an initial term through 2093 with three 20-year renewals. In each case the renewals are subject to meeting sales performance tests. In consideration for the licenses, we have agreed to pay Starwood a base royalty fee of $30 million per year plus a variable royalty fee of 2% of the gross sales price of applicable inventory, while we agreed to

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pay Hyatt certain recurring royalty fees based on revenues generated from vacation ownership sales, management, rental and club dues collected by us related to the branded business.

Our agreements with Starwood and Hyatt provide access to the SPG and World of Hyatt programs for sales incentives, exchange as well as marketing channels to source prospective customers.

Both licenses contain restrictions on transfers by us without Starwood’s or Hyatt’s written consent of (1) the license agreement, (2) all or substantially all of the relevant licensed business or (3) a transaction or series of transactions that result in a “change of control” of ILG or Vistana or HVO.

Written consent is not required for a “change of control” of ILG if on the date of the transaction that results in a “change of control” (1) ILG is publicly traded, or (2) ILG is not publicly traded but earnings from the licensed business do not comprise substantially all (90% for Hyatt license) of ILG’s EBITDA at such time; provided that the following conditions are satisfied as of the date of the transaction that resulted in a “change of control” of ILG (a) there are no uncured agreement level defaults, (b) all royalty fees have been paid, and (c) the transferee is not a competitor of the licensor in the hotel, vacation ownership or, for the Starwood license, certain similar transient stay distribution businesses. Vistana’s license also contains a maximum leverage ratio for an acquirer.

Starwood and Hyatt may terminate their respective license agreement upon the occurrence of certain uncured, material defaults by us. Such defaults include, but are not limited to, a sizable payment default, bankruptcy, a transfer in breach of the specified transfer restrictions or a material failure to comply with brand standards on a systemic level.

Exchange and Rental

Our Exchange and Rental segment offers access to vacation accommodations and other travel‑related transactions and services to leisure travelers, by providing vacation exchange services and vacation rental, working with resort developers and HOAs as well as operating vacation rental properties.

Vacation Exchange

Exchange Services

We offer leisure and travel‑related products and services to owners of VOIs and others primarily through various membership programs, as well as related services to resort developer clients and HOAs. Vacation exchange allows owners of VOIs to exchange their occupancy rights (whether denominated in weeks or points) for comparable, alternative accommodations at another resort and/or occupancy period or for other vacation experiences.

· Interval Network.  Our primary exchange offering is the Interval Network, a membership‑based exchange program which also provides a comprehensive package of value‑added products and services. As of December 31, 2017, the Interval Network consisted of nearly 3,200 resorts located in over 80 nations and approximately 1.8 million member families. Generally, individuals are enrolled by resort developers in connection with their purchase of VOIs from such resort developers, with initial membership fees being paid on behalf of members by the resort developers. Members may also enroll directly, for instance, when they purchase a VOI through resale or HOA affiliation at a resort that participates in the Interval Network. The Interval Network has established multi‑year relationships with resort developers, including leading independent and brand name developers, under exclusive affiliation agreements. The resorts participating in the Interval Network primarily include those with which Interval has an affiliation or inventory agreement in place, as well as resorts at which Interval continues to provide exchange services following the affiliation agreement’s term.

After their initial membership period, certain Interval Network members have the option of renewing their memberships for terms ranging from one to five years and paying their own membership fees directly to us. We sometimes refer to these as traditional members. Alternatively, some resort developers incorporate the Interval Network membership fee into certain annual fees they charge to

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owners of VOIs at their resorts or vacation ownership clubs, which results in these owners having their membership in the Interval Network and, where applicable, the Interval Gold or Interval Platinum program (as described below), automatically renewed through the period of their resort’s or club’s participation in the Interval Network. We sometimes refer to these as corporate members.

All vacation ownership accommodations relinquished to the Interval Network exchange programs are assigned a trading value based on multiple factors, including location, quality, seasonality, unit attributes and time of relinquishment prior to occupancy to determine the relinquished accommodations’ relative exchange value to the exchange network. Members are offered an exchange to accommodations which are generally of comparable trading value to those relinquished.

The Interval Network’s resort recognition program recognizes certain of its eligible Interval Network resorts as either a “Select Resort,” a “Select Boutique Resort,” a “Premier Resort,” a “Premier Boutique Resort,” an “Elite Resort” or an “Elite Boutique Resort” based upon the satisfaction of qualifying criteria, inspection, member feedback, and other resort‑specific factors. Over 40% of Interval Network resorts were recognized as a Select, Select Boutique, Premier, Premier Boutique, Elite or Elite Boutique Resort as of December 31, 2017.

· Vistana Signature Network.  As of December 31, 2017, Vistana’s internal points-based exchange program, the Vistana Signature Network, or VSN, provides its more than 175,000 members with access to its 21 affiliated resorts as well as the opportunity to exchange through the SPG program to Starwood resorts, through the Interval Network or for a cruise. Based on the point value of the home resort unit owned, customers can choose other VSN resorts, the type of villa, the date of travel and the length of stay. VSN members have a four-month period where they have exclusive rights to occupancy at the related resort or points program without competition from other network members. During this home resort period, they can reserve vacation time based on the season and unit type purchased.

· Hyatt Residence Club.  As of December 31, 2017, this points‑based membership exchange system serves nearly 33,000 owners at 16 properties, providing them with access to the 16 Hyatt Residence Club resorts as well as the opportunity to trade their club points for World of Hyatt points which may be redeemed at participating Hyatt branded properties and exchange through the Interval Network. Owners will receive Hyatt Residence Club points if they have not reserved at their home resort or points program during their allotted preference period or if they elect to convert to points earlier. The use of the Hyatt name in connection with the Hyatt Residence Club is governed by the Master License Agreement with Hyatt described above.

· Trading Places International.  Trading Places Classic provides exchange services to owners at certain of our managed timeshare properties as well as other direct‑to‑consumer exchanges that do not require a membership fee. For an annual fee, vacation owners may choose to join the upgraded Trading Places Prime program with additional benefits. Exchanges in these Trading Places programs are based on like value and upgrades are available upon payment of additional fees.

Related Products and Services

· Getaways.  We also offer additional vacation rental opportunities to members of the Interval Network and certain other membership programs at attractive rates through Getaways. Getaways allow members to rent resort accommodations for a fee, plus applicable taxes. Resort accommodations available as Getaways consist of seasonal oversupply of vacation ownership accommodations within the applicable exchange network, as well as resort accommodations we source specifically for use in Getaways.

· Interval Gold and Interval Platinum.  Interval Network members also may take advantage of one of our two enhanced membership tiers, Interval Gold, or Interval Platinum, each of which provides value-added benefits and services for an additional fee. These benefits and services vary by country of

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residence, but generally consist of discounts on Getaways, a concierge service, a hotel discount program and Interval Options, a service that allows members to relinquish annual occupancy rights in their VOIs towards the purchase of various travel products, including hotel, cruise, golf and spa vacations. Members are enrolled in these programs either by resort developers in connection with the initial purchase of their VOIs or by upgrading their membership directly. As of December 31, 2017, more than 40% of Interval Network members participate in an upgraded membership tier.

· Club Interval.  This product gives owners of fixed or floating week timeshares the opportunity to use their resort week as points within the Interval Network. Club Interval members also receive all of the benefits of Interval Gold and can upgrade to Interval Platinum.

· Sales and Marketing Support for Interval Network resorts.  Resort developers promote membership in our exchange programs and related value‑added services as an important benefit of owning a VOI. We offer developers a selection of sales and marketing materials. These materials, many of which are available in multiple languages, include brochures, publications, sales‑office displays, resort directories and Interval HD, an online video channel featuring resort and destination overviews. In addition, we offer programs, including our Leisure Time Passport program, that resort developers use as a trial membership program for potential purchasers of VOIs.

· Operational Support for Interval Network resorts.  Our Interval business also makes available a comprehensive array of back‑office servicing solutions to resort developers and resorts. For example, for an additional fee, we provide reservation services and billing and collection of maintenance fees and other amounts due to developers or HOAs. In addition, through consulting arrangements, we assist resort developers in the design of tailored vacation programs for owners of VOIs.

Revenue

Our Exchange and Rental segment earns most of its vacation exchange revenue from (i) fees paid for membership in the Interval Network, the Vistana Signature Network and the Hyatt Residence Club and (ii) Interval Network, Vistana Signature Network and Hyatt Residence Club transactional and service fees paid primarily for exchanges, Getaways, reservation servicing, and related transactions collectively referred to as “transaction revenue.” Revenue is also derived from club rentals, fees for ancillary products and services provided to members, fees from other exchange and rental programs and other products and services sold to developers.

Marketing

Our exchange businesses maintain corporate and consumer marketing departments that are responsible for implementing marketing strategies and developing printed and digital materials that are necessary to promote membership participation, exchange opportunities and other value‑added services to existing members as well as for the Interval International business to secure new relationships with resort developers, HOAs and resorts to obtain and retain members.

Our consumer marketing efforts revolve around the deepening of new and existing customer relationships and increasing engagement and loyalty of members through a number of channels including direct mail, email, telemarketing, and online distribution. In addition to resort directories, magazines and newsletters, ILG’s exchange companies engage with their members through a number of online resources to encourage sharing of experiences and communication with one another about vacation ownership, travel and ways to maximize their memberships. Interval International hosts the members‑only Interval Community at intervalworld.com, and each of Interval, Vistana Signature Network and Hyatt Residence Club are utilizing social media channels like Facebook and Instagram to inspire vacations, share stories and promote the vacation ownership lifestyle.

Interval also markets products and services to resort developers and other parties in the vacation ownership industry through a series of business development initiatives. Our sales and services personnel proactively seek to establish strong relationships with developers and HOAs, providing input on consumer preferences and industry trends

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based upon years of experience. We believe that we have established a strong reputation within the vacation ownership industry as being highly responsive to the needs of resort developers, HOAs, management companies and owners of VOIs. In addition, we sponsor, participate in and attend numerous industry conferences around the world, including our co‑sponsored proprietary, multi‑day informational seminar, known as the International Shared Ownership Investment Conference. For the last 17 years, this event allows real estate developers, hospitality companies, investors and others contemplating entry into the vacation ownership industry to meet and network with industry leaders, as well as participate in educational panels on various vacation ownership issues, such as property and program planning, sales and marketing, financing and regulatory requirements. We have also maintained leadership roles in various industry trade organizations throughout the world since their inception, through which we have been a driving force in the promotion of growth of the industry and constructive legislation, both in the U.S. and abroad, principally aimed at creating or enhancing consumer protection in the vacation ownership industry.

Vacation Rental

We provide vacation rental as the key part of a comprehensive package of marketing, management and rental services offered to vacation property owners, through Aqua‑Aston. As of December 31, 2017, Aqua‑Aston provided vacation rental and/or management services to over 40 hotels and resorts primarily in Hawaii, as well as Orlando, Florida, and South Lake Tahoe, California.

This business provides vacation property rental services for condominium owners, hotel owners, and HOAs. The condominium rental properties are generally investment properties, and, to a lesser extent, second homes, owned by individuals who contract with Aqua‑Aston directly to manage, market and rent their properties, generally pursuant to short‑term agreements. We also offer such owners a comprehensive package of marketing, management and rental services designed to enhance rental income and profitability. Generally, property and HOA management services, including administrative, fiscal and quality assurance services, are provided pursuant to exclusive agreements with terms typically ranging from one to ten years or more, many of which are automatically renewable. As of December 31, 2017, average tenure of these contracts was more than 15 years.

Revenue is derived principally from fees for rental services and related management of hotel, condominium resort, and HOA management. Management fees consist of a base management fee and, in some instances for hotels or condominium resorts, an incentive management fee which is generally a percentage of operating profits or improvement in operating profits. Service fee revenue is based on the services provided to owners including reservations, sales and marketing, property accounting and information technology services either internally or through third party providers.

Important to the success and continued growth of the vacation rental business is our ability to source vacationers interested in booking vacation properties made available through our rental services. Our sales and marketing team in Honolulu, Hawaii, utilizes a variety of sales, marketing, revenue management and digital marketing initiatives to attract consumers and additional properties to Aqua‑Aston. The team in Hawaii utilizes many channels of distribution including traditional wholesale through tour operators and travel partners, online travel agencies and the Global Distribution System. In addition, Aqua‑Aston focuses on driving direct business through channels such as brand websites and our central reservations office. The sales team covers several market segments from corporate and government/military to travel agents and groups with a focus on the US, Canada, Australia, Europe, Japan, China and Korea. In many of these markets we have field sales personnel. We offer a variety of leisure accommodations to visitors from around the world through consumer websites such as, www.astonhotels.com, www.aquaresorts.com, www.aquahospitality.com, and www.mauicondo.com. As an additional distribution channel, Aqua‑Aston provides units to Interval for use as Getaways.

Technology

Our success also depends on our ability to provide prompt, accurate and complete service to our members through voice and data networks and proprietary and third party information systems. The technology platform for the Interval Network is a proprietary, custom developed enterprise application and database that manages all aspects of membership, exchange and Getaway transaction processing and inventory management. TPI uses a separate proprietary application for its exchange program. Both VSE and HVO use customized third-party applications to service their

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owners, manage their properties and market and sell vacation ownership interests. We also use advanced telecommunications systems and technologies to intelligently and efficiently route member calls, monitor calls, manage our service-center workforce and provide voice self-service capabilities to our customers. In addition, we operate consumer websites for our members and participants, such as www.intervalworld.com, www.vistana.com, www.hyattresidenceclub.com, www.ltp.com and www.tradingplaces.com. Interval provides services to their members using a mobile app for Getaway transactions. We are also in the process of expanding consumer-facing mobile capabilities for Interval, VSE, HVO and other subsidiaries.

ILG has implemented robust administrative, physical, and technical security controls and training that are designed to reasonably and appropriately protect the confidentiality, integrity, and availability of network, system infrastructure, and electronic data, by having deployed sensitive data unauthorized access management and monitoring; data loss prevention; system file integrity monitoring; 24/7 incident handling; security vulnerability management; intrusion detection; sensitive data encryption and tokenization; network and application protection; and, digital forensics and breach investigation solutions and processes.  Furthermore, we believe we are compliant with PCI Data Security Standards at December 31, 2017.

Our Competitive Strengths

We expect to further our leadership role in the industry by leveraging our strengths, which include:

Meaningful contribution from contractual and recurring revenue streams

· We receive annual membership dues and recurring transaction fees from approximately 1.8 million members of Interval International as of December 31, 2017. We also receive club dues and transaction fees from over 200,000 members of Hyatt Residence Club and Vistana Signature Network at year end 2017.

· We provide vacation ownership management services through cost-plus or fee-for-service agreements to HOAs at over 200 resorts in North America and Europe as of December 31, 2017.

· Our consumer finance business drives stable and recurring revenues from interest income earned on our $722 million vacation ownership notes receivables portfolio at year end 2017.

· Our Aqua-Aston business provides fee-for-service rental management services at more than 40 properties primarily located in Hawaii as of December 31, 2017.

Compelling growth profile fueled by existing inventory and identified growth projects

We have significant available existing inventory as well as identified growth opportunities including additional phases at existing resorts and hotel conversions. Our current vacation ownership properties and this development pipeline provides us with approximately $6.5 billion in expected sales value of inventory in highly desirable resort locations to be realized over time. The estimated over 1,900 additional units in our pipeline are planned either as conversions of hotels in our portfolio or on land we own.  

Development expertise

Our development team has a long and successful record of strategically sourcing, evaluating and developing resorts in the most sought-after vacation destinations. Vistana and HVO have developed approximately 7,000 VOI units across the United States, the Caribbean and Mexico.

Exclusive global master licenses to the Hyatt, Sheraton and Westin brands in vacation ownership

We have global rights in vacation ownership to three of the leading upper upscale hospitality brands. Our long-term license agreements give us the exclusive right to market, sell and lease VOI inventory and manage vacation ownership resorts under the Hyatt, Sheraton and Westin brands. Our affiliation agreements with their loyalty programs, SPG and World of Hyatt provide us with customer acquisition and product use benefits. SPG has more than 1,500 affiliated locations in nearly 100 countries. World of Hyatt has over 700 affiliated hotels and over 10 million members. We believe that the unique position of being partnered with three distinct brands, owned by two different hotel companies, results in greater and more diversified growth opportunities.  

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Diversified and complementary businesses

We have a well-diversified and balanced portfolio which includes contractual and recurring revenue streams from our exchange and club, management and financing businesses, as well as organic high growth opportunities embedded in our vacation ownership sales and marketing platform. This diverse portfolio benefits from significant synergies across the businesses, proven stability through business cycles in the exchange and management businesses’, as well as an identified growth pipeline.

World-class resorts in key locations across different brands

We have an unparalleled collection of resorts across the Vistana and HVO portfolios, located in exciting beach, mountain and desert destinations across North America and the Caribbean. Our resorts range from boutique properties in exclusive locations, such as the 15-unit Residences at Park Hyatt in Beaver Creek, to Sheraton Vistana Villages’ more than 1,500-unit family-focused campus. This uniquely positions us to address customers with distinct demographics, brand affiliations and vacation interests. The resorts, which provide world-class branded experiences to our owners and guests, will be complemented by new beachfront properties in Cancun, Puerto Vallarta and Kauai, as well as additional units in existing destinations.

Experienced management team

Our experienced management team is headed by Craig M. Nash, our Chairman, President and CEO, who has led ILG since its inception in 2008, and its predecessor company, Interval International since 1989.  Beginning in 2007, Mr. Nash has spearheaded our successful diversification from an independent exchange company to a leading provider of professionally delivered vacation experiences.  Our executive officers, including Sergio D. Rivera and Jeanette E. Marbert, the leaders of our Vacation Ownership and Exchange and Rental segments, have decades of experience in the vacation ownership and hospitality industries, overseeing complex international sales, marketing, financial, resort operation and exchange infrastructure.

Business and Growth Strategies

Grow VOI sales and associated club, management, rental and consumer financing revenue

We plan to grow our VOI sales and related club, rental, management and consumer financing revenue by leveraging our globally-recognized brands, marketing to our existing ownership bases of more than 220,000 and nearly 33,000 owner-families in our Vistana and HVO properties, respectively, for additional sales, and enhancing our sales distribution to new buyers. We expect revenue growth will primarily originate from the development and sale of VOIs in existing markets, as well as VOI sales from converted hotels in new markets, supported by additional distribution through new sales centers. We also believe we can improve the overall effectiveness of our sales process as we are able to offer an increasing variety of new resorts and other product enhancements we may introduce over time. In addition, we may collaborate with third parties to add properties to the Vistana Signature Network or Hyatt Residence Club, including through asset and capital‑light structures.

Continue to successfully leverage synergies across our portfolio

As we continue to grow, we have notable opportunities to leverage scale, resources, expertise and best practices across our businesses. Through shared services for a number of administrative functions, we are able to focus our resources on core activities leading to efficiencies and synergies across business lines. In particular, we have made progress in harmonizing the processes and competencies for the Vacation Ownership segment. We believe there are additional opportunities for further integration.

Selectively pursue compelling new business opportunities

We intend to selectively pursue potential joint ventures, acquisitions, and other business arrangements that focus on vacation ownership and complementary businesses. Acquisitions have been an important part of our business strategy over the past 10 years. Going forward, these activities may be used to expand Vistana Signature Network, Hyatt Residence Club or other vacation ownership, exchange and rental businesses, provide cross‑selling opportunities, or otherwise enhance or complement existing operations and strategy. Potential areas of focus include adding vacation ownership resorts in urban and other large markets where we can obtain enhanced marketing distribution and opportunities to diversify the membership and exchange business offerings outside the traditional shared ownership space.

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Continue to expand internationally

We intend to leverage our global operations to continue to grow in international markets. We have significant experience operating internationally through Interval International which today has offices in 15 countries and member resorts in more than 80 nations, and our VRI Europe vacation ownership management joint venture which manages resorts across four European countries.  We also manage resorts in Mexico and the Caribbean. Our international operations enable us to have a more diversified portfolio, broader expertise and global business relationships to foster future growth, including further expansion of the Hyatt, Sheraton and Westin brands in vacation ownership.

Maintain an efficient balance sheet

We expect to maintain a prudent level of debt to help ensure access to capital commensurate with our operating needs and growth profile. We intend to meet our liquidity needs through operating cash flow, credit facilities and continued access to the asset-backed financing market. We believe that as a result of our balance sheet strength, and the significant contribution from recurring revenues, we are well-positioned to fund our growth plans and take advantage of strategic acquisition opportunities. Further, we intend to regularly review capital efficient opportunities, balancing our capital structure strategy with stockholder returns.

International Operations

We conduct operations through offices in the U.S. and 14 other countries. For the year ended December 31, 2017, revenue is sourced from over 100 countries worldwide. Other than the United States, no revenue sourced from any individual country or geographic region exceeded 10% of consolidated revenue for the years ended December 31, 2017, 2016 and 2015.

Geographic information on revenue, based on sourcing, and long‑lived assets, based on physical location, is presented in the table below (in millions). Amounts in the proceeding table representing revenue sourced from the United States versus all other countries for years ended December 31, 2017, 2016 and 2015.

	Year Ended December 31,
	2017		2016		2015
Revenue
United States	$	1,513	$	1,153	$	577
All other countries(a)		273		203		120
Total	$	1,786	$	1,356	$	697

(a) Includes countries within the following continents: Africa, Asia, Australia, Europe, North America and South America

	December 31,
	2017		2016
Long-lived assets, net (excluding goodwill and other intangible assets)
United States	$	486	$	469
Mexico		126		107
Europe		4		4
Total	$	616	$	580

Competition

Vacation Ownership

Our vacation ownership business competes with other branded and independent vacation ownership developers for sales of VOIs based principally on location, quality of accommodations, price, financing terms, quality of service, terms of property use, opportunity for vacation ownership owners to exchange into time at other vacation ownership properties or other program benefits as well as brand name recognition and reputation. We also compete for talent, marketing channels and new projects. Principal competitors of Vistana and HVO in the sale of vacation ownership products include Diamond Resorts, Disney Vacation Club, Hilton Grand Vacations Club, Marriott Vacation Club

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Worldwide, and Wyndham Vacation Ownership. A number of the competitors in this business are larger with greater resources, distribution platforms, sales capabilities and access to capital for new projects than our business. Our ability to attract and retain purchasers of VOIs depends on our success in distinguishing the quality and value of our vacation ownership offerings from those offered by others.

The vacation ownership management businesses face competition from other management companies, developers and clubs. The principal competitive factors in VRI and TPI attracting HOAs and vacation property owners are the ability to provide comprehensive management services at competitive prices and increasingly the ability to assist in the sale of defaulted inventory. In addition, there are low barriers to entry for new competitors.

Exchange and Rental

Our main vacation exchange business, Interval International, principally competes for developer and consumer market share with RCI. TPI and several third parties operate in this industry with a significantly more limited scope of available accommodations. This business also faces increasing competition from points‑based vacation clubs and large resort developers, which operate their own internal exchange systems to facilitate exchanges for owners of VOIs at their resorts as they increase in size and scope. Increased consolidation in the industry enhances this competition. In addition, vacation clubs and resort developers may have direct exchange relationships with other developers.

We believe that developers and HOAs generally choose to affiliate with an exchange network based on:

•the quality of resorts participating in the network;

•the level of service provided to members;

•the range and level of support services;

•the flexibility of the exchange program;

•the demographics of the membership base;

•the costs for annual membership and exchanges; and

•the continuity of management and its strategic relationships within the industry.

Based on the most recent disclosure statements filed by RCI and Interval for the year ended December 31, 2016, RCI had approximately 3.8 million vacation exchange members and its network for vacation ownership included a total of approximately 4,300 resorts while the Interval Network, at that date, had approximately 1.8 million members and included approximately 3,000 resorts.

While overall, RCI has a greater number of resorts in its exchange network and reports a larger number of owners of VOIs participating in its vacation ownership membership programs, we believe that the Interval Network has distinguished itself as the membership and exchange provider for developers of high quality vacation ownership properties and their owners. This belief is based primarily on the quality of the resorts in the Interval Network and related services provided by these resorts, coupled with favorable membership demographics and a continued commitment to attract distinctive resorts to the network and foster memorable vacation experiences for its members.

We also compete with hotels and other leisure accommodations providers for vacationers on the basis of our range of available accommodations, price, locations, and amenities. In addition, we compete with alternative lodging marketplaces such as Airbnb and HomeAway, which operate websites that market available furnished, privately‑owned

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residential properties, including homes and condominiums, in locations throughout the world, which can be rented on a nightly, weekly or monthly basis.

Seasonality

Revenue at ILG is influenced by the seasonal nature of travel. Within our Vacation Ownership segment, our sales and financing business experiences a modest impact from seasonality, with higher sales volumes during the traditional vacation periods. Our vacation ownership management businesses by and large do not experience significant seasonality, with the exception of our resort operations revenue which tends to be higher in the first quarter.

Within our Exchange and Rental segment, our vacation exchange businesses generally recognize exchange and Getaway revenue based on confirmation of the vacation, with the first quarter generally experiencing higher revenue and the fourth quarter generally experiencing lower revenue. Remaining rental revenue is based on occupancy. For the vacation rental business, the first and third quarters generally generate higher revenue as a result of increased leisure travel to our Hawaii‑based managed properties during these periods, and the second and fourth quarters generally generate lower revenue.

Employees

As of December 31, 2017, ILG had approximately 11,600 employees worldwide. With the exception of employees at one property in Hawaii, one property in California, one property in Puerto Rico and employees in Argentina, Brazil, Italy, Mexico and Spain, employees are not represented by unions or collective bargaining agreements. ILG believes that relationships with its employees are generally good.

Intellectual Property

In addition to the license agreements with Starwood and Hyatt described above, we have a broad intellectual property portfolio, including service marks, trademarks and domain names, copyrights, trade secrets and similar intellectual property (as applicable), which we view as critical to our success. Our businesses also rely heavily upon proprietary software, informational databases and other components that make up their products and services. We rely on a combination of laws and contractual restrictions with employees, customers, suppliers, affiliates and others to establish and protect these proprietary rights. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use trade secret or copyrighted intellectual property without authorization which, if discovered, might require legal action to correct. In addition, third parties may independently and lawfully develop substantially similar intellectual properties.

We have generally registered and continue to apply to register, or secure by contract when appropriate, our trademarks and service marks as they are developed and used, and reserve and register domain names as we deem appropriate. We generally consider the protection of our trademarks to be important for purposes of brand maintenance and reputation. While we protect our trademarks, service marks and domain names, effective trademark protection may not be available or may not be sought in every country in which products and services are made available, and contractual disputes may affect the use of marks governed by private contract.

Government Regulation

Our businesses are subject to and affected by international, federal, state and local laws, regulations and policies, which are subject to change. The descriptions of the laws, regulations and policies that follow are summaries of those which we believe to be most relevant to our business and do not purport to cover all of the laws, regulations and

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policies that affect our businesses. We believe that we are in material compliance with these laws, regulations and policies.

Regulations Generally Applicable to Our Business

Anti-corruption.  Our business is subject to anti-discrimination, anti-fraud, and anti-corruption and bribery laws and regulations or government economic sanctions, including applicable regulations of the Consumer Financial Protection Bureau, the U.S. Department of the Treasury’s Office of Foreign Asset Control and the U.S. Foreign Corrupt Practices Act (“FCPA”). The FCPA and similar anti-corruption and bribery laws in other jurisdictions, such as the U.K. Bribery Act, generally prohibit companies and their intermediaries from making improper payments to government officials and others for the purpose of obtaining or generating business.

Privacy and Data Collection.  The collection and use of personal data of our customers, as well as the sharing of our customer data with affiliates and third parties, are governed by privacy laws and regulations enacted in the United States, Europe, Mexico and in other jurisdictions around the world. For instance, a number of jurisdictions require compliance with standards for data collection and protection of privacy as well as requirements regarding the disclosure of data policies and restrictions of use of data without the prescribed manner of consent. In some instances, penalties apply for failure to notify customers when the security of a company’s electronic/computer systems designed to protect such standards are breached. In the EU, the 2016 General Data Protection Regulation (“GDPR”) introduces new rights and enhances rights provided to consumers, employees and vendors under prior privacy laws, including information, data access, processing restrictions, breach notification and data portability rights. The GDPR also places greater emphasis on the documentation that businesses must keep. Our businesses are currently reviewing policies and procedures to demonstrate compliance by the May 25, 2018 deadline.

Marketing Operations.  The products and services offered by our various businesses are marketed through a number of distribution channels, each of which is regulated at the federal and state level. Such regulations may limit our ability to solicit new customers or to market additional products or services to existing customers. For example, to comply with state and federal regulations on telemarketing, our affected businesses have adopted processes to routinely identify and remove phone numbers listed on the various “do not call” registries from our calling lists and have instituted procedures for preventing unsolicited or otherwise unauthorized telemarketing calls. In addition, where appropriate, our business has registered as a telemarketer and has adopted calling practices compliant with requirements of the applicable jurisdiction, such as restrictions on the methods and timing of telemarketing calls and limitations on the percentage of abandoned calls generated through the use of automated telephone‑dialing equipment or software. Our business has taken steps to identify cellular telephone numbers to prevent them from being called through the use of automated dialers without consent.

Similarly, state and federal regulations may place limitations on our ability to engage our consumers in electronic mail marketing campaigns. Most notably, the CAN‑SPAM Act imposes various requirements on the transmission of e‑mail messages whose primary purpose is to advertise or promote a commercial product or service. Some foreign jurisdictions in which we operate have similar regulations. Our affected businesses have adopted e‑mail messaging practices responsive to the requirements of such regulations.

Travel regulations.  Certain travel products and services that we provide are subject to various federal, state and local regulations. We must comply with laws and regulations that relate to our marketing and sales of such products and services, including laws and regulations that prohibit unfair and deceptive advertising or practices, prize, gift and sweepstakes laws, and laws that require us to register as a “seller of travel” to comply with disclosure requirements. In addition, we are directly or indirectly affected by the regulation of our travel suppliers, many of which are heavily regulated by the United States and other jurisdictions.

Regulations Applicable to Vacation Ownership Sales and the Exchange Business

Our vacation ownership business is subject to laws and regulations that govern the development of vacation ownership properties and the sale of VOIs. Developers are generally required to register in the state where the vacation property is located as well as each state in which sales or certain types of marketing programs will be offered. The laws

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of most states require resort developers to file a detailed offering statement describing their business and all material aspects of the project and sale of VOIs with a designated state authority. Laws in many jurisdictions where VOIs are sold grant the purchaser of a VOI the right to cancel a contract of purchase at any time within a specified rescission period following the earlier of the date the contract was signed or the date the purchaser has received the last of the documents required to be provided. Our sales and marketing practices are subject to regulations implementing the USA PATRIOT Act, the Equal Credit Opportunity Act as well as various federal and state fair housing laws, while our financing operations are subject to the requirements of the Truth‑in‑Lending Act as well as the Real Estate Settlement Procedures Act (“RESPA”).

Certain jurisdictions regulate exchange services, generally requiring us to annually prepare and file disclosure guides in such jurisdictions. In the European Union, a Timeshare Directive has been implemented by member states. This directive imposes requirements on businesses offering timeshare exchange relating to disclosures, rescission and timing of acceptance of initial membership payment to the exchange provider. We have implemented compliance measures as national laws have been adopted by member states pursuant to this directive.

In addition, several jurisdictions in the future may enact regulations that would impose or increase taxes on members that complete exchanges, similar to local transient occupancy taxes.

Real Estate Development.    Our real estate development activities are regulated under a number of different timeshare, condominium and land sales disclosure statutes in many jurisdictions. We are generally subject to laws and regulations typically applicable to real estate development, subdivision, and construction activities. These include laws relating to zoning, land use restrictions, environmental regulation, accessibility, title transfers, title insurance and taxation. In the United States, these include the Fair Housing Act and the Americans with Disabilities Act. In addition, we are subject to laws in some jurisdictions that impose liability on property developers for construction defects discovered or repairs made by future owners of property developed by the developer.

Lending Regulation.    Our lending activities are subject to a number of laws and regulations. In the U.S., these include the Dodd‑Frank Act, the Federal Trade Commission Act, the Fair Housing Act, the Truth‑in‑Lending Act and Regulation Z promulgated thereunder, the Real Estate Settlement Procedures Act and Regulation X promulgated thereunder, the Home Mortgage Disclosure Act and Regulation C promulgated thereunder, the Equal Credit Opportunity Act and Regulation B promulgated thereunder, the Interstate Land Sales Full Disclosure Act, the Telephone Consumer Protection Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Gramm‑Leach‑Bliley Act, the Deceptive Mail Prevention and Enforcement Act, Section 501 of the Depository Institutions Deregulation and Monetary Control Act of 1980 and the Civil Rights Acts of 1964, 1968 and 1991. Our lending activities are also subject to the laws and regulations of other jurisdictions, including, among others, laws and regulations related to consumer loans, retail installment contracts, mortgage lending, fair debt collection practices, consumer collection practices, mortgage disclosure, lender licenses and money laundering.

Regulations Applicable to Resort Operations

A number of our businesses that manage operations of resorts are subject to, among others, laws and regulations that relate to health, safety and sanitation, the sale of alcoholic beverages, facility operation, access by disabled persons and fire safety. Applicable tourism regulations in Spain and the Canary Islands require that resorts managed by VRI Europe and its subsidiaries in those regions be registered in the Registry of Tourism. We believe that we are in material compliance with these laws and regulations as such are relevant to our business. These requirements are summarized below.

Health, Safety and Sanitation.  Lodging and restaurant businesses often require licensing by applicable authorities, and sometimes these licenses are obtainable only after the business passes health inspections to assure compliance with health and sanitation codes. Health inspections are performed on a recurring basis. Health‑related laws affect the food and beverage establishments. They also govern swimming pool use and operation and require the posting of notices, availability of certain rescue and other equipment and limitations on the number of persons allowed to use the

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pool at any time. These regulations typically impose civil fines or penalties for violations, which may lead to operating restrictions if uncorrected or in extreme cases of violations.

Sale of Alcoholic Beverages.  Alcoholic beverage service is subject to licensing and extensive regulations that govern virtually all aspects of service. Compliance with these regulations at managed locations may impose obligations on the owners of managed resorts, the property manager or both. Resort operations may be adversely affected by delays in transfers or issuances of alcoholic beverage licenses necessary for food and beverage services.

Facility Operation.  The operation of lodging facilities is subject to various innkeepers’ laws and laws regarding accessibility and use of public accommodations by disabled persons. Federal and state laws applicable to places of public accommodation prohibit discrimination in lodging services on the basis of the race, sex, color, religion, ancestry or disability of the guest and impose ongoing obligations with respect to accessibility. Hawaiian state law prohibits smoking in guest rooms and all enclosed areas.

Other.  Our businesses are subject to state and local regulation, including fire safety and applicable real estate brokerage and community association management licensing statutes.

Environmental Matters

The resorts that we manage and the assets at vacation ownership resorts and hotels that we own are all subject to certain requirements and potential liabilities under environmental laws. The costs of complying with these requirements are generally covered by the HOAs that operate the affected resort property and are our responsibility for assets owned by us. Generally, our properties currently maintain insurance which may respond to first-party remediation and emergency response costs, and third-party defense and indemnity costs associated with such potential environmental liabilities. To the extent that we own VOIs in a particular resort, we would be responsible for our pro rata share of losses sustained by such resort as a result of a violation of any such laws and regulations. Furthermore, there is no guarantee that we will maintain such insurance in the future.

Under such laws in the U.S. and certain other jurisdictions, the owners of the resorts could be held liable for the costs of removing or cleaning up hazardous or toxic substances at, on, under, or in our currently or formerly owned or operated properties. Such laws may impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. The presence of hazardous or toxic substances may adversely affect the owner’s ability to sell or rent such real property or to borrow using such real property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic wastes may be liable for the costs of removal or remediation of such wastes at the treatment, storage or disposal facility, regardless of whether such facility is owned or operated by such person. We may use certain substances and generate certain wastes that may be deemed hazardous or toxic under applicable environmental laws, and we may in the future incur costs related to cleaning up contamination resulting from historical uses of certain of our current or former properties or our treatment, storage or disposal of wastes at facilities owned by others.

Certain jurisdictions are considering or have undertaken actions to regulate and reduce greenhouse gas emissions and/or other natural resources. New or revised laws and regulations or new interpretations of existing laws and regulations, such as those related to climate change, supply chain and water risk, could affect the operation of our properties and/or result in significant additional expense and operating restrictions. The cost impact of such legislation, regulation, or new interpretations would depend upon the specific requirements enacted and cannot be determined at this time.

Environmental laws are not the only source of environmental liability. Under common law, owners and operators of real property may face liability for personal injury or property damage because of various environmental conditions such as alleged exposure to hazardous or toxic substances, poor indoor air quality, radon or poor drinking water quality. Although we may incur remediation liability and various environmental-related costs during the ordinary course of operations, management does not anticipate that such costs will have a material adverse effect on our operations or financial condition.

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Internet Address and SEC Filings

Our Internet address is www.ilg.com. On our Web site, we provide a link to our electronic SEC filings, including our annual report on Form 10‑K, our quarterly reports on Form 10‑Q, our current reports on Form 8‑K and any amendments to these reports. All such filings are available free of charge and are available as soon as reasonably practicable after filing.

Item 1A.  Risk Factors.

Adverse Events and Trends—Adverse events and trends in the vacation ownership, vacation rental and travel industries could adversely affect our business, financial condition and results of operations.

The success of ILG and our businesses depends, in substantial part, upon the health of the worldwide vacation ownership, vacation rental and travel industries. Travel expenditures are sensitive to business and personal discretionary spending levels and tend to decline during general economic downturns. Economic conditions may cause decreased interest in purchases of VOIs, may increase default rates among current owners, and may increase refund requests from our members. Members and other consumers may be unable or unwilling to travel to certain destinations where vacation ownership resorts and vacation rental properties are located based on one or more of the following factors:

•inclement weather,

•natural or manmade disasters, such as earthquakes, tornados, hurricanes, fires, floods, volcanic eruptions, drought, tsunamis, radiation releases and oil spills,

•epidemics, pandemics or other health concerns,

•terrorism, regional violence, geopolitical conflicts, enhanced travel security measures and/or travel restrictions,

•price increases for travel related services,

•financial instability of the airline industry and associated air carrier bankruptcies,

•decreased airlift to relevant markets,

•job actions and strikes, and

•increased costs of transportation including in the event of increased fuel prices.

The occurrence of any of these factors could result in a decrease and/or delay in demand for travel to our managed hotels and resorts and for exchanges and Getaways to, and purchases of, VOIs in affected regions. This decrease and/or delay in demand, depending on its scope and duration, could adversely affect our business and financial performance. Similarly, these factors could result in a decrease in the number of resort accommodations or vacation rentals available for use in our external exchange programs or as vacation rentals. For example, Hurricanes Irma and Maria have caused the Westin St. John Resort Villas; the Hyatt Residence Club Dorado, Hacienda del Mar and a number of other Interval Network resorts on affected islands to remain closed for a prolonged period. The matters described above could result in a decrease in the number of Interval Network members and could have a material adverse effect on the vacation ownership and vacation rental industries, which in turn could have a material adverse effect on our business, financial condition and results of operations.

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Availability of Financing and Developer Insolvency—Lack of available financing for vacation property developers and the resultant potential for insolvency and bankruptcy of developers could adversely affect our business, financial condition and results of operations.

Vacation ownership property developers, including HVO and Vistana, and resellers rely on the credit markets for receivables financing used to fund their sales and marketing efforts and for financing new development. If receivables financing, vacation ownership asset backed securitizations, or financing for development of resorts is unavailable or is only available on unacceptable terms, developers, including Vistana and HVO, may scale back or even cease operations, including sales and marketing efforts and development of resorts. In addition to adversely affecting HVO and Vistana, a slowdown in sales of VOIs decreases the sources of new members for our exchange networks, and developers may seek to extend or adjust payment terms with us.

Inability to obtain financing on acceptable terms, or at all, previously caused and may in the future cause insolvency of developers whose resorts are in our exchange networks, which in turn could reduce or stop the flow of new members from their resorts and also could adversely affect the operations and desirability of exchange with those resorts if the developer’s insolvency impacts the management of the resorts. In some cases a developer in bankruptcy could terminate its existing relationship with us. Insolvency of one or more developers that in the aggregate have significant obligations owed to us could cause impairments to certain receivables and assets which could have an adverse effect on our results of operations.

Insolvency of a number of vacation ownership properties managed by us, particularly several of our largest managed properties, could adversely affect the Vacation Ownership segment’s business, financial condition and results of operations.

Competition—The industries in which our businesses operate are highly competitive and these businesses are subject to risks relating to competition that may adversely affect our performance.

Our businesses will be adversely impacted if they cannot compete effectively in their respective industries, each of which is highly competitive. Some of our competitors have significantly greater financial, marketing and other resources than we have. Our Vacation Ownership business competes with other vacation ownership developers for sales of VOIs based principally on location, quality of accommodations, price, financing terms, quality of service, terms of property use, opportunity for vacation ownership owners to exchange into time at other vacation ownership properties or other program benefits as well as brand name recognition and reputation. A number of our competitors are significantly larger with greater access to capital resources and broader sales, marketing and distribution capabilities than we have. We also compete with other timeshare management companies on the basis of quality and types of services offered, price and relationship. Our ability to attract and retain purchasers of VOIs and management services depends on our success in distinguishing the quality and value of our vacation ownership offerings from those offered by others. If we are unable to do so, our ability to compete effectively for sales of vacation ownership interests and management contracts could be adversely affected.

In the case of the Interval Network, its primary competitor, RCI, is larger. Through the resources of its corporate affiliates, particularly, Wyndham Vacation Ownership, Inc., itself engaged in vacation ownership sales, RCI may have greater access to a significant segment of new vacation ownership purchasers and a broader platform for participating in industry consolidation. Our business also competes for leisure travelers with other leisure lodging operators, including both independent and branded properties as well as with alternative lodging marketplaces such as Airbnb and HomeAway, which operate websites that market available furnished, privately‑owned residential properties in locations throughout the world, including homes and condominiums, that can be rented on a nightly, weekly or monthly basis. Competitive pressures may cause us to reduce our fee structure or potentially modify our business models, which could adversely affect our business, financial condition and results of operations.

We believe that developers will continue to create, operate and expand internal exchange and vacation club systems, which decreases their reliance on external vacation ownership exchange programs, including those offered by us, and adversely impacts the supply of resort accommodations available through our external exchange networks. The effects on our business are more pronounced as the proportion of vacation club corporate members in the Interval

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Network increases. The vacation ownership industry has and is expected to continue to experience consolidation through the acquisition of vacation ownership developers by other developers, which may result in the diversion of exchange membership and other business.

Consolidation of Developers—Consolidation of developers could adversely affect our business, financial condition and results of operations

The industry has been in a period of consolidation, which is expected to continue. When developers that have affiliation agreements with the Interval Network are acquired, they may choose not to renew at the end of the current term or may only continue on terms less favorable to ILG than the existing agreements. If we are unable to obtain or retain business relationships with the resultant resort developers on as favorable terms, our results of operations may be materially adversely affected. Consolidation can also lead to larger competitors with greater resources that compete with our vacation ownership sales and marketing business for customers, projects and talent.

Inventory—Insufficient availability of inventory may adversely affect our profits.

If we fail to develop vacation ownership properties, expand existing properties or enter into agreements with third‑party developers, we may experience a decline in VOI inventory available to be sold by us, which could result in a decrease in our revenues. In addition, a decline in VOI inventory could result in both a decrease of financing revenues that are generated from purchasers of VOIs and fee revenues that are generated by providing club, management, sales and marketing services.

Additionally, our exchange networks’ transaction levels are influenced by the supply of inventory in the system and the demand for such available inventory. The availability of exchange inventory in the Interval Network is dependent on it being deposited into the system, directly by a member in support of a current or future exchange request or by a developer on behalf of its owners to support their anticipated exchanges.

A number of factors may impact the supply and demand of inventory. For example, economic conditions may negatively impact our members’ desire to travel, often resulting in an increase in the number of deposits made as a means of preserving the inventory’s value for exchange at a later date when the member is ready to travel, while reducing the demand for inventory which is then available for exchange. Also, destination‑specific factors such as regional health and safety concerns, the occurrence or threat of natural disasters and weather may decrease our members’ desire to travel or exchange to a given destination, resulting in an increased supply of, but a decreased demand for, inventory from this destination. Also, inventory may not be as available to the Interval system because owners are choosing to travel to their home resort/vacation club system or otherwise not depositing with the Interval Network. In these instances, the demand for exchange and Getaway inventory may be greater than the inventory available. The supply of available inventory may also be affected by the occurrence of natural disasters, such as floods, earthquakes or hurricanes. Where the supply and demand of inventory do not keep pace, transactions may decrease or we may elect to purchase additional inventory to fulfill the demand, which could negatively affect our profits and margin.

Licensing—The exclusive licenses for the Westin and Sheraton and/or Hyattbrands, in connection with our vacation ownership business could be terminated.

If Vistana defaults as specified in its license agreement with Starwood, Vistana could lose its exclusive right to use the Westin and Sheraton brands in connection with the Vistana business and its exclusive right to use specified St. Regis and The Luxury Collection marks in connection with existing fractional properties that are part of the Vistana business. The loss of this right, along with the right to use Starwood’s marketing channels and other centralized services, including the Starwood Preferred Guest loyalty program, could result in the reduction of revenue and profits derived from the Vistana business. In addition, the Starwood Preferred Guest Affiliation Agreement would terminate upon termination of the license agreement and Vistana would not be able to offer SPG Starpoints or points for a successor program to vacation property owners and potential owners, which would impair the marketability of these properties and Vistana’s ability to sell its products and reduce the flexibility and options available in connection with its products.

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If we default as specified in the Master License Agreement, dated October 1, 2014, with Hyatt Franchising, L.L.C., we could lose our exclusive right to use the Hyatt brand in the vacation ownership business. The loss of this right along with the right to use Hyatt’s marketing channels, including its existing hotel loyalty program, could result in the reduction of revenue and profits derived from our vacation ownership business. In addition, the World of Hyatt Participation Agreement would also terminate upon termination of the Master License Agreement, and we would not be able to offer World of Hyatt points to owners and potential owners, which could impair our ability to sell our products and reduce the flexibility and options available in connection with our products.

The termination of the either license agreement, SPG Affiliation Agreement or the World of Hyatt Participation Agreement, could materially harm our business and results of operations and impair our ability to market and sell our products and maintain our competitive position, and could have a material adverse effect on our financial position, results of operations or cash flows. For example, we would not be able to rely on the strength of the Hyatt, Sheraton and Westin brands to attract qualified prospects in the marketplace, which could cause our revenue and profits to decline and our marketing and sales expenses to increase.

Westin, Sheraton, St. Regis and The Luxury Collection Brands and SPG Program—The Vistana business depends on the quality and reputation of the Westin, Sheraton, St. Regis and The Luxury Collection Brands and affiliation with the SPG Program, and any deterioration in the quality or reputation of the Westin, Sheraton St. Regis and The Luxury Collection Brands or the SPG Program could following the acquisition adversely affect ILG’s market share, reputation, business, financial condition or results of operations.

The Vistana business offers vacation ownership products under the Westin, Sheraton, St. Regis and The Luxury Collection brand names and affiliation with the Starwood Preferred Guest Program, which we refer to as the SPG Program, and intends to continue to offer products and services under the Westin, Sheraton, St. Regis and The Luxury Collection brands in the future. If the quality of the Westin, Sheraton, St. Regis or The Luxury Collection brands or the SPG Program deteriorate, or the reputation of the Westin, Sheraton, St. Regis or The Luxury Collection brands or the SPG Program decline, Vistana’s market share, reputation, business, financial condition or results of operations could be materially adversely affected. Additionally, following Marriott International’s acquisition of Starwood in late 2016, the positioning and offerings of these licensed brands and/or the related programs, such as the value proposition provided by the SPG Program or a successor program, could change in a manner that adversely affects our business. Any uncertainty regarding the future state could affect the licensed marks and the offerings of Starwood’s brands and programs, thus negatively impacting the business, financial conditions or results of operations of ILG.

Hyatt Brand—The Hyatt Vacation Ownership business depends on the quality and reputation of the Hyatt brand and affiliation with the World of Hyatt program, and any deterioration in the quality or reputation of the Hyatt brand or the World of Hyatt program could adversely affect our market share, reputation, business, financial condition and results of operations.

We offer vacation ownership products under the Hyatt brand name and affiliation with World of Hyatt program, and we intend to continue to develop and offer products and services under the Hyatt brand in the future. If the quality of the Hyatt brand or World of Hyatt program deteriorates, or the reputation of the Hyatt brand or World of Hyatt program declines, our market share, reputation, business, financial condition and results of operations could be materially adversely affected. Additionally, the positioning and offerings of these Hyatt brand and/or the related programs, such as the value proposition provided by World of Hyatt or a successor program, could change in a manner that adversely affects our business.

Approvals for Expansion—Our ability to expand our vacation ownership business and remain competitive could be harmed if Starwood or Hyatt does not consent to our use of their trademarks at new resorts we acquire, develop or propose to franchise in the future.

Under the terms of our master license agreements, we must obtain Starwood’s approval to use Westin and Sheraton brands and Hyatt’s approval, to use the Hyatt brand, in each case in connection with vacation ownership projects we acquire, develop or propose to franchise in the future. Starwood or Hyatt may reject a proposed project if, among other things, the project does not meet applicable brand standards or is reasonably likely to breach applicable

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contractual or legal restrictions. If Starwood or Hyatt does not permit us to use the brand in connection with our development or acquisition plans, our ability to expand our business and remain competitive may be materially adversely affected. The requirement to obtain consent to our expansion plans, or the need to identify and secure alternative expansion opportunities if we do not obtain approval, may delay implementation of our expansion plans and cause us to incur additional expense.

Maintenance of Brand Standards—The maintenance and refurbishment of Vistana-managed and Hyatt Residence Club properties in accordance with applicable brand standards depends on maintenance fees paid by the owners of VOIs.

Owners of VOIs at Vistana and Hyatt Residence Club resorts must pay maintenance fees levied by HOA boards. These maintenance fees are used to maintain and refurbish the vacation ownership properties and to keep the properties in compliance with applicable brand standards. If HOA boards do not levy sufficient maintenance fees or special assessments, or if owners of VOIs do not pay these fees, not only would our management fee revenue be adversely affected, but the vacation ownership properties could fail to comply with applicable brand standards. However, if the maintenance fees at resorts where we are in active sales increase significantly, it could make sales of VOIs less attractive. If any vacation ownership property fails to comply with the brand standards, Starwood or Hyatt could terminate our rights under the applicable license agreement to use its trademarks at such noncompliant property, which could result in the loss of management fees, decrease customer satisfaction and impair our ability to market and sell our products at the non‑compliant locations.

Development Risks—Timing, budgeting and other risks could result in delays or cancellations of our efforts to develop the vacation ownership projects that we undertake, or make these activities more expensive, which could reduce our profits or impair our ability to compete effectively.

We plan to selectively undertake construction of vacation ownership developments which may span multiple phases and often take years to complete. These efforts are subject to a number of risks, including:

•construction delays or cost overruns (including labor, materials or failure by third party contractors to perform) that may increase project costs;

•obtaining zoning, occupancy and other required permits or authorizations;

•changes in economic conditions that may result in weakened or lack of demand or negative project returns;

•governmental restrictions on the size or kind of development;

•force majeure events, including earthquakes, tornados, hurricanes, floods, volcanic eruptions, fires, droughts, oil spills, radiation spills or tsunamis; and

•design defects that could increase costs, or any defects in title.

Additionally, developing new properties often involves lengthy development periods during which significant amounts of capital must be funded before sales proceeds are available to defray costs. If the cost of funding new development exceeds budgeted amounts, and/or the time period for development is longer than initially anticipated, our profits could be reduced. Further, due to the lengthy development cycle, adverse economic conditions may alter or impede our development plans, thereby resulting in incremental costs to us or potential impairment charges.

Deflagging of Co-located Facility—If a branded hotel property with which one of our branded vacation ownership resorts is co-located ceases to be affiliated with the same brand as our resort or a related brand, our business could be harmed.

If a branded hotel property with which one of our branded vacation ownership resorts is co-located ceases to be affiliated with the same brand as our resort, we could lose the benefits derived from co-location of our resorts, such as the sharing of amenities, infrastructure and staff, integration of services, and other cost efficiencies. Our owners could

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lose access to the more varied and elaborate amenities that are generally available at the larger campus of an integrated vacation ownership and hotel resort. We expect our overhead and operating costs for such resort may also increase. We could also lose our on-site access to hotel customers, including brand loyalty program members, at such resorts, which is a cost-effective marketing channel for our vacation ownership products, and our sales may decline.

Third Party Relationships—We depend on relationships with developers, members and other vacation property owners and any adverse changes in these relationships could adversely affect our business, financial condition and results of operations.

Our Interval Network business is dependent upon vacation ownership developers for new members and upon members and participants to renew their existing memberships and otherwise engage in transactions. Developers and members also supply resort accommodations for use in exchanges and Getaways. Our vacation rental business is dependent upon vacation property and hotel owners for vacation properties to rent to vacationers. The Interval Network has established relationships with numerous developers pursuant to exclusive multi‑year affiliation agreements and we believe that relationships with these entities are generally strong, but these historical relationships may not continue in the future. During each year, the affiliation agreements for several of the Interval Network’s new member‑producing developers are scheduled to renew. The non‑renewal of an affiliation agreement will adversely affect our ability to secure new members for our programs from the non‑renewing resort or developer, and will result in the loss of existing Interval Network members (and their vacation interests) at the end of their current membership to the extent that we do not secure membership renewals directly from such members. For corporate member relationships, this has a greater effect.

In addition, we may be unable to negotiate new affiliation agreements with resort developers or secure renewals with existing members in our exchange programs, and our failure to do so would result in decreases in the number of new and/or existing members, the supply of resort accommodations available through our exchange networks and related revenue. The loss or renegotiation on less favorable terms of several of our largest affiliation agreements could materially impact our, financial condition and results of operations.

If we are unable to obtain sufficient renewals of affiliations with resorts and memberships with consumers or to enter into new affiliation agreements, this could have a material adverse effect on our business, financial condition and results of operations. Our ability to maintain existing or negotiate new affiliation agreements on terms as favorable as currently in place may be adversely impacted by the continued creation and operation of internal reservation and exchange networks by developers and vacation clubs, as well as by consolidation in the vacation ownership industry. This could materially adversely affect our business, financial condition and results of operations.

Similarly, the failure of our businesses to maintain existing or negotiate new rental services arrangements and related management agreements with hotel and vacation property owners, as a result of the sale of property to third parties, contract dispute or otherwise, or the failure of vacationers to book vacation rentals through these businesses would result in a decrease in related revenue, which would have an adverse effect on our business, financial condition and results of operations.

We may be unable to obtain and maintain management agreements with the HOAs or other parties that control management of vacation ownership resorts. The loss of several of our largest vacation ownership management agreements could materially impact the business, financial condition and results of operations of our business.

Vacation Rental Revenue—Our success is dependent, in part, on revenue from vacation rentals and, if consumer demand for vacation rentals falls materially below historic levels, our business, financial condition and results of operations could be adversely affected.

General economic conditions can negatively affect demand for our rentals of vacation accommodations to our members, owners and other vacationers, leading us to decrease pricing and resulting in reduced revenue from vacation rentals. We actively seek to provide vacation rental services to resorts participating in our exchange networks and rent units for developers and associations that are managed by Aqua-Aston, Vistana, TPI and VRI or are part of the Hyatt Residence Club. Any material or prolonged decrease in demand and/or pricing for vacation rentals would further impact our revenue and, if materially below historical levels, could have a material adverse effect on our business, financial

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condition and results of operations. Failure of our vacation rental business to secure a sufficient number of vacationers for accommodations we offer could also result in increased obligations under guaranteed dollar amount or specified percentage provisions of certain hotel and resort management agreements and, ultimately, could affect our ability to obtain and maintain rental management agreements with vacation property owners.

Marketing of VOIs—The future growth of our vacation ownership business depends on our ability to market VOIs successfully and efficiently.

We compete for customers with hotel and resort properties and with other vacation ownership resorts and other vacation options such as cruises. The identification of prospective purchasers, and the marketing of our products to them, are essential to our success. We incur significant expenses associated with marketing programs in advance of closing sales. If our marketing efforts are not successful and we are unable to convert prospects to a sufficient number of sales, we may be unable to recover the expense of our marketing programs and grow our business.

Secondary Market—The sale of VOIs in the secondary market by existing owners could cause our sales revenues and profits to decline.

There is not currently an active, organized or liquid resale market for VOIs, and resale of VOIs generally are made at sales prices substantially below their original customer purchase prices. Existing owners have offered, and are expected to continue to offer, their VOIs for sale on the secondary market. As a result, these sales create additional pricing pressure on our sale of VOIs, which could cause our sales revenues and profits to decline. In addition, if the secondary market for VOIs becomes more organized or financing for such resales becomes more available, our ability to sell VOIs could be adversely impacted and/or the resulting availability of VOIs (particularly where the VOIs are available for sale at lower prices than the prices at which we would sell them) could cause the volume of vacation ownership inventory that we are able to repurchase to decline, which could adversely affect our sales revenues. Further, unlawful or deceptive third‑party VOI resale schemes involving VOIs in our resorts could damage our reputation and brand value or impact our ability to collect management fees, which may adversely impact its sales revenues and results of operations.

Receivable Portfolio Metrics—If the default rates or other credit metrics underlying our vacation ownership notes receivable deteriorate, our portfolio performance and vacation ownership notes receivable securitization program could be adversely affected.

Our vacation ownership notes receivable portfolio performance and securitization program could be adversely affected if a particular vacation ownership notes receivable pool fails to meet certain ratios, which could occur if the default rates or other credit metrics of the underlying vacation ownership notes receivable deteriorate. In addition, if we offer loans to our customers with terms longer than those generally offered in the industry, our ability to securitize those loans may be adversely impacted. Our ability to sell securities backed by our vacation ownership notes receivable depends on the continued ability and willingness of capital market participants to invest in such securities. Asset-backed securities issued in our securitization programs could be downgraded by credit agencies in the future. If a downgrade occurs, our ability to complete other securitization transactions on acceptable terms or at all could be jeopardized, and we could be forced to rely on other potentially more expensive and less attractive funding sources, to the extent available. Similarly, if other operators of vacation ownership products were to experience significant financial difficulties, or if the vacation ownership industry as a whole were to contract, we could experience difficulty in securing funding on acceptable terms. The occurrence of any of the foregoing would decrease our profitability and might require us to adjust our business operations, including by reducing or suspending our provision of financing to purchasers of VOIs. Sales of VOIs may materially decline if we reduce or suspend the provision of financing to purchasers, which would adversely and materially affect our cash flows, revenues and profits.

Debt—We have debt and interest payment obligations that may restrict our future operations and impair our ability to meet our obligations.

We and our consolidated subsidiaries have indebtedness and, as a result, debt service obligations. As of December 31, 2017, we had $570 million of total indebtedness outstanding (excluding securitizations) and $366 million (net of any outstanding letters of credit) available for future borrowings as secured indebtedness under the credit facility.

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Our level of debt and these demands on our cash resources could have material consequences to our business, including, but not limited to:

•making it more difficult for us to satisfy our financial obligations;

•limiting our ability to obtain additional financing on satisfactory terms to fund our working capital requirements, capital expenditures, research and development efforts, acquisitions, investments and other general corporate obligations;

•reducing the availability of our cash flow to fund our working capital requirements, capital expenditures, inventory acquisition, research and development, acquisitions, investments and other general corporate requirements because we will be required to use a portion of our cash flow to service our debt obligations;

•increasing our vulnerability to general economic downturns and adverse competitive and industry conditions;

•increasing our exposure to interest rate increases because a portion of our borrowings is and will be at variable interest rates;

•limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we compete; and

•placing us at a competitive disadvantage to competitors that have less debt.

Although the terms of the credit facility and the indenture governing the senior notes contain, restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of important exceptions, and indebtedness incurred in compliance with these exceptions could be substantial. To the extent we incur additional indebtedness, the risks discussed above will increase.

Ability to refinance debt—We may not be able to refinance our debt on acceptable terms.

If we are unable to meet our debt obligations or to fund our other liquidity needs, we may need to restructure or refinance our indebtedness. Our ability to refinance our indebtedness or obtain additional financing, including securitizations, will depend on, among other things:

•our financial condition at the time;

•restrictions in agreements governing our indebtedness, including the indenture governing the senior notes and the credit agreement governing the credit facility; and

•other factors, including financial market or industry conditions.

Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. As a result, it may be difficult for us to obtain financing on terms that are acceptable to us, or at all. Without this financing, we could be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness, including the notes. The terms of the credit facility and the indenture governing the senior notes limit our ability to sell assets and also restrict the use of proceeds from such a sale. Moreover, substantially all of our domestic assets have been pledged to secure repayment of our indebtedness under the credit facility. In addition, we may not be able to sell assets quickly enough or for sufficient amounts to enable us to meet our obligations, including our obligations on the notes.

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Volatility in Credit Markets—Volatility in the credit markets may adversely impact our ability to finance the loans that our vacation ownership business generates.

Our vacation ownership business provides financing to purchasers of our VOIs, and we securitize these loans and use other third party lender receivables financing. Volatility in the credit markets may impact the timing and volume of the timeshare loans that we are able to securitize or finance which could adversely affect our sales and liquidity.

Adverse Events and Trends in Key Vacation Destinations—Events and trends in key vacation destinations could adversely affect our business, financial condition and results of operations.

Our businesses have certain concentrations in key vacation destinations, for instance:

· a substantial percentage of our VOIs available for sale are located in Hawaii, Florida and Mexico,

· a large percentage of the vacation ownership resorts currently participating in Interval’s exchange networks are located in Florida, Hawaii, Las Vegas, Mexico and Southern California,

· most of vacation properties for which Aqua-Aston provides rental services are located in Hawaii,

· and a significant portion of our European management revenue derives from Costa del Sol, Spain and Tenerife, Canary Islands.

Approximately $780 million, $529 million, and $232 million, of 2017, 2016, and 2015 revenue, respectively, which excludes the pass‑through revenue, was generated from travel to properties in these key vacation destinations as well as hotel, resort and HOA management services and sales and financing activities related to these locations. As a result, our ongoing ability to successfully process exchange vacations for members, as well as our ability to find purchasers and vacationers for accommodations marketed or managed by us, is largely dependent on the continued desirability of these areas as key vacation destinations. Any significant shift in travel demand for one or more of these key destinations or any adverse impact on transportation to them, such as decreased airlift, natural disasters, regional violence, terrorism, issuance of travel warnings, pandemics or increased travel costs, could have a material adverse effect on our business, financial condition and results of operations.

In addition, the same events that affect demand to one or more of these key destinations could significantly reduce the number of accommodations available for exchanges, Getaways or rental to vacationers, as well as the need for vacation rental and property management services generally. Accordingly, any such event could have a material adverse effect on our business, financial condition and results of operations, the impact of which could be prolonged. Similarly, the effects of climate change may cause these locations to become less appealing to vacation owners as a result of temperature changes, more severe weather or changes to coastal areas which could adversely affect our business.

International Operations—We operate in a number of international markets, which exposes us to additional risks that could adversely affect our business, financial condition and results of operations.

Revenue from international operations for the years ended December 31, 2017, 2016 and 2015 was $273 million, $203 million and $120 million, respectively. We continue to seek to invest in various international markets and own four resorts in Mexico.

In order to achieve widespread acceptance in international markets, we must continue to successfully tailor our services to the unique customs and cultures of relevant countries and markets. Learning the customs and cultures of various countries and markets can be difficult and costly, and the failure to do so could slow international growth. Operating in international markets also exposes us to additional risks, including, among others, compliance with applicable U.S. and foreign laws including economic sanctions, embargoes and anti‑corruption laws, changes in regulatory requirements including taxation, limits on our ability to sell products and services and enforce intellectual property rights and difficulties in managing operations due to distance, language and cultural differences, including issues associated with staffing and managing foreign operations. Our failure to comply with these laws and regulations could result in substantial civil and criminal penalties being imposed.

We are also exposed to risks associated with the repatriation of cash from certain of our foreign operations to the United States where currency restrictions exist, such as Argentina and Egypt, which limit our ability to immediately

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access cash through repatriations. Furthermore, other countries in which we maintain operations may impose limitations on the repatriation of cash from such countries now or in the future. Any limitation on us to transfer significant cash across borders from our international operations pertaining to intercompany debt or intercompany trade payables, if any, could have a material adverse effect on our business, financial condition and results of operations.

Exchange Rate Changes—Material changes in foreign currency exchange rates could materially adversely affect our results of operations.

Our operations in international markets are exposed to potentially volatile movements in currency exchange rates. The economic impact of currency exchange rate movements on us is often linked to variability in real growth, inflation, interest rates, governmental actions and other factors. These changes, if material, could cause us to adjust our financing, operating and hedging strategies. In particular, significant fluctuations in the value of the U.S. dollar relative to the Euro, the British Pound and the Mexican Peso, among other foreign currencies, could have an adverse effect on our results of operations due to lower demand in affected jurisdictions and the effects of translation of local currency balances and results into U.S. dollars. We do not currently engage in hedging transactions designed to reduce our exposure to foreign currency risk.

Acquisitions and Strategic Arrangements—We may experience financial and operational risks in connection with acquisitions and strategic arrangements.

In May 2016, we acquired the Vistana vacation ownership business from Starwood in a merger transaction following our October 2014 purchase of the HVO business and our 2013 acquisition of the Aqua business and the purchase by our VRI Europe Limited joint venture of the European shared ownership resort management business of CLC World Resorts and Hotels, or CLC. We intend to continue selectively pursuing other acquisitions. However, we may be unable to identify attractive acquisition candidates or complete transactions on favorable terms. In addition, in the case of acquired businesses, we will need to:

•successfully integrate the operations, as well as the accounting, financial controls, management information, technology, human resources and other administrative systems, of acquired businesses with existing operations and systems;

•maintain third party relationships previously established by acquired companies;

•attract and retain senior management and other key personnel at acquired businesses; and

•successfully manage new business lines, as well as acquisition‑related workload.

We may not be successful in addressing these challenges or any others encountered in connection with historical and future acquisitions. In addition, the anticipated benefits of one or more acquisitions may not be realized and future acquisitions could result in potentially dilutive issuances of equity securities and/or the assumption of contingent liabilities. The occurrence of any of these events could adversely affect our business, financial condition and results of operations.

We also intend to selectively enter into joint ventures and other strategic arrangements to provide new products and services complementary to those currently offered by our businesses. However, we may be unable to successfully enter into these arrangements on favorable terms or launch related products and services or such products and services may not gain market acceptance or be profitable. The failure to develop and execute any such initiatives on a cost‑effective basis could have an adverse effect on our business, financial condition and results of operations.

Key Personnel—Loss of one or more of our key personnel could adversely affect our relationships with third parties, business, financial condition and results of operations.

Our operations require managerial, operational, sales and marketing expertise as well as the maintenance of relationships with resort developers, HOAs, vacation property owners and other third parties. In particular, we are dependent upon the management skills and continued services of several members of our senior management team. The

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failure of such senior management or other key personnel to continue to be active in management of our businesses could have a material adverse effect on relationships with third parties, business, financial condition, results of operations and ability to grow the business. If we are unable to recruit, train, develop or retain a sufficient number of talented employees, we could experience decreased satisfaction of our members and guests, less efficient sales and marketing results, low morale, or other inefficiencies which could reduce our profits. We do not maintain key employee insurance for any of our officers and employees.

Sales of VOIs in Spain—Spanish Court rulings invalidating timeshare contracts may adversely affect our management business and exchange membership in Spain.

Courts in Spain have issued a series of rulings regarding sales of timeshare in that country between January 1999 and July 2012 that renders the consumer contracts null and void if the underlying structure did not meet the requirements of the structures prescribed by the Spanish timeshare laws enacted in 1998, even if the structure was lawful prior to 1998. These cases have led to an increase in claims seeking to invalidate timeshare agreements in Spain. While the industry disagrees with the rulings and seeks to introduce new legislation that will have a more balanced approach, the increased ability for owners of Spanish timeshares to void their contracts is negatively impacting developers with resorts there. The decrease in owners may adversely affect the business, financial condition and results of operations of our timeshare management business in Spain. It may also lead to a significant decrease in the number of resorts located in Spain in the Interval Network and the loss of members that own at those resorts. In addition, our VRI Europe joint venture partner may choose to decrease or curtail its sales of VOIs in Spain, which could materially adversely affect the operations and financial condition of VRI Europe.

Impairment of Assets—Goodwill, acquired mortgages receivable and other intangible and long‑lived assets associated with businesses we acquire and/or VOI inventory may become impaired which could adversely affect our business, financial condition and results of operations.

The performance of the businesses that we have acquired or will acquire may not meet the financial projections anticipated at acquisition or may be impacted by one or more unfavorable events or circumstances. This could negatively affect the value of goodwill, acquired mortgages receivable and other intangible assets, as well as long‑lived assets, and may require us to test the applicable reporting unit and/or asset for impairment. If following the test, we determine that we should record an impairment charge, our business, financial condition and results of operations may be adversely affected. Additionally, we carry our VOI inventory at the lower of cost or estimated fair value, less costs to sell. If the estimates or assumptions used in our evaluation of impairment or fair value change, we may be required to record impairment losses on certain of those assets, which could adversely affect our results of operations.

Estimates and Assumptions—We are required to make a number of significant judgments in applying our accounting policies, and our use of different estimates and assumptions in the application of these policies could result in material changes to our financial condition and results of operations. In addition, changes in accounting standards or their interpretation could significantly impact our results of operations.

Our accounting policies are critical to the manner in which we present our results of operations and financial condition. Many of these policies, including those with respect to our vacation ownership business, are highly complex and involve many subjective assumptions, estimates and judgments. We are required to review these estimates regularly and revise them when necessary. Our actual results of operations vary from period to period based on revisions to these estimates. In addition, the regulatory bodies that establish accounting and reporting standards, including the SEC and the Financial Accounting Standards Board (FASB) periodically revise or issue new financial accounting and reporting standards that govern the preparation of our consolidated financial statements. Changes to these standards or their interpretation could significantly impact our results in future periods. For example, the FASB released a final, converged, principles‑based standard on revenue recognition that will modify revenue recognition in periods after December 15, 2017. We are currently in the process of completing our evaluation and implementation of this standard. Adoption of this standard or other standards that become applicable in the future may have a material impact on our consolidated financial position, results of operations and cash flows.

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Changing Tax Laws―We Could Be Subject to Additional Tax Liabilities

We are subject to income and non-income taxes in the U.S. (federal, state and local) and numerous foreign jurisdictions. Tax laws, regulations, tax treaties, and administrative practices in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes. There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. Our effective tax rates and tax liabilities could be affected by numerous factors, such as intercompany transactions, the relative amount of our foreign earnings (including earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates), the applicability of special tax regimes, losses incurred in jurisdictions for which we are not able to realize the related tax benefit, changes in the operating environment, changes in foreign currency exchange rates, repatriation restrictions, entry into new businesses and geographies, changes to our existing businesses and operations, acquisitions (including integrations) and investments and how they are financed, changes in our stock price, changes in our deferred tax assets and liabilities and their valuation, and changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles, and interpretations.

Corporate tax reform, anti-base erosion efforts, non-income taxes, and tax transparency continue to be high priorities in many tax jurisdictions where we have business operations. As a result, policies regarding corporate income and other taxes in numerous jurisdictions are under heightened scrutiny and tax reform legislation is being proposed or enacted in several jurisdictions. In addition, a number of countries are actively pursuing changes to their tax laws applicable to corporate multinationals, such as the recently enacted U.S. tax reform legislation commonly referred to as the U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”). Finally, foreign governments and U.S. state and local jurisdictions may enact tax laws in response to the Tax Reform Act that could result in further changes to global taxation and materially affect our financial position and results of operations.

The Tax Reform Act significantly changes how the U.S. taxes corporations. The Tax Reform Act requires complex computations to be performed that were not previously required in U.S. tax law, significant judgments to be made in interpretation of the provisions of the Tax Reform Act and significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced. The U.S. Treasury Department, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the Tax Reform Act will be applied or otherwise administered that is different from our interpretation. We are continuing to evaluate the Tax Reform Act and its requirements, as well as its application to our business and its impact on our effective tax rate and tax liabilities. At this stage, it is unclear how many U.S. state and local jurisdictions will incorporate these federal law changes, or portions thereof, into their tax codes. As we complete our analysis of the Tax Reform Act, collect and prepare necessary data, and interpret any additional guidance, we may make adjustments to provisional amounts that we have recorded that may materially impact our provision for income taxes in the period in which the adjustments are made. In addition, in October 2015, the Organization for Economic Co-Operation and Development (“OECD”) released a final package of suggested measures to be implemented by member nations in response to a 2013 action plan calling for a coordinated multi-jurisdictional approach to “base erosion and profit shifting” by multinational companies. Multiple member jurisdictions, including countries in which we operate, have begun implementing recommended changes such as country by country reporting. These standards require multinationals to disclose certain financial and economic indicators across geographies and are expected to result in increased global tax audit activity. Additional legislative changes are anticipated in upcoming years. Certain countries have adopted unilateral changes increasing the risk of double taxation. Any changes to U.S. or international tax laws or interpretation of current or existing law could impact the tax treatment of our earnings and adversely affect our profitability.

We are also subject to audit in various jurisdictions, and these jurisdictions may assess additional taxes against us. Developments in an audit, litigation, or the relevant laws, regulations, administrative practices, principles, and interpretations could have a material effect on our operating results or cash flows in the period or periods for which that development occurs, as well as for prior and subsequent periods. Although we believe our tax estimates are reasonable, the final outcome of tax audits, investigations, and any related litigation could be materially different from our historical tax provisions and accruals.

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Third Party Relationships—We depend on third parties to assist in certain fulfillment and distribution services.

In connection with providing benefits and services in our businesses, we rely on third party service providers for processing certain fulfillment and reservation services, including online travel agencies for rental distribution. If these third parties are unable to continue to provide the services to us at reasonable rates or at all, our ability to deliver expected benefits and services to our customers and our results of operations may be adversely affected. This may cause dissatisfaction and may damage our reputation.

Advances and Extensions of Credit—Our results may be adversely affected if third parties who receive loans, advances or other credit from us are unable to repay.

In connection with our vacation ownership business, we provide loans to purchasers to finance their purchase of VOIs. If a purchaser defaults under the financing that we provide, we could be forced to write off the loan and reclaim ownership of the timeshare interest through foreclosure or deed in lieu of foreclosure. If the VOI has declined in value, we may incur impairment losses that reduce our profits. In addition, we may be unable to resell the property in a timely manner or at the same price, or at all. Also, if a purchaser of a VOI defaults on the related loan during the early part of the amortization period, we may not have recovered the marketing, selling and general and administrative costs associated with the sale of that VOI. If we are unable to recover any of the principal amount of the loan from a defaulting purchaser, or if the allowances for losses from such defaults are inadequate, the revenues and profits that we derive from the vacation ownership business could be reduced.

We could incur material losses if there is a significant increase in the delinquency rate applicable to our portfolio of consumer loans. An increased level of delinquencies could result from changes in economic or market conditions, increases in interest rates, adverse employment conditions and other factors beyond our control. Increased delinquencies could also result from our inability to evaluate accurately the credit worthiness of the customers to whom we extend financing. If default rates for our borrowers were to increase, we may be required to increase our provision for loan losses. In addition, the indentures governing the securitization of some of our vacation ownership notes receivable contain certain portfolio performance requirements related to default and delinquency rates, which, if not met, would result in disruption or loss of cash flow until portfolio performance sufficiently improves to satisfy the requirements. Purchaser defaults could impact our ability to secure financing on terms that are acceptable to us, or at all.

In connection with obtaining or extending business relationships with our clients, on occasion we provide loans, advances and other credit. To the extent that these clients are unable to repay these amounts and they are not fully secured by collateral, our results of operations could be adversely affected.

Sufficiency of Maintenance Fee Collection and Budgeting—The continued financial viability of HOAs depends on their ability to collect sufficient maintenances fees.

The financial viability of HOAs are dependent on maintenance fees levied on the owners by the associations. These maintenance fees fund the operation, maintenance and improvements for the property, and our management fees. Many of the properties that we manage do not receive subsidies or resale services for foreclosed inventory from the developer. Once an association begins to experience a high default rate, if it is unable to foreclose and resell units to paying owners, the situation worsens as the maintenance fees on remaining owners continually increase to cover expenses. If the HOAs that we manage are unable to levy and collect sufficient maintenance fees to cover the costs to operate and maintain the resort properties, such properties may be forced to close or file bankruptcy and may terminate our management agreements.

Most of our VRI Europe properties in Spain operate on a fixed fee basis and VRI Europe has a responsibility to maintain the properties. Our joint venture partner, CLC, has in the past, but may not continue to pay the maintenance fees for both VOIs that it holds and defaulted VOIs. To the extent the costs of maintenance and operation exceed historic and planned amounts or we do not collect sufficient fees from CLC or other owners, we may be required to fund the deficit.

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Relationships with Managed Resorts—Disagreements with HOAs, vacation property owners and other third parties may result in litigation and/or loss of management contracts.

The nature of our responsibilities managing resorts may from time to time give rise to disagreements with vacation property owners and HOAs. Owners of our VOIs may also disagree with changes we make to our products or programs. We seek to resolve any disagreements and develop and maintain positive relations with owners and HOAs, but we may not always be able to do so. Failure to resolve such disagreements may result in litigation and/or the loss of management agreements. If any such litigation results in a significant adverse judgment, settlement or court order, we could suffer significant losses, our profits could be reduced, our reputation could be harmed and our future ability to operate our business could be constrained. A significant loss of management contracts could adversely affect our business and results of operations.

New Products and Services—We may not be able to achieve our strategic objectives through new products and initiatives.

In order to support our strategic objectives, we have introduced new products and services, such as the Westin Flex, Westin Aventuras, Hyatt Residence Club Portfolio as well as the Interval International hotel exchange programs, and we expect to continue to do so in the future. Launching new products and services involves a number of risks including the ability to achieve the anticipated level of market acceptance and to manage the costs and timeliness of rolling‑out the product or service. If we are unable to gain market acceptance, experience substantial delays or are required to expend significantly more than expected, our business and results of operations may be materially adversely affected. Additionally, our results of operations from new products and services that we may wish to introduce could have different revenue recognition than our strategic objectives.

Compliance and Changing Laws, Rules and Regulations—The failure of our businesses to comply with extensive regulatory requirements, or to obtain and maintain required licenses and rights, could adversely affect our business, financial condition and results of operations.

Our businesses are subject to various laws, rules and regulations on a global basis, including those specific to the vacation ownership industry, as well as those applicable to businesses generally, such as licensing requirements, laws governing our marketing and sales activities, including anti‑fraud, sweepstakes, telemarketing, home solicitation sales, tour operator, seller of travel, consumer privacy, consumer protection, securities and sales, use, occupancy, value‑added and other tax laws, rules and regulations. Additionally, our businesses are subject to laws and regulations associated with hotel and resort management, including relating to the preparation and sale of food and beverages, liquor service and health, safety and accessibility of managed premises. While we believe that the operations and practices have been structured in a manner to materially comply with applicable laws, rules and regulations, the relevant regulatory authorities may take a contrary position. The failure of our businesses to comply with applicable laws, rules and regulations, or to obtain required licenses or rights, could have a material adverse effect on our business, financial condition and results of operations. In addition, unfavorable changes in the laws, rules and regulations applicable to our businesses, including those related to the imposition of taxes, could decrease demand for the services offered by our businesses, increase costs and/or subject us to additional liabilities, which could have an adverse effect on our business, financial condition, or results of operations.

Compliance with Vacation Ownership Regulations—The failure of our businesses to comply with regulatory requirements applicable to real estate development and sales and marketing activities with respect to VOIs could adversely affect our business, financial condition and results of operations.

The vacation ownership industry is subject to extensive regulations in various jurisdictions in the United States and elsewhere, which generally require vacation ownership resort developers to follow certain procedures in connection with the development, sale and marketing of vacation interests, including the filing of offering statements with relevant governmental authorities for approval and the delivery to prospective purchasers of certain information relating to the terms of the purchase and use, including rescission rights. The preparation of VOI registrations requires time and cost, and in many jurisdictions the exact date of registration approval cannot be accurately predicted. Our vacation ownership business’s real estate development activities are also subject to laws and regulations applicable to real estate

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development, subdivision and construction activities, zoning, land use restrictions, environmental regulation, title transfers, title insurance and taxation. Laws in some jurisdictions also impose liability on property developers for construction defects discovered or repairs made by future owners of property developed by the developer. In addition, we provide financing to some purchasers of VOIs and we also service the resulting loans. This practice subjects us to various regulations, including those which require disclosure to borrowers regarding the terms of their loans as well as settlement, servicing and collection of loans. As a result, any negative change in the regulatory environment within the vacation ownership industry or failure to comply with applicable laws and regulations could have a material adverse effect on our business, financial condition and results of operations.

Partnerships and Joint Ventures—Investing through partnerships or joint ventures decreases our ability to manage risk.

In addition to acquiring or developing resorts or acquiring companies that complement our business directly, we have from time to time invested, and expect to continue to invest, as a co‑venturer. Joint venturers often have shared control over the operation of the joint venture assets. Therefore, joint venture investments may involve risks such as the possibility that the co‑venturer in an investment might become bankrupt or not have the financial resources to meet its obligations, or have economic or business interests or goals that are inconsistent with our business interests or goals, or be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives. Consequently, actions by a co‑venturer might subject resorts or other businesses owned by the joint venture to additional risk. Our VRI Europe joint venture manages resorts for which CLC, the minority owner, conducts sales and marketing and has paid maintenance fees with respect to VOIs not being paid by consumers. To the extent that CLC does not continue to provide these services or payments, VRI Europe’s results of operations, financial condition and liquidity may be materially adversely affected. Further, we may be unable to take action without the approval of our joint venture partners. Alternatively, our joint venture partners could take actions binding on the joint venture without our consent. Additionally, should a joint venture partner become bankrupt, we could become liable for our partner’s share of joint venture liabilities.

Privacy—The processing, storage, use and disclosure of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements, or requirements imposed by credit card companies.

In the processing of consumer transactions, our businesses receive, transmit and store a large volume of personally identifiable information and other user data. The sharing, use, disclosure and protection of this information are governed by the privacy and data security policies maintained by us and our businesses, as well as by contractual obligations with respect to data privacy. Moreover, there are federal, state and international laws regarding privacy and the storing, sharing, use, disclosure and protection of personally identifiable information and user data. Specifically, personally identifiable information is increasingly subject to legislation and regulations in numerous jurisdictions around the world, the intent of which is to protect the privacy of personal information that is collected, processed and transmitted in or from the governing jurisdiction. We could be adversely affected if legislation or regulations are expanded to require changes in business practices or privacy policies, or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business, financial condition and results of operations. In the EU, the GDPR introduces new rights and enhances rights provided to consumers, employees and vendors under prior privacy laws, including information, data access, processing restrictions, breach notification and data portability rights while placing greater emphasis on the documentation that businesses must keep. While our businesses are currently reviewing policies and procedures to demonstrate compliance by the May 25, 2018 deadline, failure to do so could negatively affect our business, financial condition and results of operations.

A company processing, storing, or transmitting payment card data must be compliant with Payment Card Industry‑Data Security Standards, or PCI‑DSS, or risk losing its ability to process credit card payments and being fined. Failure to obtain or maintain PCI‑DSS compliance could result in our inability to accept credit card payments or subject us to penalties and thus could have a material negative effect on our operations. Changes in these security standards may cause us to incur significant unanticipated expenses to meet new requirements.

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Cybersecurity―We are subject to cybersecurity risks, including security breaches and identity theft and the related requirements imposed by credit card companies.

We process and store significant amounts of company sensitive data as well as personal customer and employee information, within our own systems and systems owned by third party service providers. We are frequently the target of attempted security attacks and must continuously monitor and enhance our information security controls to prevent, detect, and contain unauthorized activity; access; misuse; malicious software; and, other similar threats which could result in system exploitation and sensitive data exposure. While we employ a number of cybersecurity controls, these controls may not be effective in preventing all unauthorized access to sensitive data. Evolving and more sophisticated security threats, including penetration of network security or other misappropriation or misuse of personal consumer information, could cause interruptions in the operations of our businesses and subject us to increased costs, litigation and other liabilities. Cyber intrusions may also lead to loss or exposure of consumer data and intellectual property. Security breaches could also significantly damage our reputation with consumers and third parties with whom we do business. It is possible that advances in computer capabilities, new discoveries, undetected fraud, inadvertent violations of company policies or procedures or other developments could result in a compromise of information or a breach of the technology and security processes that are used to protect consumer transaction data. As a result, current security measures may not prevent any or all security breaches and we may be required to expend significant capital and other resources to protect against and remedy any potential or existing security breaches and their consequences.

The payment methods that we currently offer also subject us to potential fraud, as criminal attacks are becoming increasingly more sophisticated, as they try to achieve unauthorized access to sensitive data. In the event that payment sensitive data is compromised, we might be liable to payment card issuing entities for penalties, higher transaction fees, and even lose the ability to accept electronic payments which could in turn result in loss of business, reputational damage, or both.  Routinely, we partner with and use third-party service providers and products that host, manage, or control company sensitive data. We have policies, contracts and other controls in place to cause contractors and subcontractors to maintain reasonable security to ensure that our company data is protected from unauthorized use, alteration, access or disclosure. However, the failure by the various third party vendors and service providers with which we do business, to comply with applicable privacy policies or federal, state or similar international laws and regulations or any compromise of security that results in the unauthorized release of personally identifiable information or other user data could damage the reputation of our businesses, discourage potential users from trying our products and services, breach certain agreements under which we have obligations with respect to network security, and/or result in fines and/or proceedings by governmental agencies, service providers and/or consumers, one or all of which could materially adversely affect our business, financial condition and results of operations.

Maintenance of Systems and Infrastructure—Our success depends, in part, on the integrity of our systems and infrastructure. System interruption and the lack of integration and redundancy in these systems and infrastructure may have an adverse impact on our business, financial condition and results of operations.

Our success depends, in part, on our ability to maintain the integrity of our systems and infrastructure, including websites, information and related systems, call centers and distribution and fulfillment facilities. System interruption and any lack of integration and redundancy in our information systems and infrastructure may adversely affect our ability to operate websites, process and fulfill transactions, respond to customer inquiries and generally maintain cost‑efficient operations. We may experience occasional system interruptions that make some or all systems or data unavailable or prevent our businesses from efficiently providing services or fulfilling orders. We also rely on third‑party computer systems, broadband and other communications systems and service providers in connection with the provision of services generally, as well as to facilitate, process and fulfill transactions. Any interruptions, outages or delays in the systems and infrastructures of our businesses and/or third parties, or deterioration in the performance of these systems and infrastructure, could impair the ability of our businesses to provide services, fulfill orders and/or process transactions.

Fire, flood, power loss, telecommunications failure, hurricanes, tornadoes, earthquakes, acts of war or terrorism, acts of God and similar events or disruptions may damage or interrupt computer, broadband or other communications systems and infrastructure at any time. Any of these events could cause system interruption, delays and loss of critical data, and could prevent our businesses from providing services, fulfilling orders and/or processing transactions. While our businesses have backup systems for certain aspects of their operations, these systems are not fully redundant and

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disaster recovery planning is not sufficient for all eventualities. In addition, we may not have adequate insurance coverage to compensate for losses from a major interruption. If any of these adverse events were to occur, it could adversely affect our business, financial conditions and results of operations.

Technology Projects—Business interruptions, cost overruns or project delays in connection with our undertaking of significant technology projects may materially adversely affect our business.

Our businesses have ongoing development projects related to our proprietary and third party technology, some of which are significant. We have committed sizable resources to these projects, which are expected to be phased in over multiple years. These projects are extremely complex, in part, because of the wide range of processes and the legacy systems involved. We use both internal and external resources, and if these resources become unavailable, our business and operations may be adversely affected. As we proceed with our existing projects, we are using controlled project plans and change control processes that we believe will provide for the adequate allocation of resources. However, a divergence from these may result in cost overruns or project delays. If the systems do not operate as expected, this could impact our ability to perform necessary business operations, which could materially adversely affect our business.

Intellectual Property—We may fail to adequately protect our intellectual property rights or may be accused of infringing intellectual property rights of third parties.

We may fail to adequately protect our intellectual property rights or may be accused of infringing intellectual property rights of third parties. Our failure to protect our intellectual property rights in a meaningful manner or challenges to related contractual rights could result in erosion of brand names and limit our ability to control marketing, which could adversely affect our business, financial condition and results of operations.

From time to time, we are subject to legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of the trademarks, copyrights, patents and other intellectual property rights of third parties. In addition, litigation may be necessary in the future to enforce our intellectual property rights, protect trade secrets or to determine the validity and scope of proprietary rights claimed by others. Any litigation of this nature, regardless of outcome or merit, will likely be protracted and expensive and could result in substantial costs and diversion of management and technical resources, any of which could adversely affect our business, financial condition and results of operations.

Permissions—Following the closing of the Vistana transaction, additional permissions may be required in order to market to potential customers.

Because Vistana’s relationship with Starwood changed as a result of the acquisition by ILG, for purposes of “do not call” and similar legislation in some jurisdictions, it may be more difficult for Vistana to obtain customer permissions or access customer information from Starwood. This could diminish the effectiveness of existing marketing practices and adversely affect the business.

Environmental Matters—We are subject to certain requirements under applicable environmental laws and regulations and may be subject to potential liabilities.

The resorts that we manage and the assets at vacation ownership resorts that are owned by us are all subject to certain requirements and potential liabilities under national, state, and local laws and regulations that govern the discharge of materials into the environment or otherwise relate to protection of the environment or health and safety. The costs of complying with these requirements are generally covered by the HOAs that operate the affected resort property and are our responsibility for assets we own. To the extent that we hold interests in a particular resort, we would be responsible for their pro rata share of losses sustained by such resort as a result of a violation of any such environmental laws and regulations.

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Insurance—Damage to, or other potential losses involving, properties that we own or manage may not be covered by insurance.

Market forces beyond our control may limit the scope of the insurance coverage we can obtain or our ability to obtain coverage at reasonable rates. Certain types of losses, generally of a catastrophic nature, such as earthquakes, hurricanes and floods, or terrorist acts, may be uninsurable or the price of coverage for such losses may be too expensive to justify obtaining insurance. As a result, the cost of our insurance or the related deductibles may increase and our coverage levels may decrease. In addition, in the event of a substantial loss, the insurance coverage we carry may not be sufficient to pay the full market value or replacement cost of our lost investment or that of owners of VOIs or in some cases may not provide a recovery for any part of a loss. As a result, we could lose some or all of the capital we have invested in a property, as well as the anticipated future revenue from the property. In addition, we could lose the management contract for the property and, to the extent such property operates under a licensed brand, the property may lose operating rights under the associated brand.

Compliance with Sanction laws—ILG could be adversely affected by changes to or violations of sanctions laws.

The United States has from time to time imposed sanctions that restrict U.S. companies from engaging in business activities with certain persons, foreign countries, or foreign governments that it determines are adverse to U.S. foreign policy interests. Other countries in which we operate may also impose such sanctions. Any restrictions on our ability to conduct business operations could negatively impact our financial results. If we are found to be liable for violations of U.S. sanctions laws or equivalent laws of another country where we operate, either due to our own acts or out of inadvertence, we could suffer monetary penalties and reputational harm which could have a material and adverse effect on our results of operations and financial condition.

Takeover Defenses—Our charter provisions and terms of our debt and license agreements may affect the likelihood of a takeover or change of control of ILG.

We have in place certain charter provisions that may have the effect of deterring hostile takeovers or delaying or preventing changes in control or management of our company that are not approved by our board. In particular, our charter provides that stockholders may not act by written consent and that the board has the power to issue shares of preferred stock with such designation, powers, preferences, and rights as the board shall determine. The transactions that may be deterred, delayed or prevented might have allowed our stockholders to receive a premium for their shares over then‑current market prices. In addition, under our senior credit facility, a change of control (as defined in the credit agreement) constitutes an event of default, entitling our lenders to terminate the facility and require us to repay outstanding borrowings. Under the indenture governing our senior notes, we are required to make an offer to repurchase the senior notes at a price of 101% of the principal amount plus accrued interest following a change of control (as defined in the indenture). As a result, the provisions of these debt agreements also may affect the likelihood of a takeover or other change of control. Under the license agreements, we need Starwood’s or Hyatt’s written consent prior to a change of control (as defined in the agreement) of Vistana and HVO, respectively, and both for certain change of control transactions of ILG.

Activist Stockholders—Shareholder activism efforts could cause a material disruption to our business.

Activist investors may attempt to effect changes in ILG’s strategic direction and governance, or to assert influence or control over our board and senior management. Some activist investors seek to increase short-term stockholder value by advocating corporate actions such as financial restructurings, increased borrowings, special dividends, stock repurchases, sales of assets or even a sale of the entire company, which may not be in the best interests of our stockholders or our company. While we value constructive input from investors and regularly engage with our stockholders to discuss their thoughts on our strategy and performance, activist campaigns that contest or conflict with our strategic direction could have an adverse effect on our results of operations and financial condition. Proxy contests and other actions by activists can disrupt our operations, be costly and time-consuming, and divert the attention of our board and senior management. In addition, any perceived uncertainties as to our future direction as a result of such activities could lead to a perception of instability, which may be exploited by our competitors, may be concerning to our current or potential customers, may result in the loss of potential business opportunities and may make it more difficult

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to attract and retain qualified personnel. These types of actions could cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.

Spin-Off Tax Risks—Under the Tax Matters Agreement, we are restricted from taking certain actions that may adversely affect the intended U.S. federal income tax treatment of the contribution, the distribution, the merger and certain related internal reorganization transactions consummated in connection with the acquisition of Vistana, and such restrictions may significantly impair our ability to implement strategic initiatives that otherwise would be beneficial.

The Tax Matters Agreement generally restricts us from taking certain actions after the merger of Vistana (the “Merger”) that may adversely affect the intended U.S. federal income tax treatment of the Merger and certain related transactions consummated in connection with Starwood’s internal reorganization. Failure to adhere to these restrictions, including in certain circumstances that may be outside of our control, could result in tax being imposed on Starwood or on Starwood shareholders for which we could bear responsibility and for which we could be obligated to indemnify Starwood. In addition, even if we are not responsible for tax liabilities of Starwood under the Tax Matters Agreement, Vistana nonetheless could be liable under applicable tax law for such liabilities if Starwood were to fail to pay such taxes. Because of these provisions in the Tax Matters Agreement, unless certain conditions are satisfied we are restricted from taking certain actions, particularly for the two years following the Merger, including (among other things) the ability to freely issue stock, to make acquisitions and to raise additional equity capital. These restrictions could have a material adverse effect on our liquidity and financial condition, and otherwise could impair our ability to implement strategic initiatives. Also, our indemnity obligation to Starwood might discourage, delay or prevent a change of control that our stockholders may consider favorable.

Even if the contribution and distribution, taken together, otherwise qualify as a reorganization under Sections 368(a) and 355 of the Code, the distribution will nonetheless be taxable to Starwood (but not to Starwood stockholders) pursuant to Section 355(e) of the Code if 50% or more of the stock of either Starwood or Vistana (including ILG’s stock after the Merger, as the parent of Vistana) is acquired, directly or indirectly (taking into account our stock acquired by Starwood stockholders in the Merger), as part of a plan or series of related transactions that includes the Distribution. In that regard, because Starwood stockholders owned more than 50% of our stock following the Merger, the Merger standing alone will not cause the Distribution to be taxable under Section 355(e) of the Code, and the Distribution Tax Opinion so provided. However, if the IRS were to determine that other acquisitions of Starwood stock or our stock are part of a plan or series of related transactions that includes the Distribution, such determination could result in the recognition of gain by Starwood (but not by Starwood stockholders) for U.S. federal income tax purposes.

Dividends—We may not continue paying dividends at the same rate or at all.

While we have been paying quarterly dividends, we may be unable to continue to pay dividends at the current rate or at all based on covenants in our credit agreement or if we do not have sufficient surplus under Delaware law. Our Board of Directors may determine not to declare dividends if they deem this action to be in ILG’s best interests. Discontinuing payment of dividends could change the manner, timing and/or ability to realize gains on investment in ILG common stock.

Item 1B.    Unresolved Staff Comments.

None.

Item 2.    Properties.

As of December 31, 2017, ILG conducts operations through 36 offices in 15 countries, of which 16 offices are within the United States and 20 offices are outside of the United States. ILG’s global headquarters is located in Miami, Florida and occupies approximately 100,000 square feet of office space under a long‑term lease expiring in December 2020. We own or lease regional offices and sales centers.

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ILG’s portfolio consisted of the vacation ownership resorts and hotels described in Part I, Item 1 “Business” under the heading “Our Resorts”. We own all unsold inventory at these properties and we own certain food, beverage, fitness, spa and recreational amenities, front desks, undeveloped land and similar assets at resorts we developed and select managed properties. 

Item 3.    Legal Proceedings.

Rules of the Securities and Exchange Commission require the description of material pending legal proceedings, other than ordinary, routine litigation incidental to ILG’s business, and advise that proceedings ordinarily need not be described if they primarily involve damages for claims in amounts (exclusive of interest and costs) not exceeding 10% of the current assets of the registrant and its subsidiaries on a consolidated basis. In the judgment of management, none of the pending litigation matters which ILG and its subsidiaries are defending, involves or is likely to involve amounts of that magnitude.

On December 5, 2016, individuals and entities who own or owned 107 fractional interests of a total of 372 interests created in the Fifth and Fifty-Fifth Residence Club located within The St. Regis, New York (the “Club”) filed suit against ILG, certain of our subsidiaries, Marriott International Inc. (“Marriott”) and certain of its subsidiaries including Starwood. The case is filed as a mass action in federal court in the Southern District of New York, not as a class action. In response to our request to file a motion to dismiss, the plaintiffs filed an amended complaint on March 6, 2017. Plaintiffs principally challenge the sale of less than all interests offered in the fractional offering plan, the amendment of the plan to include additional units, and the rental of unsold fractional interests by the plan’s sponsor, claiming that alleged acts by us and the other defendants breached the relevant agreements and harmed the value of plaintiffs’ fractional interests. The relief sought includes, among other things, compensatory damages, rescission, disgorgement, attorneys’ fees, and pre- and post-judgment interest. We filed a motion to dismiss the amended complaint on April 21, 2017. The court has not yet rendered any decision on the motion. We dispute the material allegations in the amended complaint and intend to defend against the action vigorously. Given the early stages of the action and the inherent uncertainties of litigation, we cannot estimate a range of the potential liability, if any, at this time.

On February 28, 2017, the owners association for the Club filed a separate suit against us and certain of our subsidiaries in federal court in the Southern District of New York. On March 13, 2017, before it had served the initial complaint, Plaintiff filed an amended complaint that added Marriott and Starwood as defendants and added additional claims. Plaintiff then filed a second amended complaint on July 14, 2017. The complaint, as amended, asserts claims against the sponsor of the Club, St. Regis Residence Club, New York, Inc., the Club manager, St. Regis New York Management, Inc., and certain affiliated entities, as well as against Marriott and Starwood, for alleged breach of fiduciary duties principally related to sale and rental practices, tortious interference with the management agreement, alleged unjust enrichment, seeks certain declaratory relief in connection with the Starpoints conversion program and the exchange program at the Club, and asserts claims based on alleged anticompetitive conduct by the defendants in connection with Plaintiff’s renewal of the Club management agreement. In addition to the declaratory relief sought, Plaintiff seeks unspecified actual damages, punitive damages, and disgorgement of payments under the management and purchase agreements, as well as related agreements. We filed a motion to dismiss the second amended complaint on September 8, 2017. The court has not yet rendered any decision on the motion. We dispute the material allegations in the second amended complaint and intend to defend against the action vigorously. Given the early stages of the action and the inherent uncertainties of litigation, we cannot estimate a range of the potential liability, if any, at this time.

Item 4.    Mine Safety Disclosures.

Not applicable

Executive Officers of the Registrant

See Part III, Item 10 of this report for information about our executive officers.

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PART II

Item 5.    Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market for Registrant's Common Equity and Related Stockholder Matters

Our common stock is listed on The NASDAQ Stock Market Global Select Market under the ticker symbol “ILG” since October 2016. Previously our ticker symbol was “IILG”. The table below sets forth the high and low sales prices per share for ILG common stock as reported on NASDAQ, for the calendar periods indicated.

	High		Low
Year Ended December 31, 2017
Fourth Quarter	$	30.70	$	26.54
Third Quarter	$	27.80	$	24.38
Second Quarter	$	28.99	$	20.25
First Quarter	$	21.00	$	17.56
Year Ended December 31, 2016
Fourth Quarter	$	18.81	$	15.94
Third Quarter	$	18.24	$	15.92
Second Quarter	$	15.94	$	11.79
First Quarter	$	15.58	$	10.61
Year Ended December 31, 2015
Fourth Quarter	$	21.98	$	13.98
Third Quarter	$	23.19	$	18.29
Second Quarter	$	26.78	$	22.75
First Quarter	$	27.45	$	20.75

As of February 12, 2018, there were approximately 9,900 holders of record of our common stock and the closing price of ILG common stock was $29.97. Because many of the outstanding shares of ILG common stock are held by brokers and other institutions on behalf of stockholders, ILG is not able to estimate the total number of beneficial stockholders represented by these record holders.

Dividend Policy

During 2016, we declared and paid quarterly dividends of $0.12 per share which increased to quarterly dividend payments of $0.15 per share in 2017. We currently expect to declare and pay dividends of $0.175 per share quarterly in 2018. Our dividend policy is to keep the dividend payout roughly proportionate to adjusted EBITDA and free cash flow growth over a multiyear period. The actual declaration of any future cash dividends, and the establishment of record and payment dates, will be subject to final determination by the Board of Directors each quarter and will depend upon our results of operations, cash requirements and surplus, financial condition, legal requirements, capital requirements relating to business initiatives, investments and acquisitions, and other factors that our Board of Directors may deem relevant. In addition, our revolving credit facility and the indenture governing our senior notes have various financial and operating covenants that place significant restrictions on us, including our ability to pay dividends.

Unregistered Sales of Equity Securities

During the year ended December 31, 2017, we did not issue or sell any shares of our common stock or other equity securities pursuant to unregistered transactions in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended.

Issuer Purchases of Equity Securities

The following table sets forth information with respect to purchases of shares of our common stock, excluding commissions, made during the quarter ended December 31, 2017 by or on behalf of ILG or any “affiliated purchaser,” as

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defined by Rule 10b‑18(a)(3) of the Exchange Act. All purchases were made in accordance with Rule 10b‑18 of the Exchange Act.

				Total Number of	Approximate Dollar
	Total			Shares Purchased	Value of Shares that
	Number of	Average		as Part of Publicly	May Yet Be Purchased
	Shares	Price Paid		Announced Plans	Under the Plans
Period	Purchased	per Share		or Programs	or Programs(1)
October 2017	—	$	—	—	$	21,050,422
November 2017	—	$	—	—	$	21,050,422
December 2017	—	$	—	—	$	21,050,422

(1) In November 2016, we announced that our Board of Directors had authorized the repurchase of up to $50 million of our common stock. There is no time restriction on this authorization and repurchases may be made in the open‑market or through privately negotiated transactions, however, the merger agreement with Starwood restricts our ability to repurchase our common stock without Starwood’s consent.

Performance Comparison Graph

The performance graph is not deemed filed with the SEC and shall not be deemed incorporated by reference into any of our prior or future filings made with the SEC.

The following graph covers the period from December 31, 2012 to December 31, 2017, assuming $100 was invested on December 31, 2012 in ILG common stock, and in each of the Russell 2000 in which our stock has been included beginning in June 2009, and the Russell 3000, in which our stock is currently included, as well as the S&P 1500 Composite Index of Hotels, Resorts & Cruise Lines. The graph assumes that all dividends were reinvested on the date of payment without payment of any commissions. The stock price performance shown in the graph is not necessarily indicative of future price performance.

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ASSUMES $100 INVESTED ON DECEMBER 31, 2012

ASSUMES DIVIDENDS REINVESTED

FISCAL YEAR ENDING DECEMBER 31, 2017

(in dollars)

Company/Index/Market	12/31/2012		12/31/2013		12/31/2014		12/31/2015		12/31/2016		12/31/2017
ILG, Inc.	$	100.00	$	161.68	$	111.46	$	85.21	$	102.24	$	164.26
Russell 2000	$	100.00	$	138.82	$	145.62	$	139.19	$	168.85	$	193.58
Russell 3000	$	100.00	$	133.55	$	150.32	$	151.04	$	170.28	$	206.26
S&P 1500 hotel and cruise index	$	100.00	$	127.41	$	166.45	$	171.34	$	178.32	$	259.64

Item 6.    Selected Financial Data

The following Selected Financial Data should be read in conjunction with the consolidated financial statements and notes thereto in Item 8 of this report and “Management’s Discussion and Analysis of Financial Condition and Results of Income” in Item 7 of this report.

Financial Information:

	Year Ended December 31,
	2017		2016		2015		2014		2013
	(In millions, except per share data)
Statement of Income Data
Revenue	$	1,786	$	1,356	$	697	$	614	$	501
Operating income		219		185		128		127		133
Net income attributable to common stockholders		168		265		73		79		81
Adjusted net income(1)		139		130		76		80		81
EBITDA(1)		299		406		166		159		155
Adjusted EBITDA(1)		346		302		185		173		166
Earnings per share
Basic	$	1.36	$	2.62	$	1.28	$	1.38	$	1.42
Diluted		1.34		2.60		1.26		1.36		1.40
Adjusted earnings per share(1)
Basic	$	1.12	$	1.29	$	1.33	$	1.40	$	1.42
Diluted		1.10		1.28		1.32		1.39		1.41
Dividends declared
Dividends declared per share of common stock	$	0.60	$	0.48	$	0.48	$	0.44	$	0.33

	December 31,
	2017		2016		2015		2014		2013
	(In millions)
Balance Sheet Data
Total assets	$	3,671	$	3,304	$	1,279	$	1,324	$	1,022
Long-term debt, net of current portion		562		580		416		484		250
ILG stockholders' equity		1,666		1,567		432		384		344
Noncontrolling interest		37		26		33		36		33

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	Year Ended December 31,
	2017		2016		2015		2014		2013
	(in millions)
Vacation Ownership
Resort operations revenue	$	213	$	136	$	17	$	4	$	—
Management fee revenue		158		111		88		89		42
Sales of vacation ownership products, net		465		306		28		7		—
Consumer financing revenue		89		57		5		1		—
Cost reimbursement revenue(2)		242		179		58		29		17
Total Vacation Ownership revenue	$	1,167	$	789	$	196	$	130	$	59
Vacation Ownership gross margin		44%		42%		39%		39%		42%
Vacation Ownership gross margin excluding cost reimbursement		56%		55%		56%		50%		60%
Exchange and Rental
Transaction revenue(3)	$	198	$	198	$	193	$	193	$	199
Membership fee revenue(4)		140		134		126		128		135
Ancillary member revenue(5)		7		6		6		7		7
Total member revenue		345		338		325		328		341
Club rental revenue(6)		105		63		9		2		—
Other revenue(7)		22		23		23		23		24
Rental management revenue(8)		49		48		50		48		30
Cost reimbursement revenue(2)		98		95		94		83		47
Total Exchange & Rental revenue	$	619	$	567	$	501	$	484	$	442
Exchange and Rental gross margin		57%		59%		61%		62%		67%
Exchange and Rental gross margin excluding cost reimbursement		68%		71%		75%		75%		75%

Operating Statistics(9):

	Year Ended December 31,
	2017		2016		2015		2014		2013
Vacation Ownership
Total timeshare contract sales (in millions)(10)	$	561	$	358	$	98	$	25	$	—
Consolidated timeshare contract sales (in millions)(11)	$	498	$	295	$	26	$	7	$	—
Volume per guest(12)	$	3,049	$	2,852	$	1,941	$	2,277	$	—
Tour flow(13)		161,396		101,879		13,405		3,031		—
Exchange and Rental
Total active members at end of period (000's)(14)		1,813		1,822		1,811		1,799		1,815
Average revenue per member(15)	$	190.05	$	185.91	$	178.76	$	180.55	$	187.13

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	Year Ended December 31,
Including Vistana as if acquired on January 1 of the earliest period shown:	2017		2016		2015
Vacation Ownership
Total timeshare contract sales (in millions)(10)	$	561	$	514	$	473
Consolidated timeshare contract sales (in millions)(11)	$	498	$	449	$	393
Volume per guest(12)	$	3,049	$	3,017	$	2,849
Tour flow(13)		161,396		146,281		135,860
Exchange and Rental
Average revenue per member(15)	$	190.05	$	191.61	$	194.60

	Quarter Ended
	March 31,		June 30,		September 30,		December 31,
2017
Vacation Ownership
Total timeshare contract sales (in millions)(10)	$	143	$	142	$	136	$	141
Consolidated timeshare contract sales (in millions)(11)	$	122	$	128	$	122	$	126
Volume per guest(12)	$	3,267	$	3,036	$	2,884	$	3,036
Tour flow(13)		36,776		41,689		41,831		41,100
Exchange and Rental
Total active members at end of period (000's)(14)		1,829		1,812		1,814		1,813
Average revenue per member(15)	$	52.12	$	47.39	$	46.47	$	44.32
2016
Vacation Ownership
Total timeshare contract sales (in millions)(10)	$	26	$	77	$	127	$	128
Consolidated timeshare contract sales (in millions)(11)	$	7	$	62	$	111	$	115
Volume per guest(12)	$	2,270	$	2,713	$	2,859	$	2,974
Tour flow(13)		3,049		22,479		38,253		38,098
Exchange and Rental
Total active members at end of period (000's)(14)		1,824		1,809		1,828		1,822
Average revenue per member(15)	$	49.36	$	46.76	$	46.34	$	43.40

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	Quarter Ended
Including Vistana as if acquired on January 1 of the earliest period shown:	March 31,		June 30,		September 30,		December 31,
2017
Vacation Ownership
Total timeshare contract sales (in millions)(10)	$	143	$	142	$	136	$	141
Consolidated timeshare contract sales (in millions)(11)	$	122	$	128	$	122	$	126
Volume per guest(12)	$	3,267	$	3,036	$	2,884	$	3,036
Tour flow(13)		36,776		41,689		41,831		41,100
Exchange and Rental
Average revenue per member(15)	$	52.12	$	47.39	$	46.47	$	44.32
2016
Vacation Ownership
Total timeshare contract sales (in millions)(10)	$	138	$	122	$	127	$	128
Consolidated timeshare contract sales (in millions)(11)	$	117	$	106	$	111	$	115
Volume per guest(12)	$	3,406	$	2,867	$	2,859	$	2,974
Tour flow(13)		33,691		36,239		38,253		38,098
Exchange and Rental
Average revenue per member(15)	$	53.28	$	48.54	$	46.34	$	43.40

(1) Refer to “ILG’s Principles of Financial Reporting” within Item 7 of this annual report on Form 10‑K for definitions of these non‑GAAP measures. Additionally, refer to “Reconciliations of Non‑GAAP Measures” within Item 7 for full reconciliations of these non‑GAAP measures to their respective GAAP measures.

(2) Represents the compensation and other employee‑related costs directly associated with managing properties that are included in both revenue and expenses and that are passed on to the property owners or homeowners associations without mark‑up. Cost reimbursement revenue of the Vacation Ownership segment also includes reimbursement, without mark-up, of certain sales and marketing expenses and, in some cases, certain other expenses, pursuant to contractual arrangements.

(3) Represents Interval Network, Vistana Signature Network and Hyatt Residence Club transactional and service fees paid primarily for exchanges, Getaways, reservation servicing and related transactions.

(4) Represents fees paid for membership in the Interval Network, Vistana Signature Network and Hyatt Residence Club.

(5) Includes revenue related to insurance and travel‑related services provided to Interval Network members.

(6) Represents rentals generated by the Vistana Signature Network and Hyatt Residence Club mainly to monetize inventory to provide exchanges through hotel loyalty programs.

(7) Includes revenue related primarily to exchange and rental transaction activity and membership programs outside of the Interval Network, Vistana Signature Network and Hyatt Residence Club, sales of marketing materials primarily for point‑of‑sale developer use, and certain financial services‑related fee income.

(8) Represents rental management revenue earned by our vacation rental businesses within our Exchange and Rental segment, exclusive of cost reimbursement revenue.

(9) As part of the continued integration of our VO business, in the fourth quarter of 2017 we harmonized and clarified the calculation of total timeshare contract sales and consolidated timeshare contract sales to report all sales gross of incentives. In order to aid comparability, we have recast prior periods.

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(10) Represents total timeshare interests sold at consolidated and unconsolidated projects pursuant to purchase agreements, gross of incentives and net of actual cancellations and rescissions, where we have met a minimum threshold amounting to a 10% down payment of the contract purchase price during the period. For upgrade sales, we include only the incremental value purchased.

(11) Represents total timeshare interests sold at consolidated projects pursuant to purchase agreements, gross of incentives and net of actual cancellations and rescissions, where we have met a minimum threshold amounting to a 10% down payment of the contract purchase price during the period. For upgrade sales, we include only the incremental value purchased.

(12) Represents consolidated timeshare contract sales excluding telesales, divided by tour flow during the period.

(13) Represents the number of sales presentations given at sales centers (other than at unconsolidated properties) during the period.

(14) Represents active members of the Interval Network as of the end of the period. Active members are members in good standing that have paid membership fees and any other applicable charges in full as of the end of the period or are within the allowed grace period. All Hyatt Residence Club members and Vistana Signature Network members are also members of the Interval Network.

(15) Represents membership fee revenue, transaction revenue and ancillary member revenue for the Interval Network, Hyatt Residence Club and Vistana Signature Network for the applicable period divided by the monthly weighted average number of active members during the applicable period.

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

GENERAL

The following Management Discussion and Analysis provides a comparative discussion of the results of operations and financial condition of ILG for the three years ended December 31, 2017. This section should be read in conjunction with the consolidated financial statements and accompanying notes included in this Form 10‑K for the year ended December 31, 2017, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). This discussion includes the following sections:

· Management Overview

· Critical Accounting Policies and Estimates

· Results of Operations

· Financial Position, Liquidity and Capital Resources

· ILG’s Principles of Financial Reporting

· Reconciliations of Non‑GAAP Measures

MANAGEMENT OVERVIEW

General Description of our Business

ILG is a leading provider of professionally delivered vacation experiences and the exclusive global licensee for the Hyatt, Sheraton and Westin brands in vacation ownership. We operate in two segments: Vacation Ownership (VO) and Exchange and Rental. The Vacation Ownership operating segment consists of the VOI sales and financing business of Vistana and HVO as well as the management related business of Vistana, HVO, VRI, TPI and VRI Europe. The Exchange and Rental operating segment consists of Interval, the Vistana Signature Network, the Hyatt Residence Club, the TPI operated exchange business, and Aqua-Aston Holdings, Inc.

Vacation Ownership engages in the sales, marketing, financing, and development of vacation ownership interests; the management of vacation ownership resorts; and related services to owners and associations. Exchange and Rental offers access to vacation accommodations and other travel‑related transactions and services to leisure travelers, by

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providing vacation exchange services and vacation rentals, working with resort developers and operating vacation rental properties.

Vacation Ownership Services

Revenue from the VO segment is derived principally from sales of VOIs and related fees earned by Vistana and HVO, interest income earned for financing these sales, fees for resort operations and HOA management services, and rental and ancillary revenues, including from hotels owned by Vistana and HVO.

Vistana and HVO sell, market, finance, develop and, in the case of HVO, license, the brand for vacation ownership products. Purchasers are generally automatically enrolled in either the Vistana Signature Network or the Hyatt Residence Club as well as the Interval Network. In addition, HVO receives fees for sales and marketing, brand licensing and other services provided to properties where the developer is not controlled by us.

Sales of VOIs may be made in exchange for cash or we may provide financing to qualified customers. These loans generally bear interest at a fixed rate, have a term of up to 15 years and require a minimum 10% down payment. The typical financing agreement provides for monthly payments of principal and interest, with the principal balance of the loan fully amortizing over the term of the related vacation ownership note receivable. Our financing propensity for the year ended December 31, 2017 was approximately 68%. Historical default rates, which represent the trailing twelve months of defaults as a percentage of each period’s beginning gross vacation ownership notes receivable balance, were 4.5% and 4.4% as of December 31, 2017 and 2016, respectively.

We have exclusive global master license agreements with Starwood for use of the Westin and Sheratonbrands in vacation ownership and with Hyatt Hotels Corporation for the use of the Hyattbrand in vacation ownership.

We provide management services to over 200 vacation ownership properties and/or their associations through Vistana, HVO, TPI, VRI and VRI Europe. Vistana and HVO provide management services for their respective branded luxury and upper upscale resorts. TPI and VRI provide property management, homeowners’ association management and related services to timeshare resorts in North America. VRI Europe manages vacation ownership resorts in Spain and the Canary Islands, the United Kingdom, France and Portugal. Our management services are provided pursuant to agreements with terms generally ranging from one to ten years (with several indefinite lived contracts in Europe), many of which are automatically renewable. Management fees are negotiated amounts for management and other specified services, and at times (including for most of the Vistana and HVO properties) are based on a cost-plus arrangement.

Exchange & Rental Services

Our Exchange and Rental segment offers owners, members and guests access to world-class destinations and an array of benefits and services. These are provided through vacation exchange within the Interval Network, the Vistana Signature Network, the Hyatt Residence Club and TPI as well as vacation rentals through these businesses and Aqua-Aston.

The Exchange and Rental segment earns most of its revenue from (i) fees paid for membership in the Interval Network, the Vistana Signature Network and the Hyatt Residence Club and (ii) Interval Network, Vistana Signature Network and Hyatt Residence Club transactional and service fees paid primarily for exchanges, Getaway rentals, reservation servicing, and related transactions collectively referred to as “transaction revenue.” Revenue is also derived from club rentals, rental management and other related activities.

Interval, which operates the Interval Network, has been a leader in the vacation exchange services industry since its founding in 1976. As of December 31, 2017, this quality global vacation ownership membership exchange network included Vistana Signature Network and Hyatt Residence Club resorts and owners among its large and diversified base of participating resorts consisting of nearly 3,200 resorts located in over 80 countries and approximately 1.8 million members.

Interval typically enters into multi‑year contracts with developers of vacation ownership resorts, pursuant to which the resort developers agree to enroll all purchasers of vacation interests at the applicable resort as members of the

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Interval exchange program. Members may also enroll directly, for instance, when they purchase a VOI through resale or HOA affiliation at a resort that participates in the Interval Network. In return, Interval provides members with the ability to exchange their VOI occupancy rights (whether denominated in weeks or points) for comparable, alternative accommodations at another resort and/or occupancy period, or for another vacation experience.

Both the Vistana Signature Network and the Hyatt Residence Club provide enhanced flexibility for owners to utilize their VOIs within the applicable network. In exchange for these services, we earn club and transaction fees. The Vistana Signature Network currently encompasses owners at 21 resorts while the Hyatt Residence Club has 16 resorts. We also operate additional exchange programs including TPI’s exchange business.

All of these businesses earn revenue from rentals of inventory not being used for exchange and, in the case of Interval, additional third party accommodations utilized for Getaways. Vistana Signature Network and Hyatt Residence Club rentals are transacted mainly to monetize inventory to provide exchanges through hotel loyalty programs. Interval also monetizes inventory to support Interval Options. In addition, Interval offers sales, marketing and operational support, consulting and back-office services, including reservation servicing, to certain resort developers participating in the Interval Network, upon their request and for additional consideration.

This segment also provides vacation rental through Aqua‑Aston as part of a comprehensive package of rental, marketing and management services offered to vacation property owners, primarily of Hawaiian properties. Revenue from our vacation rental business is derived principally from fees for rental services and related management of hotels, condominium resorts and homeowners’ associations. Agreements with owners at many of vacation rental’s managed hotel and condominium resorts provide that owners receive either specified percentages of the revenue generated under our management or, in limited instances, guaranteed dollar amounts. Management fees consist of a base management fee and, in some instances, an incentive management fee which is generally a percentage of operating profits or improvement in operating profits. Service fee revenue is based on the services provided to owners including reservations, sales and marketing, property accounting and information technology services either internally or through third party providers.

International Revenue

	Year ended December 31,
			%			%
	2017		change	2016		change		2015
	(Dollars in millions)
International revenue	$	273	34%	$	203	69%	$	120
As a percentage of total revenue		15%	—		15%	(13)%		17%

International revenue increased 34% in 2017 compared to 2016, and increased 69% in 2016 compared to 2015. The increase in 2017 is principally due to the inclusion of Vistana and its Mexican and Caribbean operations for the full year period and the launch of our Westin Aventuras club product in June of 2017. As a percentage of our total revenue, international revenue remained consistent at 15% in 2017 and 2016, which was a decrease from 17% in 2015.

Basis of Presentation and Accounting Estimates

The accompanying consolidated financial statements have been prepared in accordance with GAAP and reflect the financial position and operating results of ILG. ILG’s management is required to make certain estimates and assumptions during the preparation of its consolidated financial statements in accordance with GAAP. These estimates and assumptions impact the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. They also impact the reported amount of net earnings during any period. Actual results could differ from those estimates.

Significant estimates underlying the accompanying consolidated financial statements include:

· the recovery of long‑lived assets as well as goodwill and other intangible assets;

· purchase price allocations of business combinations;

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· allowance for loan losses for vacation ownership mortgages receivable;

· accounting for acquired vacation ownership mortgages receivable;

· revenue recognition pertaining to sales of vacation ownership products pursuant to the percentage of completion method;

· cost of vacation ownership product sales related estimates included in our relative sales value calculation, such as future projected sales revenue and expected project costs to complete;

· the accounting for income taxes including deferred income taxes and related valuation allowances;

· the determination of deferred revenue and deferred membership costs; and

· the determination of stock‑based compensation.

In the opinion of ILG’s management, the assumptions underlying the historical consolidated financial statements of ILG and its subsidiaries are reasonable.

Other Factors Affecting Results

On May 11, 2016, we acquired the vacation ownership business of Starwood, now known as Vistana. The results of operations of this business are included in our consolidated results following the acquisition date within both our Vacation Ownership and Exchange and Rental segments. Consequently, this acquisition affected the year-over-year comparability of our results of operations for the year ended December 31, 2017 with respect to comparisons against the prior year results which include pre-acquisition time periods. In September 2016, Starwood was acquired by Marriott International, Inc.

In September 2017, Hurricanes Irma and Maria affected several Vistana and HVO resorts and sales centers, as well as nearly 300 properties within the Interval Network or managed by VRI or Aqua-Aston Hospitality. In particular, resorts in the U.S. Virgin Islands, St. Maarten, Puerto Rico, and Florida were in the path of these storms. Many of the resorts were only affected for a short period; however, The Westin St. John Resort Villas in the U.S. Virgin Islands and Hyatt Residence Club Dorado, Hacienda del Mar, in Puerto Rico remain closed, as do many Interval Network properties on the hardest-hit islands. Three Hyatt Residence Club resorts and our HVO sales center located in Key West were closed for several weeks but re-opened in October. This sales center continues to ramp following the disruption. With that said, overall these storms did not have a material impact on our financial condition given the recoverability of property damage from expected insurance proceeds.

We estimate the impact of these storms had the following adverse effects on our 2017 results (using our 13.2% effective tax rate):

· Consolidated revenue - $21 million

· Consolidated timeshare contract sales - $16 million

· Net income attributable to common stockholders - $12 million (includes net recorded charges and estimated lost business activity)

· Adjusted EBITDA - $9 million

· Adjusted net income - $7 million

Vacation Ownership

The Vistana acquisition has increased the significance of sales and financing of VOIs, which drives a number of recurring fee-for-service revenues such as management fees and the club revenues. Lead generation is a key driver of both contract sales and volume per guest. Costs for new purchasers are generally higher than those for upgrading or selling additional VOIs to existing owners, however, sales to new owners are important for future revenue streams.

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In addition, changes to prevailing interest rates may affect our financing results to the extent we adjust the interest rate we charge or pay a higher rate for receivables financing transactions or other debt. The rentals in this segment are sourced from developer-owned inventory, as well as revenue from the hotels included in the Vistana and HVO businesses. These operations are sensitive to the same factors as the club rentals described further below.

For the United States based businesses, our management fees are paid by the HOAs and funded from the annual maintenance fees paid by the individual owners to the association. Most of VRI Europe revenue is based on a different model. Typically, VRI Europe charges vacation owners directly an annual fee intended to cover property management, all resort operating expenses and a management profit. Consequently, VRI Europe’s business model normally operates at a lower gross margin than the other management businesses, when excluding cost reimbursement revenue.

Vistana, HVO, TPI and VRI also offer vacation rental services to HOAs and, in some cases, to individual timeshare owners. Vistana and HVO provide management services to HOAs and resorts that participate in their systems. VRI Europe manages resorts developed by CLC World Resorts, our joint venture partner in VRI Europe, as well as independent homeowners’ associations.

Exchange & Rental

The vacation exchange business has evolved with the growth of developer proprietary exchange networks, such as the Marriott Destination Club, THE Club by Diamond Resorts, the Hilton Grand Vacation Club, the Vistana Signature Network and the Hyatt Residence Club. The external exchange networks, such as the Interval Network, still provide a larger array of choices for members of the proprietary networks. However, with the consolidation among developers over the last several years, external exchange networks have been challenged to grow as a smaller number of developers has focused a higher percentage of their sales on existing owners instead of new buyers than they have historically. During this period, ILG has broadened its exchange platform to include both external exchange networks and proprietary developer networks. Additionally, ILG has put a greater focus on relationships with and increased marketing to HOAs and resellers in order to augment developer enrollments.

Our full year 2017 results continue to be negatively affected by a shift in the percentage mix of the Interval Network membership base from traditional and direct renewal members to corporate members. Our corporate developer accounts enroll and renew their entire active owner base which positively impacts our retention rate; however, these members tend to have a lower propensity to transact with us as corporate developers often operate their own proprietary exchange programs. While the corporate membership mix on average for the full year 2017 was slightly higher than 2016, as of December 31, 2017, the membership mix was 57% traditional and 43% corporate members, compared to 56% and 44%, respectively, as of December 31, 2016.

An increasingly important part of the value proposition we provide to our members consists of rentals. In the Interval Network, Getaways provide additional discounted vacation opportunities for members without the need to exchange their VOIs, while our proprietary clubs rent inventory in order to provide exchange opportunities to branded hotels through the SPG and World of Hyatt program, as applicable. These rentals and our Aqua-Aston business are sensitive to general economic conditions, inventory supply and pricing in the applicable markets.

U.S. Tax Reform

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Reform Act"). Changes in tax law are accounted for in the period of enactment. The Tax Reform Act significantly changes U.S. tax law by, among other things, lowering the statutory corporate tax rate from 35% to 21% effective in 2018, eliminating certain deductions, requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years, introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax. The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to

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address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. SAB 118 allows registrants to record provisional amounts during a one year “measurement period” similar to that used when accounting for business combinations. We have not completed our determination of the accounting implications of the Tax Reform Act on our tax accruals. However, we have reasonably estimated the effects of the Tax Reform Act and recorded provisional amounts in our financial statements as of December 31, 2017. We recorded a provisional tax benefit for the impact of the Tax Reform Act of approximately $51 million. This amount is primarily comprised of the remeasurement of federal net deferred tax liabilities resulting from the permanent reduction in the U.S. statutory corporate tax rate from 35% to 21%, partially offset by the mandatory one-time tax on the accumulated earnings of our foreign subsidiaries. See Note 19 accompanying our consolidated financial statements.

Outlook

We expect additional consolidation within the vacation ownership industry leading to increased competition in our businesses. This leads to challenges for our external exchange business that relies on new buyers for additional members. Through the growth of our proprietary clubs and our engagement with HOAs, we plan to increase customer engagement and generate new members.

Our vacation ownership sales and financing businesses are positioned to grow through development of additional phases at existing resorts, converting properties to vacation ownership, adding resorts in attractive markets and expanding our sales distribution capabilities. For 2018, we expect to open additional phases at the following resorts: 

· Hyatt Residence Club Bonita Springs, Coconut Plantation

· The Westin Desert Willow Villas

· The Westin Resort and Spa Cancun

· Sheraton Kauai Resort

· Hyatt Residence Club San Antonio, Wild Oak Ranch

Additionally, we opened sales centers in 2017 in Maui, Los Cabos, Key West and Bonita Springs. We expect the volume at these sales centers to continue to ramp up throughout 2018. As we expand our sales distribution, we have faced competition for talent.

Hurricane related impact

Our Westin resort and sales gallery in St. John and our Hyatt Residence Club resort in Puerto Rico will remain closed throughout 2018. Additionally, approximately 50 Interval affiliated resorts were still closed as of the end of 2017, most of which are located in the heavily damaged islands of St. Maarten and Puerto Rico. Therefore, we expect a continuing impact to our results in 2018.

U.S. Tax Reform

On December 22, 2017, the President of the United States signed into law the Tax Reform Act, which lowered the federal corporate tax rate from 35% to 21% effective in 2018 and made numerous other tax law changes. We have not completed our determination of the accounting implications of the Tax Reform Act on our tax accruals. However, we have reasonably estimated the effects of the Tax Reform Act and recorded provisional amounts in our financial statements as of December 31, 2017. The ultimate impact of the Tax Reform Act may differ, possibly materially, from these provisional amounts due to among other things, additional analysis, changes in interpretations and assumptions ILG has made, additional regulatory guidance that may be issued, and actions ILG may take as a result of the Tax 

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Reform Act. Any such revisions will be treated in accordance with the measurement period guidance outlined in SAB 118.  As such, we expect to complete our analysis no later than December 22, 2018.

The Tax Reform Act is comprehensive tax legislation containing several other provisions that will affect 2018 and later years and which will need to be further analyzed by ILG. Such additional provisions, beginning in 2018, include two new U.S. tax base erosion provisions, the global intangible low-taxed income provisions and the base-erosion and anti-abuse tax provisions. See Note 19 accompanying our consolidated financial statements.

New revenue recognition accounting standard

In May 2014, the FASB issued ASU 2014‑09, “Revenue from Contracts with Customers (Topic 606) (“ASU 2014‑09”), as discussed in greater detail in Note 2 accompanying our consolidated financial statements. The ASU is effective for fiscal years beginning after December 15, 2017 (and interim periods within that period). The core principle of the guidance in ASU 2014‑09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. At this time, we plan to adopt this standard on January 1, 2018 using the retrospective adoption method, which will require us to restate our consolidated financial statements for fiscal years 2016 and 2017, as well as the interim periods of 2017.

We performed an evaluation of the impact of adopting this standard as of January 1, 2018 and currently expect the main areas of impact will include:

· earlier recognition of certain VOI sales where the transaction price was deemed collectable yet we were deferring recognition due to specific buyers’ commitment requirements under legacy GAAP;  

· gross versus net presentation changes which would not impact profitability, such as incentives provided to customers on vacation ownership interest VOI sales (e.g., SPG points), management fees attributable to unsold VOI inventory, and administrative fees for VOI sales;

· classification of certain trial vacation package sales which would also not impact profitability;

· capitalization of certain incremental costs to obtain a contract related to trial vacation package sales;

· the instances in which we can apply the percentage of completion revenue recognition method when construction of a vacation ownership project is not complete;

· classification of certain payments to developers in our exchange business who are functioning as agents in the member acquisition process.

We currently estimate that our 2016 beginning retained earnings will be reduced by less than $1 million as a result of this adoption, and that our 2016 and 2017 consolidated income statement will be impacted as follows:

· total revenues will increase by approximately $11 million in 2016 and will decrease by approximately $3 million in 2017.

· total expenses will increase by approximately $4 million in 2016 and decrease by approximately $9 million in 2017.

· net income attributable to common stockholders for both periods will increase by $5 million.

· diluted earnings per share will increase by $0.05 and $0.04, respectively.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates which are based on historical experience and on various other judgments and assumptions that we believe are reasonable under the circumstances. Actual outcomes could differ from those estimates due to changes in judgments, assumptions, and conditions as a result of unforeseen events or otherwise, which could have a material effect on our financial position or results of operations.

Our significant accounting policies are discussed in Note 2 accompanying our consolidated financial statements and should be reviewed in connection with the following discussion. Set forth below are the policies and estimates that we have identified as critical to our business operations and an understanding of our results of operations, based on the high degree of judgment or complexity in their application.

Revenue Recognition

Vacation Ownership

Revenue from the Vacation Ownership segment is derived principally from sales of VOIs and related fees earned by Vistana and HVO, interest income earned for financing these sales, maintenance fees, fees for vacation ownership resort and homeowners’ association management services, and rental and ancillary revenues, including from hotels owned by Vistana and HVO.

Sales of VOIs

ILG recognizes revenue from sales of VOIs in accordance with Financial Accounting Standard Board (FASB) Accounting Standards Codification (ASC) 970, Real Estate—General, and FASB ASC 978, Real Estate—Time‑Sharing Activities. The stated sales price of the VOI is divided into separate revenue components, which include the revenue earned on the sale of the VOI and the revenue earned on the sales incentive given to the customer as motivation to purchase the VOI. We at times offer several types of sales incentives, including SPG and World of Hyatt points, free bonus week, and down payment credits to buyers.

Consolidated VOI sales are recognized and included in revenues after a binding sales contract has been executed, a 10% minimum down payment has been received as a measure of substantiating the purchaser’s commitment, the rescission period has expired, and construction is substantially complete. Pursuant to accounting rules for real estate time‑sharing transactions, as part of determining when we have met the criteria necessary for revenue recognition we must also take into consideration the fair value of certain incentives provided to the purchaser when assessing the adequacy of the purchaser’s initial down-payment. The agreement for sale generally provides for a down payment and a note secured by a mortgage payable in monthly installments, including interest, over a typical term ranging from 5 - 15 years. Customer deposits relating to contracts cancelled after the applicable rescission period are forfeited and recorded in revenue at the time of forfeiture.

If construction of the vacation ownership product is not complete, we determine the portion of revenues to recognize based upon the percentage of completion method, which includes judgments and estimates, including total project costs to complete. There were no deferrals as of December 31, 2017 and 2016 on our consolidated balance sheet pertaining to the application of percentage of completion accounting.

The provision for loan losses is recorded as an adjustment to sales of VOIs in the accompanying consolidated income statements rather than as an adjustment to bad debt expense. ILG records an estimate of uncollectible amounts at the time of the interval sale.

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We capitalize direct costs attributable to the sale of VOIs until the sales are recognized. All such capitalized costs are included in prepaid expenses and other current assets in the consolidated balance sheets. If a contract is cancelled, we charge the unrecoverable direct selling costs to expense. Indirect sales and marketing costs are expensed as incurred.

Management fee and other revenue

Management fees and other revenue in this segment consist of base management fees, service fees, and annual maintenance fees, as applicable. Annual maintenance fees are amounts paid by timeshare owners for maintaining and operating the respective properties, which includes management services, and are recognized on a straight‑line basis over the respective annual maintenance period. Our day-to-day management services include activities such as housekeeping services, operation of a reservation system, maintenance, and certain accounting and administrative services. We receive compensation for such management services, which is generally based on either a percentage of the budgeted cost to operate such resorts or a fixed fee arrangement.

Resort operations revenue

Our resort operations activities are largely comprised of transient rental income at our vacation ownership and owned-hotel properties. We record rental revenue when occupancy has occurred or, in the case of unused prepaid rentals, upon forfeiture. Other ancillary services revenue consists of goods and services that are sold or provided by us at restaurants, golf courses and other retail and service outlets located at developed resorts. We recognize ancillary services revenue when goods have been provided and/or services have been rendered.

Exchange and Rental

Membership fee revenue

Revenue, net of sales incentives, from membership fees from our Exchange and Rental segment is deferred and recognized over the terms of the applicable memberships, typically ranging from one to five years, on a straight‑line basis. When multiple member benefits and services are provided over the term of the membership, revenue is recognized for each separable deliverable ratably over the membership period, as applicable. Generally, memberships are cancelable and refundable on a pro‑rata basis, with the exception of Interval Network’s Platinum tier which is non‑refundable. Direct costs of acquiring members (primarily commissions) and certain direct fulfillment costs related to deferred membership revenue are also deferred and amortized on a straight‑line basis over the terms of the applicable memberships or benefit period, whichever is shorter. Following the implementation of a proprietary IT platform in the fourth quarter of 2014, recognition of deferred membership revenue and expense is at the individual member‑level. The recognition of any remaining deferred revenue and expense originated prior to implementation is based on estimates derived from an aggregation of member‑level data.

Transaction revenue

Revenue from exchanges, Getaway transactions and other fee-based services provided to members of our networks is recognized when confirmation of the transaction is provided or services have been rendered as the earnings process is complete. Reservation servicing revenue is recognized when the service is performed or on a straight‑line basis over the applicable service period. All taxable revenue transactions are presented on a net‑of‑tax basis.

Club rental revenue

Club rental revenue represents rentals generated by the Vistana Signature Network and Hyatt Residence Club mainly to monetize inventory at their vacation ownership resorts to provide exchanges for our members through hotel loyalty programs. Revenue related to club rentals is recognized when occupancy has occurred.

Rental management revenue

Revenue from our vacation rental management businesses is comprised of base management fees which are typically either (i) fixed amounts, (ii) amounts based on a percentage of adjusted gross lodging revenue, or (iii) various

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revenue sharing arrangements with condominium owners based on stated formulas. Base management fees are recognized when earned in accordance with the terms of the contract. Incentive management fees for certain hotels and condominium resorts are generally a percentage of operating profits or improvement in operating profits. We recognize incentive management fees as earned throughout the incentive period based on actual results which are trued‑up at the culmination of the incentive period. Service fee revenue is based on the services provided to owners including reservations, sales and marketing, property accounting and information technology services either internally or through third party providers. Service fee revenue is recognized when the service is provided.

General

Cost reimbursement revenue

Represents the compensation and other employee-related costs directly associated with managing properties that are included in both revenue and cost of sales and that are passed on to the property owners or homeowner associations without mark-up. Cost reimbursement revenue of the Vacation Ownership segment also includes reimbursement of sales and marketing expenses, without mark-up, pursuant to contractual arrangements. Management believes presenting gross margin excluding these expenses provides management and investors a relevant period-over-period comparison.

Deferred revenue in a business combination

When we acquire a business which records deferred revenue on their historical financial statements, we are required to re‑measure that deferred revenue as of the acquisition date pursuant to rules related to accounting for business combinations, as described further below. The post‑acquisition impact of that remeasurement results in recognizing revenue which solely comprises the cost of the associated legal performance obligation we assumed as part of the acquisition, plus a normal profit margin. At times, this purchase accounting treatment results in lower amounts of revenue recognized in a reporting period following the acquisition than would have otherwise been recognized on a historical basis.

Multiple‑element arrangements

When we enter into multiple‑element arrangements, we are required to determine whether the deliverables in these arrangements should be treated as separate units of accounting for revenue recognition purposes and, if so, how the contract price should be allocated to each element. We analyze our contracts upon execution to determine the appropriate revenue recognition accounting treatment. Our determination of whether to recognize revenue for separate deliverables will depend on the terms and specifics of our products and arrangements as well as the nature of changes to our existing products and services, if any. The allocation of contract revenue to the various elements does not change the total revenue recognized from a transaction or arrangement, but may impact the timing of revenue recognition.

Sales type taxes

All taxable revenue transactions are presented on a net‑of‑tax basis.

Vacation Ownership Mortgages Receivable and Allowance for Loan Losses

Vacation ownership mortgages receivable consist of loans to eligible customers who purchase VOIs and choose to finance their purchase. These mortgages receivable are collateralized by the underlying VOI, generally bear interest at a fixed rate, have a typical term ranging from 5 - 15 years and are generally made available to customers who make a down payment on the purchase price within established credit guidelines.

Vacation ownership mortgages receivable are composed of mortgage loans related to our financing of vacation ownership interval sales. Included within our vacation ownership mortgages receivable are originated loans and loans acquired in connection with our acquisitions of Vistana and HVO.

Acquired loans are segregated between those with deteriorated credit quality at acquisition and those deemed as performing. To make this determination, we consider such factors as credit collection history, past due status,

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non‑accrual status, credit risk ratings, interest rates and the underlying collateral securing the loans. The fair value of acquired loans deemed performing is determined by discounting cash flows, both principal and interest, for the loan pool at market interest rates while giving consideration to anticipated future defaults. The difference between fair value and principal balances due at acquisition date is accreted to interest income, within consolidated revenue, over the estimated life of the loan pool.

The collection activity associated with our securitized vacation ownership notes receivable determines the amount of our monthly repayments against our securitized debt. Collection activity includes contractual payments due and prepayments. In addition, defaulted loans are generally removed from the securitized pool and are substituted or repurchased, while upgraded loans are repurchased, for debt repayment purposes. The securitized debt is non-recourse without a specific repayment schedule. As the amount of each principal payment is contingent on the cash flows from underlying vacation ownership mortgages receivable in a given period, we have not disclosed future contractual debt repayments. Additionally, our vacation ownership mortgages receivable securitization agreements allow us to receive the net excess cash flows (spread between the collections on the notes and payments for third party obligations as defined in the securitization agreements) from the VIEs provided we do not exceed certain triggers related to default levels and collateralization of the securitized pool, as discussed in Note 13 accompanying our consolidated financial statements.

Allowance for Loan Losses

For originated loans, we record an estimate of uncollectability as a reduction of sales of VOIs in the accompanying consolidated statements of income at the time revenue is recognized on a VOI sale. We evaluate our originated loan portfolio collectively as they are largely homogeneous, smaller‑balance, vacation ownership mortgages receivable. We use a technique referred to as static pool analysis, which tracks uncollectibles over the entire life of those mortgages receivable, as the basis for determining our general reserve requirements on our vacation ownership mortgages receivable. The adequacy of the related allowance is determined by management through analysis of several factors, such as current economic conditions and industry trends, as well as the specific risk characteristics of the portfolio, including defaults, aging, and historical write‑offs of these receivables. The allowance is maintained at a level deemed adequate by management based on a periodic analysis of the mortgage portfolio.

We had $54 million and $22 million of allowance for loan losses as of December 31, 2017 and 2016, respectively, pertaining entirely to our originated loan portfolio. Changes in the estimates used in developing our default rates could result in a material change to our allowance. A 10% increase to our default rates used in the allowance calculation would increase our allowance for loan losses by approximately $6 million.

We generally determine our originated vacation ownership mortgages receivable to be nonperforming if either interest or principal is more than 30 days past due. All non‑performing loans are placed on non‑accrual status and we do not resume interest accrual until the receivable becomes contractually current. We apply payments we receive for vacation ownership notes receivable on non‑performing status first to interest, then to principal, and any remainder to fees.

Loans acquired in connection with a business combination are recorded at their estimated fair value on their purchase date with no carryover of the related allowance for loan losses. Performing acquired loans are subsequently evaluated for any required allowance at each reporting date. Refer to Note 5 accompanying our consolidated financial statements for additional information on our acquired loans.

Accounting for Business Combinations

In accordance with ASC Topic 805, “Business Combinations,” when accounting for business combinations we are required to recognize the assets acquired, liabilities assumed, contractual contingencies, noncontrolling interests and contingent consideration at their fair value as of the acquisition date. These items are recorded on our consolidated

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balance sheets based upon their estimated fair values at such acquisition date. The results of operations of acquired businesses are included in the consolidated statements of income since their respective acquisition dates.

The purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets, estimated contingent consideration payments and/or pre‑acquisition contingencies, all of which ultimately affect the fair value of goodwill established as of the acquisition date. Goodwill acquired in business combinations is assigned to the reporting unit(s) expected to benefit from the combination as of the acquisition date and is then subsequently tested for impairment at least annually. If the fair value of the net assets acquired exceeds the purchase price consideration, we record a gain on bargain purchase. However, in such a case, before the measurement period closes we perform a reassessment to reconfirm whether we have correctly identified all of the assets acquired and all of the liabilities assumed as of the acquisition date.

As part of our accounting for business combinations we are required to determine the useful lives of identifiable intangible assets recognized separately from goodwill. The useful life of an intangible asset is the period over which the asset is expected to contribute directly or indirectly to the future cash flows of the acquired business. An intangible asset with a finite useful life shall be amortized; an intangible asset with an indefinite useful life shall not be amortized. We base the estimate of the useful life of an intangible asset on an analysis of all pertinent factors, in particular, all of the following factors with no one factor being more presumptive than the other:

· The expected use of the asset.

· The expected useful life of another asset or a group of assets to which the useful life of the intangible asset may relate.

· Any legal, regulatory, or contractual provisions that may limit the useful life.

· Our own historical experience in renewing or extending similar arrangements, consistent with our intended use of the asset, regardless of whether those arrangements have explicit renewal or extension provisions.

· The effects of obsolescence, demand, competition, and other economic factors.

· The level of maintenance expenditures required to obtain the expected future cash flows from the asset.

If no legal, regulatory, contractual, competitive, economic, or other factors limit the useful life of an intangible asset to the reporting entity, the useful life of the asset shall be considered to be indefinite. The term indefinite does not mean the same as infinite or indeterminate. The useful life of an intangible asset is indefinite if that life extends beyond the foreseeable horizon—that is, there is no foreseeable limit on the period of time over which it is expected to contribute to the cash flows of the acquired business.

Although we believe the assumptions and estimates we have made have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired entity and are inherently uncertain. Examples of critical estimates in accounting for acquisitions include but are not limited to:

· future expected cash flows from sales of products and services and related contracts and agreements;

· discount and long‑term growth rates; and

· the estimated fair value of the acquisition‑related contingent consideration, which is performed using a probability‑weighted income approach based upon the forecasted achievement of post‑acquisition pre‑determined targets;

Unanticipated events and circumstances may occur which could affect the accuracy or validity of our assumptions, estimates or actual results. Additionally, any change in the fair value of the acquisition‑related contingent consideration subsequent to the acquisition date, including changes resulting from events that occur after the acquisition date, such as changes in our estimated fair value of the targets that are expected to be achieved, will be recognized in earnings in the period of the change in estimated fair value.

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Additionally, when acquiring a company who has recorded deferred revenue in its historical, pre‑acquisition financial statements, we are required as part of purchase accounting to re‑measure the deferred revenue as of the acquisition date, as discussed in the Revenue Recognition section above.

Recoverability of Goodwill and Indefinite-Lived Intangible Assets

Our Policy

Goodwill and other intangible assets are significant components of our consolidated balance sheets. Our policies regarding the valuation of intangible assets affect the amount of future amortization and possible impairment charges we may incur. Assumptions and estimates about future values and remaining useful lives of our intangible and other long‑lived assets are complex and subjective. They can be affected by a variety of factors, including external factors such as consumer spending habits and general economic trends, and internal factors such as changes in our business strategy and our internal forecasts.

Goodwill acquired in business combinations is assigned to the reporting unit(s) expected to benefit from the combination as of the acquisition date. In accordance with ASC 350, we review the carrying value of goodwill and other intangible assets of each of our reporting units on an annual basis as of October 1, or more frequently upon the occurrence of certain events or substantive changes in circumstances, based on either a qualitative assessment or a two‑step impairment test. Our reporting units within each of our Vacation Ownership and Exchange and Rental operating segments are as follows:

OPERATING SEGMENTS
Vacation Ownership	Exchange and Rental
VO management reporting unit	Exchange reporting unit
VO sales and financing reporting unit	Rental reporting unit

During the year, we monitor the actual performance of our reporting units relative to the fair value assumptions used in our annual impairment test, including potential events and changes in circumstance affecting our key estimates and assumptions.

Qualitative Assessment

The qualitative assessment may be elected in any given year pursuant to ASC 350. Under this guidance, entities testing goodwill for impairment have the option of performing a qualitative assessment before calculating the fair value of a reporting unit. If entities determine, on the basis of qualitative factors, that it is more‑likely‑than‑not (i.e., a likelihood of more than 50 percent) that the fair value of the reporting unit is below the carrying amount, the two‑step impairment test would be required. The guidance also provides the option to skip the qualitative assessment in any given year and proceed directly with the two‑step impairment test at our discretion.

Our qualitative assessment is performed for the purpose of assessing whether events or circumstances have occurred in the intervening period between the date of our last two‑step impairment test (the “Baseline Valuation”) and the date of our current annual impairment test which could adversely affect the comparison of our reporting units’ fair value with its carrying amount. Examples of events and circumstances that might indicate that a reporting unit’s fair value is less than its carrying amount include macro‑economic conditions such as deterioration in the entity’s operating environment, industry or overall market conditions; reporting unit specific events such as increasing costs, declining financial performance, or loss of key personnel or contracts; or other events such as pending litigation, access to capital in the credit markets or a sustained decrease in ILG’s stock price on either an absolute basis or relative to peers. If it is determined, as a result of the qualitative assessment, that it is more‑likely‑than‑not that the fair value of a reporting unit is less than its carrying amount, we are then required to perform a two‑step impairment test on goodwill.

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Two‑step Impairment Test

The first step of the impairment test compares the fair value of each reporting unit with its carrying amount including goodwill. The fair value of each reporting unit is calculated using the average of an income approach and a market comparison approach which utilizes similar companies as the basis for the valuation. If the carrying amount exceeds fair value, then the second step of the impairment test is performed to measure the amount of any impairment loss. The impairment loss is determined by comparing the implied fair value of goodwill to the carrying value of goodwill. The implied fair value of goodwill represents the excess of the fair value of the reporting unit over amounts assigned to its net assets.

The determination of fair value utilizes an evaluation of historical and forecasted operating results and other estimates. Fair value measurements are generally determined through the use of valuation techniques that may include a discounted cash flow approach, which reflects our own assumptions of what market participants would use in pricing the asset or liability.

Indefinite‑Lived Intangible Assets

Our intangible assets with indefinite lives relate principally to trade names, trademarks and certain resort management contracts. Pursuant to ASC 350, if an intangible asset is determined to have an indefinite useful life, it shall not be amortized until its useful life is determined to no longer be indefinite. Accordingly, we evaluate the remaining useful life of an intangible asset that is not being amortized each reporting period to determine whether events or circumstances continue to support an indefinite useful life. As of December 31, 2017, there have been no changes to the indefinite life determination pertaining to these intangible assets.

In addition, an intangible asset that is not subject to amortization shall be tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test consists of a comparison of the fair value of an intangible asset with its carrying amount. If the carrying amount of an indefinite‑lived intangible asset exceeds its estimated fair value, an impairment loss equal to the excess is recorded. However, entities testing an indefinite‑lived intangible asset for impairment have the option of performing a qualitative assessment before calculating the fair value of the asset. If entities determine, on the basis of qualitative factors, that the likelihood of the indefinite‑lived intangible asset being impaired is below a “more‑likely‑than‑not” threshold (i.e., a likelihood of more than 50 percent), the entity would not need to calculate the fair value of the asset.

2017 Annual Impairment Test

As of October 1, 2017, we assessed the carrying value of goodwill and indefinite-lived intangible assets of each of our four reporting units pursuant to the two-step impairment approach. Goodwill assigned to VO Sales and Financing, VO Management, Exchange, and Rental, our reporting units as of that date, was $11 million, $37 million, $496 million and $20 million, respectively. The first step of the impairment test concluded the carrying value of our reporting units did not exceed its fair value; consequently, the second step of the impairment test was not necessary and goodwill was not determined to be impaired.

Key Estimates and Assumptions

The determination of fair value utilizes an evaluation of historical and forecasted operating results and other key assumptions made by management, including discount rates, utilized in the valuation of certain identifiable assets. Deterioration in macroeconomic conditions or in our results of operations or unforeseen negative events could adversely affect either of our reporting units and lead to a revision of the estimates used to calculate fair value. These key estimates and forecasted operating results may or may not occur or may be revised by management which may require us to recognize impairment losses in the future.

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With respect to our VO Sales and Financing reporting unit’s Step 1 analysis, the primary examples of key estimates include our discount rate and forecasted growth rates. As a measure of sensitivity on the income approach, as of the date of our last impairment test, a hypothetical 10% change in both our discount and long‑term growth rates and exit multiple would result in a change of $219 million in the income approach fair value of the reporting unit, or approximately 38% of the excess of the fair value of the reporting unit over its carrying value. In regards to the market comparison approach, a change in our selected EBITDA multiple by 10% would result in a change of approximately $35 million in this reporting unit’s market comparison approach fair value, or approximately 6% of the excess of the reporting unit’s fair value over its carrying value.

With respect to our VO management reporting unit's step one analysis, the primary examples of key estimates include our discount rate and forecasted growth rates. As a measure of sensitivity on the income approach, as of the date of our last impairment test, a hypothetical 10% change in both our discount and long-term growth rates would result in the fair value of the reporting unit falling below its carrying value; consequently, we would have been required to perform the second step of our impairment test to measure the amount of impairment, if any. In regards to the market comparison approach, a change in our selected EBITDA multiple by 10% would result in a change of approximately $26 million in this reporting unit’s market comparison approach fair value, or approximately 75% of the excess of the reporting unit’s fair value over its carrying value.

With respect to our exchange reporting unit's step one analysis, the primary examples of key estimates include our discount rate and forecasted sales growth rates. As previously noted, we use the average of an income approach and a market comparison approach to calculate the fair value of our reporting units. As a measure of sensitivity on the income approach, as of the date of our last impairment test, a hypothetical 10% change in both our discount and long-term growth rates would result in a change of $164 million in the income approach fair value of the reporting unit, or approximately 11% of the excess of the fair value of the reporting unit over its carrying value. In regards to the market comparison approach, a change in our selected EBITDA multiple by 10% would result in a change of approximately $100 million in the reporting unit's market comparison approach fair value, or approximately 7% of the excess of the reporting unit's fair value over its carrying value.

With respect to our rental reporting unit's step one analysis, the primary examples of key estimates include forecasted available and occupied room nights and average daily rates which drive long-term growth rates. As a measure of sensitivity on both the income and market approach, as of the date of our last impairment test, a hypothetical 10% change in both our discount and long-term growth rates with respect to the income approach, and a change of 10% in our selected EBITDA multiple with respect to the market approach, would result in the fair value of the reporting unit falling below its carrying value; consequently, we would have been required to perform the second step of our impairment test to measure the amount of impairment, if any.

Key estimates and assumptions for our reporting units can be impacted by certain potential events and changes in circumstances, as follows:

Events and trends in the vacation ownership, vacation rental and travel industries that could adversely affect consumers travel to and vacation in certain destinations and regions in which vacation rental and managed properties are located, including events such as:

· Declines in discretionary spending levels during general economic downturns.

· Inclement weather and/or natural disasters.

· Travel health concerns.

· Concerns related to terrorism, enhanced travel security measures and/or geographical/political conflicts.

Additionally, key estimates and assumptions for our reporting units can be impacted by certain potential events and changes in circumstances specific to each reporting unit, such as:

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General

· A downturn or a weakening of the economy may cause decreased demand for purchases of vacation ownership interests and vacation rentals, may increase default rates among current owners and may increase refund requests from our members.

· Failure to maintain brand standards could result in a Hyatt, Westin or Sheraton branded property losing the brand and certain material systemic defaults could result in termination of the Master License Agreement.

VO Sales and Financing

· Lack of available financing, including securitization transactions, for vacation property developers could adversely affect our ability to maintain and grow our vacation ownership sales and financing business which could adversely affect our business, financial condition and results of operations.

· Inability to develop new projects, expand existing projects or otherwise acquire vacation ownership inventory for sale.

· Loss of brand license for a particular resort or the brand as a whole.

VO Management

· Inability for us or our managed homeowners’ associations, as applicable, to levy and collect sufficient maintenance fees to cover the costs to operate and maintain the resort properties; such properties may be forced to close or file bankruptcy and may terminate our management.

· The failure to maintain existing timeshare resort management arrangements with vacation property owners/homeowners associations, and/or insolvency of several properties managed by or marketed by us.

Exchange

· Lack of available financing for vacation property developers and consumers or the potential insolvency or consolidation of developers could adversely affect our ability to maintain and grow our exchange network membership which could adversely affect our business, financial condition and results of operations.

· Our ability to maintain and renew contractual relationships with vacation ownership developers that provide new or corporate members and supply of resort accommodations for use in exchanges or Getaways.

· Our ability to motivate members to renew their existing memberships and/or otherwise engage in transactions.

Rental

· The failure to maintain existing hotel and condominium resort management and/or rental services arrangements with vacation property owners/homeowners associations, and/or insolvency of several properties managed by or marketed by us.

· A significant decrease in the supply of available vacation rental accommodations due to ongoing property renovations.

Recoverability of Long‑Lived Assets

Our Policy

We review the carrying value of all long‑lived assets- primarily property and equipment, vacation ownership inventory under construction and not in active sales, and definite‑lived intangible assets - for impairment whenever events or changes in circumstances indicate that the carrying value of a long‑lived asset (asset group) may be impaired. In accordance with guidance included within ASC Topic 360, “Property, Plant and Equipment,” recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset (asset group) to future undiscounted cash flows expected to be generated by the asset (asset group). An asset group is the lowest level of assets and liabilities

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for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. When estimating future cash flows, we consider:

· only the future cash flows that were directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the asset group;

· our own assumptions about our use of the asset group and all available evidence when estimating future cash flows;

· potential events and changes in circumstance affecting our key estimates and assumptions;

· the existing service potential of the asset (asset group) at the date tested.

If an asset (asset group) is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset (asset group) exceeds its fair value. When determining the fair value of the asset (asset group), we consider the highest and best use of the assets from a market‑participant perspective. The fair value measurement is generally determined through the use of independent third party appraisals or an expected present value technique, both of which may include a discounted cash flow approach, which reflects our own assumptions of what market participants would utilize to price the asset (asset group).

Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Assets to be abandoned, or from which no further benefit is expected, are written down to zero at the time that the determination is made and the assets are removed entirely from service.

Recoverability Test

For the years ended December 31, 2017 and 2016, we did not identify any events or changes in circumstances indicating that the carrying value of a long lived asset (or asset group) may be impaired; accordingly, a recoverability test has not been warranted.

Vacation Ownership Inventory and Cost of Sales

Our inventory consists of completed unsold vacation ownership interests, which has an operating cycle that generally exceeds twelve months, and vacation ownership projects under construction. On our consolidated balance sheet, completed unsold vacation ownership interests are presented as a current asset, while vacation ownership projects under construction are presented as a non-current asset given this inventory is in the development stage of its operating cycle. We carry our inventory presented within current assets at the lower of cost or fair value, less expected costs to sell, which can result in impairment charges and/or recoveries of previous impairments.

        We capitalize costs clearly associated with the acquisition, development and construction of a real estate project when it is probable that the project will move forward. We capitalize salary and related costs only to the extent they directly relate to the project. We capitalize interest expense, taxes and insurance costs when activities that are necessary to get the property ready for its intended use are underway. We cease capitalization of costs during prolonged gaps in development when substantially all activities are suspended or when projects are considered substantially complete.

        We account for our vacation ownership inventory and cost of vacation ownership products in accordance with the authoritative guidance for accounting for real estate time-sharing transactions which defines a specific application of the relative sales value method for reducing vacation ownership inventory and recording cost of sales. Also, pursuant to the guidance for accounting for real estate time-sharing transactions, we do not reduce inventory for the cost of vacation ownership products related to anticipated credit losses (accordingly, no adjustment is made when inventory is reacquired upon default of originated receivables).

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These standards provide for changes in estimates within the relative sales value calculations to be accounted for as real estate inventory true-ups, which we refer to as cost of sales true-ups, and are recorded in cost of vacation ownership product sales to retrospectively adjust the margin previously recorded subject to those estimates. These cost of sales true-ups are typically the result of revisions to estimates and ratios embedded in our relative sales value calculations and could result in material adjustments to cost of vacation ownership product sales in a given period. As a measure of sensitivity, a 1% change in the cost of sales rate across all our relative sales value calculations would result in a change to cost of vacation ownership product sales of $6 million in 2017.

Stock‑Based Compensation

Stock‑based compensation is accounted for under ASC Topic 718, “Compensation—Stock Compensation” (“ASC 718”). On May 21, 2013, we adopted the Interval Leisure Group, Inc. 2013 Stock and Incentive Plan (2013 Stock and Incentive Plan) which provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units (RSUs), and other stock‑based awards. RSUs are awards in the form of phantom shares or units, denominated in a hypothetical equivalent number of shares of ILG common stock, whereby the value of each award is equal to the fair value of ILG common stock at the date of grant. The exception being for RSUs subject to relative total shareholder return performance criteria, for which the fair value is based on a Monte Carlo simulation analysis as further discussed in Note 18 accompanying our consolidated financial statements. Each RSU and share of restricted stock is subject to service‑based vesting, where a specific period of continued employment must pass before an award vests. We grant awards subject to graded vesting (i.e., portions of the award vest at different times during the vesting period) or to cliff vesting (i.e. all awards vest at the end of the vesting period). In addition, certain RSUs are subject to attaining specific performance criteria.

We recognize non‑cash compensation expense for all RSUs and shares of restricted stock held by our employees and directors. For RSUs to be settled in stock and shares of restricted stock, the accounting charge is measured at the grant date fair value of ILG common stock and expensed as non‑cash compensation over the vesting term using the straight‑line basis for service awards and the accelerated basis for performance‑based awards with graded vesting. Certain cliff vesting awards with performance criteria are tied to anticipated future financial performance in determining the fair value of the award, while other cliff vesting awards with performance criteria are tied to the achievement of relative total shareholder return criteria. This value is recognized as expense over the service period, using the straight‑line recognition method. The expense associated with RSU awards to be settled in cash is initially measured at fair value at the grant date and expensed ratably over the vesting term, recording a liability subject to mark‑to‑market adjustments for changes in the price of the respective common stock, as compensation expense.

Stock‑based compensation is recorded within the same line item in our consolidated statements of income as the employee‑related compensation of the award recipient, as disclosed in tabular format in Note 18 accompanying our consolidated financial statements.

The amount of stock‑based compensation expense recognized in the consolidated statements of income for periods prior to January 1, 2017 is reduced by estimated forfeitures, as the amount recorded is based on awards ultimately expected to vest. The forfeiture rate was estimated at the grant date based on historical experience and revised, if necessary, in subsequent periods for any changes to the estimated forfeiture rate from that previously estimated. To the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. With the adoption of ASU 2016-09 “Compensation-Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting”, on January 1, 2017, we no longer reduce stock-based compensation by estimated forfeitures. Instead we account for forfeitures when they occur. For any vesting tranche of an award, the cumulative amount of compensation cost recognized is at least equal to the portion of the grant‑date value of the award tranche that is actually vested at that date.

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As of December 31, 2017, we had approximately $23 million of unrecognized compensation cost related to all equity‑based awards, which is currently expected to be recognized over a weighted average period of approximately 1.8 years.

Income Taxes

Accounting for our income taxes requires significant judgment in the evaluation of our uncertain tax positions and in the calculation of our provision for income taxes. Pursuant to ASC Topic 740 “Income Taxes” (“ASC 740”), we adopted a two step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate available evidence to determine if it appears more likely than not that an uncertain tax position will be sustained on an audit by a taxing authority, based solely on the technical merits of the tax position. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settling the uncertain tax position.

Although we believe we have adequately reserved for our uncertain tax positions, the ultimate outcome of these tax matters may differ from our expectations. We adjust our reserves in light of changing facts and circumstances, such as the completion of a tax audit, expiration of the applicable statute of limitations, the refinement of an estimate, and interest accruals associated with uncertain tax positions until they are resolved. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. See Note 19 accompanying our consolidated financial statements.

We are subject to taxation at the federal, state and local levels in the United States and various other countries and jurisdictions. Our future effective tax rates could be affected by changes in the composition of earnings in jurisdictions with differing tax rates, changes in our deferred tax assets or liabilities, changes in our ability to realize our deferred tax assets, changes in the valuation of our uncertain tax positions, or by changes in tax laws, including the recently enacted U.S. tax reform, rates, regulations, accounting principles, or interpretations thereof. See Note 19 accompanying our consolidated financial statements.

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RESULTS OF OPERATIONS

Revenue

	Year Ended December 31,
	2017		% Change	2016		% Change	2015
	(Dollars in millions)
Vacation Ownership
Resort operations revenue	$	213	57%	$	136	NM	$	17
Management fee and other revenue		158	42%		111	26%		88
Sales of vacation ownership products, net		465	52%		306	NM		28
Consumer financing revenue		89	56%		57	NM		5
Cost reimbursement revenue		242	35%		179	209%		58
Total Vacation Ownership revenue		1,167	48%		789	NM		196
Exchange and Rental
Transaction revenue		198	0%		198	3%		193
Membership fee revenue		140	4%		134	6%		126
Ancillary member revenue		7	17%		6	—		6
Total member revenue		345	2%		338	4%		325
Club rental revenue		105	67%		63	NM		9
Other revenue		22	(4)%		23	—		23
Rental management revenue		49	2%		48	(4)%		50
Cost reimbursement revenue		98	3%		95	1%		94
Total Exchange and Rental revenue		619	9%		567	13%		501
Total ILG revenue	$	1,786	32%	$	1,356	95%	$	697

2017 compared to 2016

Revenue for the year ended December 31, 2017 of $1.79 billion increased $430 million, or 32%, compared to revenue of $1.36 billion in 2016. Vacation Ownership segment revenue of $1.17 billion increased $378 million, or 48%, while Exchange and Rental segment revenue of $619 million increased $52 million, or 9%, compared to the prior year.

Vacation Ownership

Vacation Ownership segment revenue, excluding cost reimbursements, increased $315 million, or 52%, in the year compared to 2016. This increase over the prior year resulted predominantly from the inclusion of a full year of Vistana, partly offset by $39 million of revenue recognized in 2016 that pertained to pre-acquisition sales of vacation ownership products deferred as of the acquisition date pursuant to the percentage of completion accounting method. Excluding Vistana and cost reimbursements, segment revenue increased by $9 million, or 6%, largely driven by the consolidation of Great Destinations joint-venture and the resulting inclusion of their financials in our results as of April 1, 2017, as discussed in Note 3 to our consolidated financial statements.

Exchange and Rental

Exchange and Rental segment revenue, excluding cost reimbursements, increased $49 million, or 10%, over 2016. This increase is due to the inclusion of Vistana in our results for a full year. Excluding Vistana and cost reimbursements, segment revenue in the year was lower by $5 million when compared to the prior year. The drop in revenue can be, in part, attributed to the effect of Hurricanes Irma and Maria in the third and fourth quarter of 2017 as approximately 50 Interval Network affiliated resorts remained closed at December 31, 2017. This has resulted in a loss of inventory, for an extended period of time in some cases, which would otherwise be available for exchanges and Getaways.

Additionally, 2017’s activity was unfavorably impacted, largely in the first half of the year, by the continued shift for most of the year in the percentage mix of our membership base from traditional to corporate members. This was

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offset in part by a combined increase of $1 million in rental management and club rental revenue, when excluding Vistana.

2016 compared to 2015

Revenue for the year ended December 31, 2016 of $1.4 billion increased $659 million, or 95%, compared to revenue of $697 million in 2015. Vacation Ownership segment revenue of $789 million increased $593 million, or 303%, while Exchange and Rental segment revenue of $567 million increased $66 million, or 13%, in the year compared to the prior year.

Vacation Ownership

The increase of $472 million in segment revenue, excluding cost reimbursement, over the prior year principally resulted from the Vistana acquisition which includes $39 million of revenue recognized in the period pertaining to pre-acquisition sales of vacation ownership products deferred as of the acquisition date pursuant to the percentage of completion accounting method. Excluding Vistana and cost reimbursements, segment revenue increased by $9 million, or 7%, primarily driven by stronger sales of consolidated vacation ownership products which rose by $3 million, or 12%, higher resort operations revenue of $4 million, or 25%, and an increase of $1 million in management fee revenue in 2016 over the prior year. The increase in resort operations revenue is attributable to higher reported rental revenue from owned VOIs in the current period compared to last year.

Exchange and Rental

Exchange and Rental segment revenue, excluding cost reimbursements, increased $65 million, or 16%, in 2016 compared to 2015. This increase is due to the inclusion of Vistana in our results subsequent to the acquisition. Excluding Vistana and cost reimbursements, segment revenue decreased by $9 million, or 2%, in 2016 compared to the prior year. This decrease resulted from lower rental management revenue of $2 million, or 4% primarily attributable to less available room nights due to a net reduction in units under management at certain Aqua-Aston resorts. Additionally, 2016 was unfavorably impacted by the continued shift in the percentage mix of our membership base from traditional to corporate members as well as less favorable terms on multi-year corporate renewals of certain large developer clients in a prior year taking effect in the current year. These declines were partly offset by higher average transaction fees for exchanges and Getaways, together with an increase in club rental revenue over the prior year.

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Cost of Sales

	Year Ended December 31,
	2017		% Change	2016		% Change	2015
	(Dollars in millions)
Vacation Ownership
Cost of service and membership related	$	83	73%	$	48	41%	$	34
Cost of sales of vacation ownership products		90	(9)%		99	NM		20
Cost of rental and ancillary services		207	78%		116	NM		7
Cost of consumer financing		29	123%		13	NM		—
Cost reimbursements		242	35%		179	209%		58
Total Vacation Ownership cost of sales		651	43%		455	NM		119
Exchange and Rental
Cost of service and membership related sales		75	7%		70	6%		66
Cost of sales of rental and ancillary services		92	33%		69	103%		34
Cost reimbursements		98	3%		95	1%		94
Total Exchange and Rental cost of sales		265	13%		234	21%		194
Total ILG cost of sales	$	916	33%	$	689	120%	$	313
Royalty fee expense		43	54%		28	NM		3
Margin metrics:
ILG:
Gross margin		49%	—		49%	(11)%		55%
Gross margin excluding cost reimbursement revenue/expenses		60%	(3)%		62%	(11)%		70%
Vacation Ownership:
Gross margin		44%	5%		42%	8%		39%
Gross margin excluding cost reimbursement revenue/expenses		56%	2%		55%	(2)%		56%
Exchange and Rental:
Gross margin		57%	(3)%		59%	(3)%		61%
Gross margin excluding cost reimbursement revenue/expenses		68%	(4)%		71%	(5)%		75%

Cost of sales is organized on our consolidated income statement by the respective revenue line items and

consists primarily of the following general expense types:

· Compensation and other employee‑related costs (including stock‑based compensation) for personnel engaged in providing services to members, property owners and/or guests of our respective segment businesses.

· Costs associated with vacation ownership sales; costs to provide alternative usage options; maintenance fees on unsold inventory and subsidy payments to HOAs; and related sale incentives.

· Consumer financing expenses representing costs incurred in support of the financing, servicing and securitization processes, as well as interest expense on securitized debt.

· Other expenses such as costs necessary to operate certain of our managed properties and costs of rental inventory used primarily for Getaways included within the Exchange and Rental segment.

2017 compared to 2016

Cost of sales for the year ended December 31, 2017 increased $227 million from 2016 due to the inclusion of Vistana’s results for a full year. This increase consists of $196 million from our Vacation Ownership segment and $31 million from our Exchange and Rental segment. Overall gross margin was 49% for the year.

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Vacation Ownership

 The increase of $133 million in cost of sales, excluding cost reimbursements, from the Vacation Ownership segment was attributable to the inclusion of Vistana in our results for a full year, partly offset by $24 million of direct sales costs recognized in 2016 that pertained to pre-acquisition sales of vacation ownership products deferred as of the acquisition date pursuant to the percentage of completion accounting method. Excluding cost reimbursements and Vistana, cost of sales in this segment were higher by $4 million compared to the prior year. Gross margin for this segment of 53%, when excluding Vistana and cost reimbursements, was in-line with last year.

Cost of sales of vacation ownership products in 2017 includes approximately $12 million of favorable product cost true-up activity related to the cumulative realization of development cost savings at The Westin Nanea Ocean Villas, as well as a change in presentation of certain HVO expenses to cost of rental and ancillary services as part of our continued integration of that business with Vistana from a financial reporting perspective.

Exchange and Rental

Gross margin for the Exchange and Rental segment in the period, excluding cost reimbursements, decreased 260 basis points to 68% when compared to the prior year. Excluding cost reimbursements and Vistana, cost of sales and gross margin were in-line with the prior year.

Royalty Fee Expense 

Royalty fee expense for the period pertains to costs incurred pursuant to our exclusive global licenses for the Hyatt, Sheraton and Westin brands in vacation ownership. The increase of $15 million in royalty fee expense in 2017 compared to the prior year pertains to the inclusion of Vistana in our results for the full period.

2016 compared to 2015

Cost of sales for the year ended December 31, 2016 increased $376 million from 2015 principally due to the inclusion of Vistana’s results subsequent to our acquisition. This increase consists of $336 million from our Vacation Ownership segment and $40 million from our Exchange and Rental segment. Overall gross margin was 49% in the year.

Vacation Ownership

The increase of $215 million in cost of sales, excluding cost reimbursements, from the Vacation Ownership segment was principally attributable to the inclusion of Vistana in our results which includes $24 million of direct sales costs recognized in the period pertaining to pre-acquisition sales of vacation ownership products deferred as of the acquisition date pursuant to the percentage of completion accounting method. Excluding cost reimbursements and Vistana, cost of sales in this segment increased $5 million, or 8%, primarily as a result of higher sales of vacation ownership products and other reported developer costs in the current period compared to last year. Gross margin for this segment excluding Vistana and cost reimbursements decreased 77 basis points to 55% in the period compared to 56% last year.

Exchange and Rental

Gross margin for the Exchange and Rental segment in the period, excluding cost reimbursements, decreased 488 basis points to 71% when compared to the prior year. Excluding cost reimbursements and Vistana, cost of sales and gross margin were relatively in-line with the prior year. The period’s activity reflects lower call center related expenses and member fulfillment costs (included within costs of service and membership related), partly offset by higher third-party purchased accommodations (included within cost of rental and ancillary services).

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Royalty Fee Expense 

The increase of $25 million in royalty fee expense in 2016 compared to the prior year pertains to the inclusion of Vistana in our results.

Selling and Marketing Expense

	Year Ended December 31,
	2017		% Change	2016		% Change	2015
	(Dollars in millions)
Vacation Ownership	$	251	81%	$	139	NM	$	13
Exchange and Rental		52	(5)%		55	(5)%		58
Total ILG selling and marketing expense	$	303	56%	$	194	173%	$	71
As a percentage of total revenue		17%	21%		14%	40%		10%
As a percentage of total revenue excluding cost reimbursement revenue		21%	17%		18%	38%		13%

Selling and marketing expense for our Vacation Ownership segment primarily relates to sales employee compensation and a range of marketing efforts aimed at generating prospects for our vacation ownership sales activities. These marketing efforts can include activities related to targeted promotional mailings, multi‑night vacation marketing packages and programs, premiums such as gift certificates and tickets to local attractions or events, costs to provide alternative usage options as purchase incentives, and other costs related to encouraging potential purchasers to attend sales presentations and closing transactions. Selling and marketing expenses for our Exchange and Rental segment primarily include printing costs of directories and magazines, promotions, tradeshows, agency fees, marketing fees and related commissions.

Additionally, these expenses for both segments include compensation and other employee‑related costs, including stock‑based compensation and benefits for certain of our operating businesses, pertaining to personnel engaged in sales and sales support functions.

2017 compared to 2016

Selling and marketing expense in 2017 increased $109 million compared to last year, principally due to the inclusion of Vistana’s results for the full period. As a percentage of total revenue excluding cost reimbursements, selling and marketing expense during the period was higher by 192 basis points from last year when excluding Vistana due to continued investments in our VOI sales and marketing platform and the inclusion of Great Destinations in our results from April 1, 2017.

2016 compared to 2015

Selling and marketing expense in 2016 increased $123 million, or 173%, compared to 2015 principally due to the inclusion of Vistana’s results. As a percentage of total revenue excluding cost reimbursements, selling and marketing expense during the year was comparable to the prior year when excluding Vistana.

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General and Administrative Expense

	Year Ended December 31,
	2017		% Change	2016		% Change	2015
	(Dollars in millions)
General and administrative expense	$	225	14%	$	198	32%	$	150
As a percentage of total revenue		13%	(13)%		15%	(32)%		22%
As a percentage of total revenue excluding cost reimbursement revenue		16%	(11)%		18%	(36)%		28%
As a percentage of total revenue excluding cost reimbursement revenue and acquisition-related and restructuring costs		15%	(6)%		16%	(38)%		26%

General and administrative expense consists primarily of compensation and other employee‑related costs (including stock‑based compensation) for personnel engaged in oversight, corporate development, finance and accounting, legal, treasury, tax, internal audit, human resources, and certain IT functions, as well as certain facilities costs, fees for professional services, benefits and other items.

2017 compared to 2016

The increase in general and administrative expense in 2017 is attributable to the inclusion of Vistana activity for a full year, which includes a net $4 million of natural disaster related expenses. These expenses include a $15 million inventory impairment charge relating to Hurricane Irma’s impact on The Westin St. John, which was partially offset by $10 million of expected insurance proceeds. Excluding Vistana as well as restructuring and acquisition-related costs pertaining to the transaction, general and administrative expense in 2017 was consistent with last year. As a percentage of revenue excluding cost reimbursements, acquisition-related and restructuring expenses and Vistana, general and administrative expense was in-line with the prior year.

2016 compared to 2015

The increase in general and administrative expense in 2016 is attributable to the inclusion of Vistana. Excluding Vistana and the approximate $10 million increase in professional fees pertaining to the Vistana transaction, general and administrative expense in the 2016 period decreased by $5 million from 2015 in part influenced by lower health and welfare insurance expense; additionally there was an unfavorable $2 million comparison with the prior year related to our estimated accrual for a European Union value added tax matter. As a percentage of revenue excluding cost reimbursements, acquisition related expenses and Vistana, general and administrative expense was lower by 917 basis points compared to last year.

Amortization Expense of Intangibles

	Year Ended December 31,
	2017		% Change	2016		% Change	2015
	(Dollars in millions)
Amortization expense of intangibles	$	20	5%	$	19	36%	$	14
As a percentage of total revenue		1%	—		1%	(50)%		2%
As a percentage of total revenue excluding cost reimbursement revenue		1%	(50)%		2%	(33)%		3%

2017 compared to 2016

Amortization expense of intangibles for the year ended December 31, 2017 was higher by $1 million over 2016 due to incremental amortization expense pertaining to the inclusion of Vistana for a full year.

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2016 compared to 2015

Amortization expense of intangibles for the year ended December 31, 2016 increased $5 million over 2015 due to incremental amortization expense pertaining to the Vistana acquisition in May 2016.

Depreciation Expense

	Year Ended December 31,
	2017		% Change	2016		% Change	2015
	(Dollars in millions)
Depreciation expense	$	60	40%	$	43	139%	$	18
As a percentage of total revenue		3%	—		3%	—		3%
As a percentage of total revenue excluding cost reimbursement revenue		4%	—		4%	33%		3%

2017 compared to 2016

Depreciation expense for the year ended December 31, 2017 increased $17 million over 2016 largely due to incremental depreciation expense for a full year related to fixed assets acquired as part of the Vistana acquisition, in addition to other depreciable assets being placed in service subsequent to December 31, 2016. These other depreciable assets pertain primarily to software and related IT hardware.

2016 compared to 2015

Depreciation expense for the year ended December 31, 2016 increased $25 million over 2015 largely due to incremental depreciation expense related to fixed assets acquired as part of the Vistana acquisition, in addition to other depreciable assets being placed in service subsequent to December 31, 2015. These other depreciable assets pertain primarily to software and related IT hardware.

Operating Income

	Year Ended December 31,
	2017		% Change	2016		% Change	2015
	(Dollars in millions)
Vacation Ownership	$	75	42%	$	53	NM	$	8
Exchange and Rental		144	9%		132	10%		120
Total operating income	$	219	18%	$	185	45%	$	128
As a percentage of total revenue		12%	(14)%		14%	(22)%		18%
As a percentage of total revenue excluding cost reimbursement revenue		15%	(12)%		17%	(26)%		23%
As a percentage of total revenue excluding cost reimbursement revenue and acquisition-related and restructuring costs		16%	(16)%		19%	(24)%		25%

2017 compared to 2016

Operating income in 2017 increased $34 million from 2016, consisting of a $22 million increase from Vacation Ownership and a $12 million increase from Exchange and Rental.

Operating income for our VO segment of $75 million was higher by $22 million compared to the prior year driven by the inclusion of Vistana in our results for a full year. The 2017 comparison against 2016 is affected by $15 million of gross profit recognized in 2016 that pertained to pre-acquisition sales of vacation ownership products deferred as of the acquisition date pursuant to the percentage of completion accounting method. Excluding Vistana and acquisition-related and restructuring expenses, this segment’s operating income would have been lower by $5 million from last year in large part due to continued investments in our VOI sales and marketing platform.

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             Operating income for our Exchange and Rental segment of $144 million was higher by $12 million compared to the prior year, reflecting the favorable inclusion of Vistana in our results compared to the prior year. Excluding Vistana and acquisition-related and restructuring expenses, this segment’s operating income would have been lower by $6 million compared to the prior year. This decrease can be attributed to the impact of Hurricanes Irma and Maria on our Interval Network affiliated resorts, as discussed in the revenue section above, as well as a decrease in membership revenue year-over-year.

2016 compared to 2015

Operating income in 2016 increased $57 million from 2015, consisting of a $45 million increase from Vacation Ownership and a $12 million increase from Exchange and Rental.

Operating income for our Vacation Ownership segment of $53 million was higher by $45 million compared to the prior year, reflecting the inclusion of Vistana in our results which includes $15 million of gross profit recognized in the period pertaining to pre-acquisition sales of vacation ownership products deferred as of the acquisition date pursuant to the percentage of completion accounting method. However, the period was unfavorably impacted by $13 million of higher acquisition related costs in connection with the Vistana acquisition in May. Excluding Vistana and acquisition related expenses, this segment’s operating income would have been in-line with the prior year.

Operating income for our Exchange and Rental segment of $132 million was higher by $12 million compared to the prior year. Operating income in the year reflects the favorable inclusion of Vistana in our results, offset by $7 million of higher professional fees and other costs incurred principally in connection with closing the Vistana acquisition. Excluding Vistana and acquisition related expenses, this segment’s operating income would have been relatively consistent with last year.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization

Adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) is a non‑GAAP measure and is defined in “ILG’s Principles of Financial Reporting”.

	Year Ended December 31,
	2017		% Change	2016		% Change	2015
	(Dollars in millions)
Vacation Ownership	$	156	27%	$	123	NM	$	29
Exchange and Rental		190	6%		179	15%		156
Total ILG adjusted EBITDA	$	346	15%	$	302	63%	$	185
As a percentage of total revenue		19%	(14)%		22%	(19)%		27%
As a percentage of total revenue excluding cost reimbursement revenue		24%	(14)%		28%	(18)%		34%

2017 compared to 2016

Adjusted EBITDA for the year ended December 31, 2017 increased by $44 million, or 15%, from 2016, consisting of increases of $33 million from our VO segment and $11 million from our Exchange and Rental segment.

Adjusted EBITDA of $156 million from our Vacation Ownership segment rose by $33 million, or 27%, from the prior year due to the inclusion of Vistana for a full year. The 2017 comparison against 2016 is affected by $26 million of income recognized in 2016 (exclusive of any purchase accounting impact) that pertained to pre-acquisition sales of vacation ownership products deferred as of the acquisition date pursuant to the percentage of completion accounting method. Excluding Vistana, adjusted EBITDA in this segment would have been relatively in-line with the prior year. 

Adjusted EBITDA of $190 million from our Exchange and Rental segment rose by $11 million, or 6%, compared to the prior year due to the inclusion of a full year of Vistana. Excluding Vistana, segment adjusted EBITDA would have been

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lower by $4 million compared to the  prior year. This decrease can be attributed to the impact of Hurricanes Irma and Maria on our Interval Network affiliated resorts, as discussed in the revenue section above, as well as a decrease in membership revenue year-over-year.

2016 Compared to 2015

Adjusted EBITDA for the year ended December 31, 2016 increased by $117 million, or 63%, from 2015, consisting of increases of $94 million from our Vacation Ownership segment and $23 million from our Exchange and Rental segment.

Adjusted EBITDA of $123 million from our Vacation Ownership segment rose by $94 million, or 324%, from the prior year due to the Vistana acquisition which includes $26 million of income recognized in the period (exclusive of any purchase accounting impact) pertaining to pre-acquisition sales of vacation ownership products deferred as of the acquisition date pursuant to the percentage of completion accounting method. Excluding Vistana, adjusted EBITDA in this segment decreased $2 million, primarily reflecting increased investments in our VOI sales and marketing platform in the period.

Adjusted EBITDA of $179 million from our Exchange and Rental segment rose by $23 million, or 15%, compared to the prior year due largely to the Vistana acquisition. Excluding Vistana, segment adjusted EBITDA rose by $1 million from last year in large part due to cost savings in our exchange business.

Other Income (Expense), net

	Year Ended December 31,
	2017		% Change	2016		% Change	2015
	(Dollars in millions)
Interest income	$	1	—	$	1	—	$	1
Interest expense	$	(26)	13%	$	(23)	10%	$	(21)
Equity in earnings from unconsolidated entities	$	4	(20)%	$	5	—	$	5
Gain on bargain purchase	$	2	(99)%	$	163	NM	$	—
Other income (expense), net	$	(3)	(57)%	$	(7)	NM	$	3

2017 compared to 2016

Interest expense relates to interest and amortization of debt issuance costs on our amended and restated revolving credit facility and our $350 million senior notes. Interest expense in 2017 was higher by $3 million compared to the prior year resulting from a higher average outstanding balance in the period.

Equity in earnings from unconsolidated entities relates to noncontrolling investments that are recorded under the equity method of accounting; principally, our joint venture in Hawaii which developed a vacation ownership resort for the purpose of selling VOIs. Income and losses from this joint venture are allocated based on ownership interests. See Note 6 to our consolidated financial statements for further discussion.

The gain on bargain purchase of $2 million in 2017 pertains to additional tax-related adjustments to our purchase price allocation for Vistana in the second quarter of 2017 prior to the measurement period closing on May 11, 2017.

Other income (expense), net primarily relates to net gains and losses on foreign currency exchange related to certain foreign intercompany loans and non-operating cash positions held by foreign subsidiaries in currencies other than their functional currency. Additionally, in the 2017 period, included in other income (expense), net, is a $5 million write-off of previously unrealized foreign currency losses, carried on our consolidated balance sheet within accumulated other comprehensive loss, recognized upon the substantial liquidation of our Venezuela subsidiary in the fourth quarter of 2017.  

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Non‑operating foreign exchange net gains were $1 million and net losses were $7 million in 2017 and 2016, respectively. The favorable fluctuations in the period were primarily driven by U.S. dollar denominated intercompany loan positions held at December 31, 2017 which were affected by the weaker dollar compared to the Mexican peso, partly offset by the remeasurement of U.S. dollar denominated non-operating cash positions held by our Mexican subsidiary at year-end. The unfavorable fluctuations in 2016 were primarily driven by U.S. dollar denominated intercompany loan positions held at December 31, 2016 which were affected by the stronger dollar compared to the Mexican peso, partly offset by the remeasurement of U.S. dollar denominated non-operating cash positions held by our Mexican subsidiary at year-end.

2016 Compared to 2015

Interest income of $1 million in 2016 remained relatively consistent with 2015. Interest expense in the period relates to interest and amortization of debt costs on our amended and restated revolving credit facility and our $350 million senior notes issued in April of 2015. Higher interest expense in the year is primarily due to our senior notes, which carry a higher interest rate than our revolving credit facility. This was partly offset by higher interest expense capitalized in connection with vacation ownership development activities and a lower average outstanding balance on our revolving credit facility.

Equity in earnings from unconsolidated entities relates to noncontrolling investments that are recorded under the equity method of accounting; principally, our joint venture in Hawaii.

Gain on bargain purchase was recorded in connection with the Vistana acquisition and represents the excess of the fair value of the net tangible and intangible assets acquired over the purchase price. The change in the gain on bargain purchase is the result of additional adjustments to our purchase price allocation for Vistana.

Other income, net primarily relates to net gains and losses on foreign currency exchange related to certain foreign intercompany loans and non-operating cash held by foreign subsidiaries in currencies other than their functional currency. Non‑operating foreign exchange net losses were $7 million and net gains of $4 million in 2016 and 2015, respectively. The unfavorable fluctuations in 2016 were primarily driven by U.S. dollar denominated intercompany loan positions held at December 31, 2016 which were affected by the stronger dollar compared to the Mexican peso, partly offset by the remeasurement of U.S. dollar denominated non-operating cash positions held by our Mexican subsidiary at year-end. The favorable fluctuations in 2015 primarily driven by U.S. dollar non-operating cash positions held at December 31, 2015 affected by the stronger dollar compared to the Mexican and Colombian pesos.

Income Tax Provision

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Reform Act"). Changes in tax law are accounted for in the period of enactment. The Tax Reform Act significantly changes U.S. tax law by, among other things, lowering the statutory corporate tax rate from 35% to 21% effective in 2018, eliminating certain deductions, requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years, introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax. The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. SAB 118 allows registrants to record provisional amounts during a one year “measurement period” similar to that used when accounting for business combinations. We have not completed our determination of the accounting implications of the Tax Reform Act on our tax accruals. However, we have reasonably estimated the effects of the Tax Reform Act and recorded provisional amounts in our financial statements as of December 31, 2017. 

The ultimate impact of the Tax Reform Act may differ, possibly materially, from these provisional amounts due to among other things, additional analysis, changes in interpretations and assumptions ILG has made, additional regulatory guidance that may be issued, and actions ILG may take as a result of the Tax Reform Act. Any such revisions

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will be treated in accordance with the measurement period guidance outlined in SAB 118.  As such, we expect to complete our analysis no later than December 22, 2018.

2017 compared to 2016

For the years ended December 31, 2017 and 2016, ILG recorded income tax provisions for continuing operations of $26 million and $57 million, respectively, which represent effective tax rates of 13.2% and 17.7%, respectively. The effective tax rate in 2017 includes a provisional tax benefit for the impact of the Tax Reform Act of approximately $51 million, which significantly reduced it below the federal statutory rate of 35%. This amount is primarily comprised of the remeasurement of federal net deferred tax liabilities resulting from the permanent reduction in the U.S. statutory corporate tax rate from 35% to 21%, partially offset by the mandatory one-time tax on the accumulated earnings of our foreign subsidiaries. In 2016, the effective tax rate was lower than the federal statutory rate of 35% primarily due to the nontaxable gain on bargain purchase recorded in connection with the acquisition of Vistana. This gain on bargain purchase is not subject to income taxation.

2016 compared to 2015

For the years ended December 31, 2016 and 2015, ILG recorded income tax provisions for continuing operations of $57 million and $41 million, respectively, which represent effective tax rates of 17.7% and 35.3%, respectively. In 2016, the effective tax rate is lower than the prior year primarily due to the nontaxable gain on bargain purchase recorded in connection with the acquisition of Vistana. This gain on bargain purchase is not subject to income taxation.

Additional information

The Tax Reform Act is comprehensive tax legislation containing several other provisions that will affect 2018 and later years and which will need to be further analyzed by ILG. Such additional provisions, beginning in 2018, include two new U.S. tax base erosion provisions, the global intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”) provisions.

The GILTI provisions require ILG to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. ILG may be subject to incremental U.S. tax on GILTI income beginning in 2018 or in later years. ILG has elected to account for GILTI tax in the period in which it is incurred, and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements for the year ended December 31, 2017.

The BEAT provisions in the Tax Reform Act disallow the deduction of certain base-erosion payments made to related foreign corporations, by imposing a minimum tax if greater than regular tax. ILG does not expect it will be subject to this tax, but has not completed its analysis of the provision and the implications to ILG.

Our future effective tax rate is expected to be favorably impacted by the Tax Reform Act.  Based on the information currently available to us, we estimate our effective tax rate in future years to be approximately 28%, excluding the impact of discrete items or other items that may cause volatility in the rate.

A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not that the deferred tax asset will not be realized. In making this determination, we make estimates and assumptions regarding this realization, which is dependent upon the generation of future taxable income or the reversal of deferred tax liabilities during the periods in which those temporary differences become deductible. We consider the history of taxable income in recent years, the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies to make this assessment. A change in these assumptions may increase or decrease our valuation allowance resulting in an increase or decrease in our effective tax rate, which could materially affect our consolidated financial statements.

At December 31, 2017, ILG had a valuation allowance of approximately $47 million related to a portion of the foreign NOLs, other foreign assets and materially all of the state NOLs and all capital loss carryforwards for which, more likely than not, the tax benefit will not be realized. During 2017, ILG’s valuation allowance increased by $11

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million. This net increase is primarily related to a determination that it is more likely than not that certain deferred tax assets in Mexico will not be realized, partially offset by the remeasurement of certain valuation allowances as a result of the Tax Reform Act.

In connection with the Vistana transaction, Starwood and ILG entered into a Tax Matters Agreement that generally governs the parties' respective rights, responsibilities, and obligations with respect to taxes, including both taxes arising in the ordinary course of business as well as taxes, if any, incurred as a result of any failure of the Vistana reorganization, spinoff, Merger and certain related transactions consummated in connection with Starwood's internal restructuring to qualify for their intended U.S. federal income tax treatment. In addition to allocating responsibility for these taxes between the parties, the Tax Matters Agreement sets forth the respective obligations of the parties with respect to the filing of tax returns, the administration of tax contests and assistance and cooperation on tax matters. The Tax Matters Agreement also generally prohibits ILG, Vistana and any subsidiary of Vistana from taking certain actions that could cause the failure of the Vistana reorganization, spin-off, Merger and certain related transactions consummated in connection with Starwood's internal restructuring from qualifying for their intended tax treatment. Additional details can be found in the Tax Matters Agreement which was included as an exhibit to Form 8-K filed on May 12, 2016.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2017, we had $122 million of cash and cash equivalents, including $104 million of U.S. dollar equivalent or denominated cash deposits held by foreign subsidiaries which are subject to changes in foreign exchange rates. Of this amount, $71 million is held in foreign jurisdictions, principally the U.K. Under the Tax Reform Act, all accumulated foreign earnings are mandatorily deemed to be repatriated and taxed, which is also referred to as the Transition Tax. The Transition Tax is assessed regardless of whether ILG will actually repatriate its undistributed foreign earnings. Historically, it has been ILG’s practice and intention to reinvest the earnings of certain of its foreign subsidiaries. In light of the significant changes made by the Tax Reform Act, ILG will no longer be permanently reinvested with regard to the earnings of its foreign subsidiaries. A provisional tax expense was recorded related to taxes that could apply to these earnings such as foreign withholding taxes and certain U.S. state taxes. ILG will continue to be permanently reinvested with respect to the remaining excess of the amount for financial reporting over the tax basis of investments in our foreign subsidiaries.

Additionally, we are also exposed to risks associated with the repatriation of cash from certain of our foreign operations to the United States where currency restrictions exist, such as Argentina, which limit our ability to immediately access cash through repatriations. These currency restrictions had no impact on our overall liquidity during the year ended December 31, 2017 and the respective cash balances were immaterial to our overall cash on hand.

We believe that our cash on hand along with our anticipated operating future cash flows and availability under our $600 million revolving credit facility, which may be increased to up to $700 million subject to certain conditions, as well as future securitizations of our vacation ownership mortgages receivable, are sufficient to fund our operating needs, quarterly cash dividend, capital expenditures, development and expansion of our operations, debt service, investments and other commitments and contingencies for at least the next twelve months. However, our operating cash flow and access to securitizations may be impacted by macroeconomic and other factors outside of our control.

Cash Flows Discussion

Operating Activities

Net cash provided by operating activities was $79 million in 2017 compared to net cash of $7 million used in operating activities in 2016. The increase of $86 million in 2017 from 2016 was principally due to higher net cash receipts largely attributable to the inclusion of Vistana for a full year, partly offset by inventory spend of $231 million during the year in large part related to development activities at The Westin Nanea Ocean Villas, Sheraton Steamboat Resort Villas, The Westin Desert Willow Villas, The Westin St. John Resort Villas and The Westin Resort & Spa, Cancun; lower income taxes paid of $39 million; a $10 million royalty pre-payment in 2016 to Hyatt triggered by the Vistana acquisition; and the timing of certain cash disbursements. These increases were partly offset by $10 million of higher interest paid, net of amounts capitalized. 

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Net cash used in operating activities was $7 million in 2016 compared to net cash of $143 million provided by operating activities in 2015. The decrease of $150 million in 2016 from 2015 was principally due to higher inventory spend of $175 million at Vistana since the acquisition mostly related to on-going development activities at The Westin Nanea Ocean Villas and The Westin Los Cabos Resort Villas & Spa properties; higher income taxes paid of $65 million; a $10 million royalty pre-payment in 2016 to Hyatt triggered by the Vistana acquisition; $9 million of higher interest paid, net of amount capitalized; and the timing of certain cash disbursements. These cash outflows were partly offset by higher net cash receipts largely attributable to the inclusion of Vistana.

Investing Activities

Net cash used in investing activities of $115 million in 2017 primarily pertains to capital expenditures, mostly related to investments in assets used mainly to support marketing and sales locations, resort operations, as well as IT initiatives.

Net cash used in investing activities of $189 million in 2016 primarily pertains to the Vistana acquisition, net of cash acquired, of $83 million, as well as the acquisition of the remaining partnership interest of a noncontrolling interest of $1 million, capital expenditures of $95 million, primarily related to IT initiatives and investments by Vistana on assets primarily used to support marketing and sales locations and resort operations, including sales centers. In addition, we made an investment in an unconsolidated entity for $5 million.

Net cash used in investing activities of $21 million in 2015 primarily related to capital expenditures, mainly related to IT initiatives.

Financing Activities

Net cash provided by financing activities of $26 million in 2017 relates to proceeds of $325 million from a vacation ownership mortgages receivable securitization transaction in September 2017 as well as the net release of $14 million in financing-related restricted cash previously held in escrow largely from the 2016 securitization reduced by restricted cash held in escrow from the 2017 securitization (see Notes 5 and 13 to the consolidated financial statements). The proceeds from the securitization transaction were initially used primarily to pay down a portion of the borrowings under our revolver, which we utilize to fund our construction projects at Vistana.

These increases were primarily offset by:

· repayments of $178 million on securitized debt;

· dividend payments of $74 million to ILG stockholders;

· repurchases of our common stock at market prices totaling $28 million, including commissions, which settled during the year;

· net payments of $20 million on our revolving credit facility;

· and withholding taxes on the vesting of restricted stock units and restricted stock of $7 million.

Net cash provided by financing activities of $234 million in 2016 related to proceeds of $375 million from a vacation ownership mortgages receivable securitization transaction in September 2016 and net borrowings of $165 million on our revolving credit facility. The proceeds from the securitization transaction were initially used primarily to pay down a portion of the borrowings under our revolver, which we utilize to fund our construction projects at Vistana.

These increases were primarily offset by:

· repurchases of our common stock at market prices totaling $101 million, including commissions, which settled during the year;

· repayments of $93 million on securitized debt;

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· cash dividend payments to ILG stockholders of $52 million as well as a cash dividend payment of $2 million to a noncontrolling interest holder;

· an increase of $25 million in financing-related restricted cash largely attributable to the 2016 term securitization, whereby $19 million of this balance is being held in escrow until the associated VIE purchases up to $19 million of additional loans by March 15, 2017 with any unused cash returned to the investors;  

· payment of $24 million to Vistana’s former owner related to a pre-acquisition financing obligation;

· payments of debt issuance costs totaling $7 million related to the securitization, amendments to the amended credit agreement and the exchange offer of the senior notes;

· and withholding taxes on the vesting of restricted stock units and shares of $2 million.

Net cash used in financing activities of $103 million in 2015 primarily related to net principal payments of $413 million on our revolving credit facility, cash dividend payments of $28 million as well as cash dividend payments of $3 million to a noncontrolling interest, payments of debt issuance costs of $7 million related primarily to our issuance of senior notes and also to amendments to our amended credit agreement, and withholding taxes on the vesting of restricted stock units of $4 million. These uses of cash were partially offset by the proceeds of the issuance of senior notes of $350 million, of which net proceeds were used to repay indebtedness outstanding on our revolving credit facility, and excess tax benefits from stock‑based awards.

Revolving Credit Facility

On April 10, 2015, we entered into a third amendment to the amended credit agreement which changed the leverage‑based financial covenant from a maximum consolidated total leverage to EBITDA ratio of 3.5 to 1.0 to a maximum consolidated secured leverage to EBITDA ratio of 3.25 to 1.0. In addition, the amendment added an incurrence test requiring a maximum consolidated total leverage to EBITDA ratio of 4.5 to 1.0 on a pro forma basis in certain circumstances in which we make acquisitions or investments, incur additional indebtedness or make restricted payments. Also, the amendment added an additional pricing level to the pricing grid for when the consolidated leverage to EBITDA ratio equals or exceeds 3.5 to 1.0. This pricing level is either LIBOR plus 2.5% or the base rate plus 1.5% and requires a commitment fee on undrawn amounts of 0.4% per annum. There were no other material changes under this amendment.

On May 5, 2015, we entered into a fourth amendment which changes the definition of change of control to remove the provision that certain changes in the composition of the board of directors would constitute a change of control and therefore be a default under the credit agreement. The amendment also includes additional clarifying language regarding provisions that relate to our 5.625% senior notes due in 2023. There were no other material changes under this amendment.

On May 17, 2016, we entered into a fifth amendment to the amended credit agreement which extended the maturity of the credit facility through May 17, 2021, and modified requirements with respect to assignments by lenders in connection with the acquisition of Vistana in May of 2016. There were no other material changes under this amendment.

As of December 31, 2017, borrowings outstanding under the revolving credit facility amounted to $220 million, with $366 million available to be drawn, net of any letters of credit.

Senior Notes

On April 10, 2015, we completed a private offering of $350 million in aggregate principal amount of our 5.625% senior notes due in 2023. The net proceeds from the offering, after deducting offering related expenses, were $343 million. We used the proceeds to repay indebtedness outstanding on our revolving credit facility. As of December 31, 2017, total unamortized debt issuance costs pertaining to our senior notes were $5 million.

Interest on the senior notes is paid semi‑annually in arrears on April 15 and October 15 of each year and the senior notes are fully and unconditionally guaranteed on a joint and several basis by our domestic subsidiaries that are

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required to guarantee the amended credit facility. Additionally, the voting stock of the issuer and the subsidiary guarantors is 100% owned by ILG. The senior notes are redeemable from April 15, 2018 at a redemption price starting at 104.219% which declines over time.

Restrictions and Covenants

The senior notes and amended credit agreement have various financial and operating covenants that place significant restrictions on us, including our ability to incur additional indebtedness, to incur additional liens, issue redeemable stock and preferred stock, pay dividends or distributions or redeem or repurchase capital stock, prepay, redeem or repurchase debt, make loans and investments, enter into agreements that restrict distributions from our subsidiaries, sell assets and capital stock of our subsidiaries, enter into certain transactions with affiliates and consolidate or merge with or into or sell substantially all of our assets to another person.

The indenture governing the senior notes restricts our ability to issue additional debt in the event we are not in compliance with the minimum fixed charge coverage ratio of 2.0 to 1.0 and limits restricted payments and investments unless we are in compliance with the minimum fixed charge coverage ratio and the amount is within an amount that grows with our consolidated net income. We met the minimum fixed charge coverage ratio as of December 31, 2017. Additionally, the revolving credit facility requires us to meet certain financial covenants regarding the maintenance of a maximum consolidated leverage ratio of consolidated secured debt over consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), as defined in the amended credit agreement. As of December 31, 2017, the maximum consolidated secured leverage to EBITDA ratio is 3.25x and the minimum consolidated interest coverage ratio is 3.0x. As of December 31, 2017, ILG was in compliance in all material respects with the requirements of all applicable financial and operating covenants and our consolidated secured leverage ratio and consolidated interest coverage ratio under the amended credit agreement were 0.68 and 14.31, respectively.

VOI Term Securitization

On September 22, 2017, we completed a term securitization transaction involving the issuance of $325 million of asset-backed notes. An indirect wholly-owned subsidiary of Vistana issued $240 million of Class A notes, $59 million of Class B notes and $26 million of Class C notes. The notes are backed by vacation ownership loans and have coupons of 2.33%, 2.63% and 2.93%, respectively, for an overall weighted average coupon of 2.43%. The advance rate for this transaction was approximately 97%.

Of the $325 million in proceeds from the transaction, approximately $65 million was held in escrow to purchase additional vacation ownership loans, including the redemption of the outstanding balance on Vistana’s 2011 securitization completed in December 2017. The remainder of the proceeds were used to pay down a portion of the borrowings outstanding under our $600 million revolving credit facility, pay transaction expenses, fund required reserves  and for general corporate purposes.

On September 20, 2016, we completed a term securitization transaction involving the issuance of $375 million of asset-backed notes. An indirect wholly-owned subsidiary of Vistana issued $346 million of Class A notes and $29 million of Class B notes. The notes are backed by vacation ownership loans and have coupons of 2.54% and 2.74%, respectively, for an overall weighted average coupon of 2.56%. The advance rate for this transaction was 96.5%.

Of the $375 million in proceeds from the transaction, approximately $33 million was used to repay the outstanding balance on Vistana’s 2010 securitization and the remainder was used to pay down a portion of the borrowings outstanding under our $600 million revolving credit facility, pay transaction expenses, fund required reserves and for general corporate purposes. In the first quarter of 2017, the VIE purchased approximately $19 million of loans, allowing for the release of the proceeds held in escrow as of December 31, 2016.

Free Cash Flow

Free cash flow is a non‑GAAP measure and is defined in “ILG’s Principles of Financial Reporting.” For the years ended December 31, 2017, 2016 and 2015, free cash flow was $128 million, $180 million and $129 million, respectively. The decrease in 2017 from 2016 is a result of the lower net securitization activities and higher capital expenditures, partly offset by the increase in net cash provided by operating activities as discussed above.

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Dividends and Share Repurchases

In 2017, our Board of Directors declared and we paid quarterly dividend payments of $0.15 per share in March, June, September and December, amounting to $19 million each. For the year ended December 31, 2017, we paid cash dividends totaling $74 million. In February 2018, our Board of Directors declared a $0.175 per share dividend payable March 30, 2018 to shareholders of record on March 16, 2018.

In 2016, our Board of Directors declared and we paid quarterly dividend payments of $0.12 per share amounting to $7 million in the first quarter, $16 million in the second quarter, and $15 million in each of the last two quarters. For the year ended December 31, 2016, we paid cash dividends totaling $52 million.

In 2015, our Board of Directors declared and we paid quarterly dividend payments of $0.12 per share amounting to $7 million each quarter. For the year ended December 31, 2015, we paid $28 million in cash dividends.

In May 2016, our Board of Directors increased the then remaining share repurchase authorization to a total of $100 million. In November 2016, the Board authorized repurchases of up to $50 million of ILG common stock. During the year ended December 31, 2017, we repurchased 1.1 million shares for $28 million, including commissions, with $21 million available for future repurchases as of December 31, 2017. During the year ended December 31, 2016, we repurchased 6.5 million shares for $101 million, including commissions and there were no repurchases of common stock during the year ended December 31, 2015.

Acquired shares of our common stock are held as treasury shares carried at cost on our consolidated financial statements. Common stock repurchases may be conducted in the open market or in privately negotiated transactions. The amount and timing of all repurchase transactions are contingent upon market conditions, applicable legal requirements and other factors. This program may be modified, suspended or terminated by us at any time without notice.

Contractual Obligations and Commercial Commitments

We have funding commitments that could potentially require our performance in the event of demands by third parties or contingent events. At December 31, 2017, guarantees, surety bonds and letters of credit totaled $102 million. This amount includes maximum exposure under guarantees of $50 million primarily related to our vacation rental business’s hotel and resort management agreements, including those with guaranteed dollar amounts, and accommodation leases supporting the rental management activities entered into on behalf of the property owners for which either party generally may terminate such leases upon 60 to 90 days prior written notice to the other.

In addition, certain of the vacation rental business’s hotel and resort management agreements provide that owners receive specified percentages of the revenue generated under management. In these cases, the operating expenses for the rental operations are paid from the revenue generated by the rentals, the owners are then paid their contractual percentages, and we either retain the balance (if any) as our management fee or make up the deficit. Although such deficits are reasonably possible in a few of these agreements, as of December 31, 2017, future amounts are not expected to be significant, individually or in the aggregate. Certain of our vacation rental businesses also enter into agreements, as principal, for services purchased on behalf of property owners for which they are subsequently reimbursed. As such, we are the primary obligor and may be liable for unreimbursed costs. As of December 31, 2017, amounts pending reimbursement are not significant.

As of December 31, 2017, our letters of credit totaled $14 million and were principally related to our Vacation Ownership sales and financing activities. More specifically, these letters of credit provide alternative assurance on amounts held in escrow which enable our developer entities to access purchaser deposits prior to closings, as well as to provide a guarantee of maintenance fees owed by our developer entities during subsidy periods at a particular vacation ownership resort, among other items.

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Contractual obligations and commercial commitments at December 31, 2017 are as follows:

	Payments Due by Period
			Up to						More than
Contractual Obligations	Total		1 year		1 ‑ 3 years		3 ‑ 5 years		5 years
	(Dollars in millions)
Debt principal(a)	$	570	$	—	$	—	$	220	$	350
Debt interest(a)		133		28		56		43		6
Purchase obligations and other commitments(b)		71		37		25		9		—
Operating leases		148		21		32		20		75
Total contractual obligations	$	922	$	86	$	113	$	292	$	431

(a) Debt principal and projected debt interest represent principal and interest to be paid on our senior notes and our revolving credit facility based on the balance outstanding as of December 31, 2017, exclusive of debt issuance costs. In addition, also included are certain fees associated with our revolving credit facility based on the unused borrowing capacity and outstanding letters of credit balances, if any, as of December 31, 2017. Interest on the revolving credit facility is calculated using the prevailing rates as of December 31, 2017.

(b) The purchase obligations primarily relate to future guaranteed purchases of rental inventory, operational support services, marketing related benefits, and membership fulfillment benefits and other commitments.

	Amount of Commitment Expiration Per Period
	Total
	Amounts		Less than						More than
Other Commercial Commitments(c)	Committed		1 Year		1 ‑ 3 Years		3 ‑ 5 Years		5 Years
	(In millions)
Guarantees, surety bonds and letters of credit	$	102	$	70	$	23	$	9	$	—

(c) Commercial commitments include minimum revenue guarantees related to hotel and resort management agreements, accommodation leases entered into on behalf of the property owners, and funding commitments that could potentially require performance in the event of demands by third parties or contingent events, such as under a letter of credit extended or under guarantees.

Off‑Balance Sheet Arrangements

Except as disclosed above in our Contractual Obligations and Commercial Commitments (excluding “Debt principal”), as of December 31, 2017, we did not have any significant off‑balance sheet arrangements, as defined in Item 303(a) (4) (ii) of SEC Regulation S‑K.

Recent Accounting Pronouncements

Refer to Note 2 accompanying our consolidated financial statements for a description of recent accounting pronouncements.

Seasonality

Refer to Note 1 accompanying our consolidated financial statements for a discussion on the impact of seasonality.

ILG’S PRINCIPLES OF FINANCIAL REPORTING

Definition of ILG’s Non‑GAAP Measures

Earnings before interest, taxes, depreciation and amortization (EBITDA) is defined as net income attributable to common stockholders excluding, if applicable: (1) non‑operating interest income and interest expense, (2) income taxes, (3) depreciation expense, and (4) amortization expense of intangibles.

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Adjusted EBITDA is defined as EBITDA excluding, if applicable: (1) non‑cash compensation expense, (2) goodwill and asset impairments and/or permitted reversals, (3) acquisition related and restructuring costs, (4) other non‑operating income and expense, (5) the impact of the application of purchase accounting, and (6) other special items.

Adjusted net income is defined as net income attributable to common stockholders excluding the impact of (1) acquisition related and restructuring costs, (2) other non‑operating foreign currency remeasurements, (3) the impact of the application of purchase accounting, (4) goodwill and asset impairments and/or permitted reversals, and (5) other special items.

Adjusted earnings per share (EPS) is defined as adjusted net income divided by the weighted average number of shares of common stock outstanding during the period for basic EPS and, additionally, inclusive of dilutive securities for diluted EPS.

Consolidated timeshare contract sales represent total timeshare interests sold at consolidated projects pursuant to purchase agreements, gross of incentives and net of actual cancellations and rescissions, where we have met a minimum threshold amounting to a 10% down payment of the contract purchase price during the period. For upgrade sales, we include on the incremental value purchased.

Free cash flow is defined as cash provided by operating activities less capital expenditures, plus net changes in financing-related restricted cash and net borrowing and repayment activity related to securitizations, and excluding certain payments unrelated to our ongoing core business, such as acquisition-related and restructuring costs.

Total timeshare contract sales represents total timeshare interests sold at consolidated and unconsolidated projects pursuant to purchase agreements, gross of incentives and net of actual cancellations and rescissions, where we have met a minimum threshold amounting to a 10% down payment of the contract purchase price during the period. For upgrade sales, we include only the incremental value purchased.

Our presentation of above‑mentioned non‑GAAP measures may not be comparable to similarly‑titled measures used by other companies. We believe these measures are useful to investors because they represent the consolidated operating results from our segments, excluding the effects of any non‑core expenses or gains. We also believe these non‑GAAP financial measures improve the transparency of our disclosures, provide a meaningful presentation of our results from our business operations, excluding the impact of certain items not related to our core business operations and improve the period‑to‑period comparability of results from business operations. These non‑GAAP measures have certain limitations in that they do not take into account the impact of certain expenses to our statement of operations; such as non‑cash compensation and acquisition related and restructuring costs as it relates to adjusted EBITDA. We endeavor to compensate for the limitations of the non‑GAAP measures presented by also providing the comparable GAAP measure with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the non‑GAAP measure.

We report these non‑GAAP measures as supplemental measures to results reported pursuant to GAAP. These measures are among the primary metrics by which we evaluate the performance of our businesses, on which our internal budgets are based and by which management is compensated. We believe that investors should have access to the same set of metrics that we use in analyzing our results. These non‑GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. We provide and encourage investors to examine the reconciling adjustments between the GAAP and non‑GAAP measures which are discussed below.

Items That Are Excluded From ILG’s Non‑GAAP Measures (as applicable)

Amortization expense of intangibles is a non‑cash expense relating primarily to acquisitions. At the time of an acquisition, the intangible assets of the acquired company, such as customer relationships, purchase agreements and resort management agreements are valued and amortized over their estimated lives. We believe that since intangibles represent costs incurred by the acquired company to build value prior to acquisition, they were part of transaction costs.

Depreciation expense is a non‑cash expense relating to our property and equipment and is recorded on a straight‑line basis to allocate the cost of depreciable assets to operations over their estimated service lives.

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Non‑cash compensation expense consists principally of expense associated with the grants of restricted stock units. These expenses are not paid in cash, and we will include the related shares in our future calculations of diluted shares of stock outstanding. Upon vesting of restricted stock units, the awards will be settled, at our discretion, on a net basis, with us remitting the required tax withholding amount from our current funds.

Goodwill and asset impairments are non‑cash expenses relating to adjustments to goodwill and long‑lived assets whereby the carrying value exceeds the fair value of the related assets, and are infrequent in nature.

Acquisition related and restructuring costs are transaction fees, costs incurred in connection with performing due diligence, subsequent adjustments to our initial estimate of contingent consideration obligations associated with business acquisitions, and other direct costs related to acquisition activities. Additionally, this item includes certain restructuring charges primarily related to workforce reductions, costs associated with integrating acquired businesses and estimated costs of exiting contractual commitments.

Other non‑operating income and expense consists principally of foreign currency translations of cash held in certain countries in currencies, principally U.S. dollars, other than their functional currency, in addition to any gains or losses on extinguishment of debt.

Impact of the application of purchase accounting represents the difference between amounts derived from the fair value remeasurement of assets and liabilities acquired in a business combination versus the historical basis. We believe generally this is most meaningful in the first year subsequent to an acquisition.

Other special items consist of other items that we believe are not related to our core business operations. For the years ended December 31, 2017 and 2016, such items include (as applicable to the respective period): (i) the gain on bargain purchase recognized as part of the Vistana acquisition, (ii) costs related to the litigation matters described in Note 21 accompanying the financial statements, (iii) impact to our financial statements related to natural disasters, including Hurricane Irma and other named storms, (iv) costs related to activist defense, and with regard to adjusted net income: (v) the provisional net tax benefit related to the Tax Reform Act and (vi) the impact of the substantial liquidation of our Venezuela subsidiary.

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RECONCILIATIONS OF NON‑GAAP MEASURES

The following tables reconcile Net income attributable to common stockholders in total to operating income, and to EBITDA and adjusted EBITDA for our operating segments for the years ended December 31, 2017, 2016 and 2015 (in millions). The noncontrolling interest relates primarily to the Vacation Ownership segment.

	Year Ended December 31, 2017
	Vacation		Exchange
	Ownership		and Rental		Consolidated
Net income attributable to common stockholders					$	168
Net income attributable to noncontrolling interest						3
Net income						171
Income tax provision						26
Other special items						(2)
Equity in earnings from unconsolidated entities						(4)
Other non-operating expense, net						3
Interest expense						26
Interest income						(1)
Operating income	$	75	$	144		219
Other non-operating income (expense), net		3		(6)		(3)
Other special items		—		2		2
Equity in earnings from unconsolidated entities		4		—		4
Net income attributable to noncontrolling interest		(3)		—		(3)
Depreciation expense		39		21		60
Amortization expense of intangibles		8		12		20
EBITDA		126		173		299
Other special items		4		—		4
Asset impairments		10		—		10
Impact of purchase accounting		(4)		—		(4)
Acquisition related and restructuring costs		10		2		12
Less: Other non-operating (income) expense, net		(3)		6		3
Non-cash compensation expense		13		9		22
Adjusted EBITDA	$	156	$	190	$	346

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	Year Ended December 31, 2016
	Vacation		Exchange
	Ownership		and Rental		Consolidated
Net income attributable to common stockholders					$	265
Net income attributable to noncontrolling interest						2
Net income						267
Income tax provision						57
Other special items						(163)
Equity in earnings from unconsolidated entities						(5)
Other non-operating expense, net						7
Interest expense						23
Interest income						(1)
Operating income	$	53	$	132		185
Other non-operating income (expense), net		(11)		4		(7)
Other special items		—		163		163
Equity in earnings from unconsolidated entities		5		—		5
Net income attributable to noncontrolling interest		(2)		—		(2)
Depreciation expense		25		18		43
Amortization expense of intangibles		8		11		19
EBITDA		78		328		406
Other special items		—		(163)		(163)
Impact of purchase accounting		12		—		12
Acquisition related and restructuring costs		15		7		22
Less: Other non-operating (income) expense, net		11		(4)		7
Non-cash compensation expense		7		11		18
Adjusted EBITDA	$	123	$	179	$	302

	Year Ended December 31, 2015
	Vacation		Exchange
	Ownership		and Rental		Consolidated
Net income attributable to common stockholders					$	73
Net income attributable to noncontrolling interest						2
Net income						75
Income tax provision						41
Equity in earnings from unconsolidated entities						(5)
Other non-operating income, net						(3)
Interest expense						21
Interest income						(1)
Operating income	$	8	$	120		128
Other non-operating income, net		—		3		3
Equity in earnings from unconsolidated entities		5		—		5
Net income attributable to noncontrolling interest		(2)		—		(2)
Depreciation expense		2		16		18
Amortization expense of intangibles		5		9		14
EBITDA		18		148		166
Impact of purchase accounting		1		—		1
Acquisition related and restructuring costs		7		1		8
Less: Other non-operating income, net		—		(3)		(3)
Non-cash compensation expense		3		10		13
Adjusted EBITDA	$	29	$	156	$	185

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The following tables reconcile EBITDA and adjusted EBITDA to operating income for our operating segments for the quarters respective to years ended December 31, 2017 and 2016 (in millions).

	Vacation Ownership(1)
	Quarter Ended								Year Ended
	March 31,		June 30,		September 30,		December 31,		December 31,
	2017		2017		2017		2017		2017
Resort operations revenue	$	58	$	52	$	52	$	52	$	213
Management fee revenue		30		34		35		58		158
Sales of vacation ownership products, net		110		123		118		113		465
Consumer financing revenue		21		22		23		23		89
Cost reimbursement revenue		62		63		67		51		242
Total Revenue		281		294		295		297		1,167
Cost of service and membership related		13		14		14		43		83
Cost of sales of vacation ownership products		27		29		17		17		90
Cost of rental and ancillary services		52		57		54		43		207
Cost of consumer financing		6		7		7		8		29
Cost reimbursements		62		63		67		51		242
Total Cost of sales		160		170		159		162		651
Royalty fee expense		10		10		11		10		41
Selling and marketing expense		59		66		65		61		251
General and administrative expense		24		27		26		24		102
Amortization expense of intangibles		2		2		2		2		8
Depreciation expense		10		10		10		10		39
Total operating costs and expenses		265		285		273		269		1,092
Operating income		16		9		22		28		75
Amortization expense of intangibles		2		2		2		2		8
Depreciation expense		10		10		10		10		39
Equity in earnings of unconsolidated entities		1		2		1		—		4
Net income attributable to noncontrolling interests		(1)		—		(1)		(1)		(3)
Other non-operating income (expense), net		11		(2)		(1)		(6)		3
EBITDA		39		21		33		33		126
Non-cash compensation expense		3		4		3		3		13
Acquisition related and restructuring costs		3		4		2		1		10
Asset Impairments		2		2		4		2		10
Other special items		—		1		—		2		4
Impact of purchase accounting		(2)		(1)		—		—		(4)
Less: Other non-operating (income) expense, net		(11)		2		1		6		(3)
Adjusted EBITDA	$	34	$	33	$	43	$	47	$	156

90

	Vacation Ownership(1)
	Quarter Ended								Year Ended
	March 31,		June 30,		September 30,		December 31,		December 31,
	2016		2016		2016		2016		2016
Resort operations revenue	$	5	$	30	$	53	$	50	$	136
Management fee revenue		21		27		32		30		111
Sales of vacation ownership products, net		9		49		96		152		306
Consumer financing revenue		2		11		23		20		57
Cost reimbursement revenue		15		40		63		61		179
Total Revenue		52		157		267		313		789
Cost of service and membership related		9		12		12		14		48
Cost of sales of vacation ownership products		6		19		31		42		99
Cost of rental and ancillary services		2		23		47		44		116
Cost of consumer financing		—		3		4		7		13
Cost reimbursements		15		40		63		61		179
Total Cost of sales		32		97		157		168		455
Royalty fee expense		1		5		9		11		27
Selling and marketing expense		3		27		53		57		139
General and administrative expense		14		22		26		22		82
Amortization expense of intangibles		1		2		3		2		8
Depreciation expense		—		5		9		11		25
Total operating costs and expenses		51		158		257		271		736
Operating income (loss)		1		(1)		10		42		53
Amortization expense of intangibles		1		2		3		2		8
Depreciation expense		—		5		9		11		25
Equity in earnings of unconsolidated entities		1		1		2		1		5
Net income attributable to noncontrolling interests		—		(1)		—		—		(2)
Other non-operating expense, net		—		—		(5)		(6)		(11)
EBITDA		3		6		19		50		78
Non-cash compensation expense		1		2		2		2		7
Acquisition related and restructuring costs		3		6		3		2		15
Other special items		—		—		—		—		—
Impact of purchase accounting		—		4		3		5		12
Less: Other non-operating expense, net		—		—		5		6		11
Adjusted EBITDA	$	7	$	18	$	32	$	65	$	123

91

	Exchange and Rental (1)
	Quarter Ended								Year Ended
	March 31,		June 30,		September 30,		December 31,		December 31,
	2017		2017		2017		2017		2017
Transaction revenue	$	59	$	49	$	47	$	44	$	198
Membership fee revenue		35		35		36		35		140
Ancillary member revenue		2		2		2		2		7
Total member revenue		96		86		85		81		345
Club rental revenue		30		27		26		22		105
Other revenue		5		6		4		5		22
Rental management revenue		14		11		12		10		49
Cost reimbursement revenue		26		26		24		23		98
Total Revenue		171		156		151		141		619
Cost of service and membership related sales		19		18		19		19		75
Cost of sales of rental and ancillary services		26		21		24		21		92
Cost reimbursements		26		26		24		23		98
Total Cost of sales		71		65		67		63		265
Royalty fee expense		—		1		—		—		2
Selling and marketing expense		14		14		12		13		52
General and administrative expense		30		31		32		30		123
Amortization expense of intangibles		3		3		3		3		12
Depreciation expense		5		5		5		5		21
Total operating costs and expenses		123		119		119		114		475
Operating income		48		37		32		27		144
Amortization expense of intangibles		3		3		3		3		12
Depreciation expense		5		5		5		5		21
Equity in earnings of unconsolidated entities		—		—		—		—		—
Net income attributable to noncontrolling interests		—		—		—		—		—
Other non-operating expense, net		(1)		—		—		(4)		(6)
Other special items (gain on bargain purchase)		—		2		—		—		2
EBITDA		55		47		40		31		173
Non-cash compensation expense		3		3		2		2		9
Acquisition related and restructuring costs		—		—		1		—		2
Other special items		—		(1)		1		1		—
Less: Other non-operating expense, net		1		—		—		4		6
Adjusted EBITDA	$	59	$	49	$	44	$	38		190

92

	Exchange and Rental (1)
	Quarter Ended								Year Ended
	March 31,		June 30,		September 30,		December 31,		December 31,
	2016		2016		2016		2016		2016
Transaction revenue	$	58	$	50	$	47	$	43	$	198
Membership fee revenue		30		34		35		35		134
Ancillary member revenue		2		1		1		1		6
Total member revenue		90		85		83		79		338
Club rental revenue		3		15		24		22		63
Other revenue		6		6		6		5		23
Rental management revenue		13		10		13		12		48
Cost reimbursement revenue		22		24		25		24		95
Total Revenue		134		140		151		142		567
Cost of service and membership related sales		16		16		20		19		70
Cost of sales of rental and ancillary services		12		18		20		20		69
Cost reimbursements		22		23		25		24		95
Total Cost of Sales		50		57		65		63		234
Royalty fee expense		1		—		—		—		1
Selling and marketing expense		14		15		13		13		55
General and administrative expense		24		32		30		29		116
Amortization expense of intangibles		2		3		3		3		11
Depreciation expense		5		4		5		5		18
Total operating costs and expenses		96		111		116		113		435
Operating income		38		29		35		29		132
Amortization expense of intangibles		2		3		3		3		11
Depreciation expense		5		4		5		5		18
Equity in earnings of unconsolidated entities		—		—		—		—		—
Net income attributable to noncontrolling interests		—		—		—		—		—
Other non-operating income, net		1		1		1		1		4
Other special items		—		197		(9)		(25)		163
EBITDA		46		234		35		13		328
Non-cash compensation expense		2		3		3		3		11
Acquisition related and restructuring costs		—		6		—		—		7
Other special items		—		(197)		9		25		(163)
Less: Other non-operating income, net		(1)		(1)		(1)		(1)		(4)
Adjusted EBITDA	$	47	$	45	$	46	$	40	$	179

(1) Individual amounts for the quarters may not add to the annual amount because of rounding.

93

The following tables present the inputs used to compute operating income and adjusted EBITDA margin for our operating segments for the years ended December 31, 2017, 2016 and 2015 (in millions).

	Vacation Ownership
	Year Ended December 31,
	2017		2016		2015
Revenue	$	1,167	$	789	$	196
Revenue excluding cost reimbursement revenue		925		610		138
Operating income		75		53		8
Adjusted EBITDA		156		123		29
Margin computations
Operating income margin		6%		7%		4%
Operating income margin excluding cost reimbursement revenue		8%		9%		6%
Adjusted EBITDA margin		13%		16%		15%
Adjusted EBITDA margin excluding cost reimbursement revenue		17%		20%		21%

	Exchange and Rental
	Year Ended December 31,
	2017		2016		2015
Revenue	$	619	$	567	$	501
Revenue excluding cost reimbursement revenue		521		472		407
Operating income		144		132		120
Adjusted EBITDA		190		179		156
Margin computations
Operating income margin		23%		23%		24%
Operating income margin excluding cost reimbursement revenue		28%		28%		29%
Adjusted EBITDA margin		31%		32%		31%
Adjusted EBITDA margin excluding cost reimbursement revenue		36%		38%		38%

The following table reconciles cash provided by operating activities to free cash flow for the years ended December 31, 2017, 2016 and 2015 (in millions).

	Year Ended December 31,
	2017		2016		2015
Operating activities before inventory spend	$	310	$	168	$	143
Inventory spend		(231)		(175)		—
Net cash provided by (used in) operating activities		79		(7)		143
Repayments on securitizations		(178)		(93)		—
Proceeds from securitizations, net of debt issuance costs		322		370		—
Net changes in financing-related restricted cash		14		(25)		—
Net securitization activities		158		252		—
Capital expenditures		(119)		(95)		(20)
Acquisition-related and restructuring payments		10		30		6
Free cash flow	$	128	$	180	$	129

94

The following tables reconcile net income attributable to common stockholders to adjusted net income, and to adjusted earnings per share for the years ended December 31, 2017, 2016 and 2015 (in millions).

	Year Ended December 31,
	2017		2016		2015
Net income attributable to common stockholders	$	168	$	265	$	73
Acquisition-related and restructuring costs		12		22		8
Other non-operating foreign currency remeasurements		(1)		7		(4)
Impact of purchase accounting		(2)		15		1
Other special items		(40)		(163)		—
Asset impairments		10		—		—
Income tax impact on adjusting items(1)		(8)		(16)		(2)
Adjusted net income	$	139	$	130	$	76
Earnings per share attributable to common stockholders:
Basic	$	1.36	$	2.62	$	1.28
Diluted	$	1.34	$	2.60	$	1.26
Adjusted earnings per share:
Basic	$	1.12	$	1.29	$	1.33
Diluted	$	1.10	$	1.28	$	1.32
Weighted average number of common stock outstanding:
Basic		124,032		100,868		57,400
Diluted		125,833		101,732		57,989

	Year Ended December 31,
	2017				2016				2015
	Basic		Diluted		Basic		Diluted		Basic		Diluted
Earnings per share	$	1.36	$	1.34	$	2.62	$	2.60	$	1.28	$	1.26
Acquisition related and restructuring costs		0.09		0.09		0.21		0.21		0.13		0.13
Other non-operating foreign currency remeasurements		(0.00)		(0.00)		0.07		0.07		(0.07)		(0.06)
Asset impairments		0.08		0.08		—		—		—		—
Impact of purchase accounting		(0.02)		(0.02)		0.16		0.16		0.02		0.02
Other special items		(0.33)		(0.33)		(1.61)		(1.60)		—		—
Income tax impact of adjusting items(1)		(0.06)		(0.06)		(0.16)		(0.16)		(0.03)		(0.03)
Adjusted earnings per share	$	1.12	$	1.10	$	1.29	$	1.28	$	1.33	$	1.32

(1) Tax rate utilized is the applicable effective tax rate respective to the period to the extent amounts are deductible or taxable.

The following table reconciles contract sales to sales of vacation ownership products, net, for the years ended December 31, 2017, 2016 and 2015 (in millions).

95

	Year Ended December 31,
	2017		2016		2015
Total timeshare contract sales	$	561	$	358	$	98
Provision for loan losses		(36)		(22)		(2)
Contract sales of unconsolidated projects		(63)		(64)		(72)
Percentage of completion		—		39		—
Other items and adjustments(1)		3		(5)		4
Sales of vacation ownership products, net		465		306		28
Provision for loan losses		36		22		2
Percentage of completion		—		(39)		—
Other items and adjustments(1)		(3)		6		(4)
Consolidated timeshare contract sales	$	498	$	295	$	26

(1) Includes adjustments for incentives, other GAAP deferrals, cancelled sales, fractional sales and other items.

The following table represents reconciliations of our revenues between our consolidated income statement format and our segment presentation format for the years ended December 31, 2017, 2016 and 2015 (in millions). 

		For the year ended December 31, 2017
		Service and membership related		Sales of vacation ownership products		Rental and ancillary services		Consumer financing		Cost reimbursements		Total
Vacation Ownership
Resort operations revenue	$	—	$	—	$	213	$	—	$	—	$	213
Management fee revenue		158		—		—		—		—		158
Sales of vacation ownership products, net		—		465		—		—		—		465
Consumer financing revenue		—		—		—		89		—		89
Cost reimbursement revenue		—		—		—		—		242		242
Total Vacation Ownership revenue		158		465		213		89		242		1,167
Exchange and Rental
Transaction revenue		138		—		60		—		—		198
Membership fee revenue		140		—		—		—		—		140
Ancillary member revenue		7		—		—		—		—		7
Total member revenue		285		—		60		—		—		345
Club rental revenue		—		—		105		—		—		105
Other revenue		18		—		4		—		—		22
Rental management revenue		45		—		4		—		—		49
Cost reimbursement revenue		—		—		—		—		98		98
Total Exchange and Rental revenue		348		—		173		—		98		619
Total ILG revenue	$	506	$	465	$	386	$	89	$	340	$	1,786

		For the year ended December 31, 2016
		Service and membership related		Sales of vacation ownership products		Rental and ancillary services		Consumer financing		Cost reimbursements		Total
Vacation Ownership
Resort operations revenue	$	—	$	—	$	136	$	—	$	—	$	136
Management fee revenue		111		—		—		—		—		111
Sales of vacation ownership products, net		—		306		—		—		—		306
Consumer financing revenue		—		—		—		57		—		57
Cost reimbursement revenue		—		—		—		—		179		179
Total Vacation Ownership revenue		111		306		136		57		179		789
Exchange and Rental
Transaction revenue		139		—		59		—		—		198
Membership fee revenue		134		—		—		—		—		134
Ancillary member revenue		6		—		—		—		—		6
Total member revenue		279		—		59		—		—		338
Club rental revenue		—		—		63		—		—		63
Other revenue		19		—		4		—		—		23
Rental management revenue		45		—		3		—		—		48
Cost reimbursement revenue		—		—		—		—		95		95
Total Exchange and Rental revenue		343		—		129		—		95		567
Total ILG revenue	$	454	$	306	$	265	$	57	$	274	$	1,356

96

		For the year ended December 31, 2015
		Service and membership related		Sales of vacation ownership products		Rental and ancillary services		Consumer financing		Cost reimbursements		Total
Vacation Ownership
Resort operations revenue	$	—	$	—	$	17	$	—	$	—	$	17
Management fee revenue		88		—		—		—		—		88
Sales of vacation ownership products, net		—		28		—		—		—		28
Consumer financing revenue		—		—		—		5		—		5
Cost reimbursement revenue		—		—		—		—		58		58
Total Vacation Ownership revenue		88		28		17		5		58		196
Exchange and Rental
Transaction revenue		136		—		57		—		—		193
Membership fee revenue		126		—		—		—		—		126
Ancillary member revenue		6		—		—		—		—		6
Total member revenue		268		—		57		—		—		325
Club rental revenue		—		—		9		—		—		9
Other revenue		19		—		4		—		—		23
Rental management revenue		46		—		4		—		—		50
Cost reimbursement revenue		—		—		—		—		94		94
Total Exchange and Rental revenue		333		—		74		—		94		501
Total ILG revenue	$	421	$	28	$	91	$	5	$	152	$	697

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Exchange Risk

We conduct business in certain foreign markets, primarily in the United Kingdom and other European Union markets. Our foreign currency risk primarily relates to our investments in foreign subsidiaries that transact business in a functional currency other than the U.S. dollar. This exposure is mitigated as we have generally reinvested profits in our international operations. As currency exchange rates change, translation of the income statements of our international businesses into U.S. dollars affects year‑over‑year comparability of operating results.

In addition, we are exposed to foreign currency risk related to transactions and/or assets and liabilities denominated in a currency other than the functional currency. Historically, we have not hedged currency risks.

Furthermore, in an effort to mitigate economic risk, we hold U.S. dollars in certain subsidiaries that have a functional currency other than the U.S. dollar.

Operating foreign currency exchange for the year ended December 31, 2017 resulted in a net loss of $0.2 million and in net gains of $0.1 million and $0.2 million for the years ended December 31, 2016 and 2015, respectively, attributable to foreign currency remeasurements of operating assets and liabilities denominated in a currency other than their functional currency.

Non‑operating foreign currency exchange included a net gain of $1 million for the year ended December 31, 2017, a net loss of $7 million for the year ended December 31, 2016 and a net gain of $4 million for the year ended December 31, 2015, attributable to cash held in certain countries in currencies other than their functional currency. The favorable fluctuations for the year ended December 31, 2017 were primarily driven by U.S. dollar denominated intercompany loan positions held at December 31, 2017 affected by the weaker dollar compared to the Mexican peso. The unfavorable fluctuations for the year ended December 31, 2016 were primarily driven by U.S. dollar denominated intercompany loan positions held at December 31, 2016 affected by the stronger dollar compared to the Mexican peso.  The favorable fluctuations for the year ended December 31, 2015 were principally driven by U.S. dollar positions held at December 31, 2015 affected by the stronger dollar compared to the Mexican peso and the Colombian peso.

Our operations in international markets are exposed to potentially volatile movements in currency exchange rates. The economic impact of currency exchange rate movements on us is often linked to variability in real growth, inflation, interest rates, governmental actions and other factors. These changes, if material, could cause us to adjust our financing, operating and hedging strategies. A hypothetical 10% weakening/strengthening in foreign exchange rates to the U.S. dollar for the year ended December 31, 2017 would result in an approximate change to revenue of $13 million. There have been no material quantitative changes in market risk exposures since December 31, 2017.

97

Interest Rate Risk

We are exposed to interest rate risk through borrowings under our amended credit agreement which bears interest at variable rates. The interest rate on the amended credit agreement as of April 2015 is based on (at our election) either LIBOR plus a predetermined margin that ranges from 1.25% to 2.50%, or the Base Rate as defined in the amended credit agreement plus a predetermined margin that ranges from 0.25% to 1.50%, in each case based on ILG’s leverage ratio. As of December 31, 2017, the applicable margin was 1.75% per annum for LIBOR revolving loans and 0.75% per annum for Base Rate loans. During 2017, we had at least $171 million outstanding under our revolving credit facility; a 100 basis point change in interest rates would result in an approximate change to interest expense of $3 million for the current year. While as of December 31, 2017, we do not hedge our interest rate exposure, this risk is mitigated by the issuance of $350 million senior notes in April 2015 at a fixed rate of 5.625%, securitized debt at fixed rates ranging from 2.00% to 2.93%, as well as variable interest rates earned on our cash balances.

Additionally, our consumer financing business generates income from the spread between the revenue generated on loans originated less its costs to fund and service those loans, including interest costs related to associated securitizations. Adverse changes in prevailing market rates for securitizations could negatively impact income from our consumer financing business in the future.

98

Item 8.    Financial Statements and Supplementary Data

ILG, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS

	PAGE
Audited Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm	100
Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015	101
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015	102
Consolidated Balance Sheets as of December 31, 2017 and 2016	103
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2017, 2016 and 2015	104
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015	105
Notes to Consolidated Financial Statements	106
Schedule II—Valuation and Qualifying Accounts	174

99

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of ILG, Inc. and subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of ILG, Inc. and subsidiaries (the Company) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ ERNST & YOUNG LLP

Certified Public Accountants

We have served as the Company’s auditor since 2008.

Miami, Florida

February 28, 2018

100

ILG, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except share and per share data)

	Year Ended December 31,
	2017		2016		2015
Revenues:
Service and membership related	$	506	$	454	$	421
Sales of vacation ownership products, net		465		306		28
Rental and ancillary services		386		265		91
Consumer financing		89		57		5
Cost reimbursements		340		274		152
Total revenues		1,786		1,356		697
Operating costs and expenses:
Cost of service and membership related sales		158		118		100
Cost of vacation ownership product sales		90		99		20
Cost of sales of rental and ancillary services		299		185		41
Cost of consumer financing		29		13		—
Cost reimbursements		340		274		152
Royalty fee expense		43		28		3
Selling and marketing expense		303		194		71
General and administrative expense		225		198		150
Amortization expense of intangibles		20		19		14
Depreciation expense		60		43		18
Total operating costs and expenses		1,567		1,171		569
Operating income		219		185		128
Other income (expense):
Interest income		1		1		1
Interest expense		(26)		(23)		(21)
Gain on bargain purchase		2		163		—
Other income (expense), net		(3)		(7)		3
Equity in earnings from unconsolidated entities		4		5		5
Total other income (expense), net		(22)		139		(12)
Earnings before income taxes and noncontrolling interests		197		324		116
Income tax provision		(26)		(57)		(41)
Net income		171		267		75
Net income attributable to noncontrolling interests		(3)		(2)		(2)
Net income attributable to common stockholders	$	168	$	265	$	73
Earnings per share attributable to common stockholders:
Basic	$	1.36	$	2.62	$	1.28
Diluted	$	1.34	$	2.60	$	1.26
Weighted average number of shares of common stock outstanding (in 000's):
Basic		124,032		100,868		57,400
Diluted		125,833		101,732		57,989
Dividends declared per share of common stock	$	0.60	$	0.48	$	0.48

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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ILG, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

	Year Ended December 31,
	2017		2016		2015
Net income	$	171	$	267	$	75
Other comprehensive income, net of tax:
Foreign currency translation adjustments, net of tax		22		(29)		(11)
Total comprehensive income, net of tax		193		238		64
Less: Net income attributable to noncontrolling interests		(3)		(2)		(2)
Less: Other comprehensive loss (income) attributable to noncontrolling interests		(3)		6		2
Total comprehensive loss (income) attributable to noncontrolling interests		(6)		4		—
Comprehensive income attributable to common stockholders	$	187	$	242	$	64

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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ILG, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share data)

	December 31,
	2017		2016
ASSETS
Cash and cash equivalents	$	122	$	126
Restricted cash and cash equivalents (including $19 and $32 in variable interest entities, "VIEs," respectively)		227		114
Accounts receivable, net of allowance for doubtful accounts of $13 and $0.4, respectively		121		97
Vacation ownership mortgages receivable, net of allowance of $4 and $1, respectively (including a net $61 and $59 in VIEs, respectively)		78		87
Vacation ownership inventory		499		197
Prepaid income taxes		58		47
Prepaid expenses		62		49
Other current assets (including $4 and $3 of interest receivables in VIEs, respectively)		32		29
Total current assets		1,199		746
Restricted cash and cash equivalents (including $1 and $2 in variable interest entities, "VIEs," respectively)		3		4
Vacation ownership mortgages receivable, net of allowance of $50 and $21, respectively (including a net $498 and $370 in VIEs, respectively)		644		632
Vacation ownership inventory		60		189
Investments in unconsolidated entities		54		59
Property and equipment, net		616		580
Goodwill		564		558
Intangible assets, net		440		453
Deferred income taxes		—		9
Other non-current assets		91		74
TOTAL ASSETS	$	3,671	$	3,304
LIABILITIES AND EQUITY
LIABILITIES:
Accounts payable, trade	$	46	$	64
Current portion of securitized debt from VIEs		146		111
Deferred revenue		162		87
Accrued compensation and benefits		72		70
Accrued expenses and other current liabilities (including a net $1 of interest payables in VIEs)		217		187
Total current liabilities		643		519
Long-term debt		562		580
Securitized debt from VIEs		429		319
Income taxes payable, non-current		11		5
Other long-term liabilities		118		47
Deferred revenue		76		79
Deferred income taxes		128		161
Total liabilities		1,967		1,710
Redeemable noncontrolling interest		1		1
Commitments and contingencies
EQUITY:
Preferred stock—authorized 25,000,000 shares, of which 100,000 shares are designated Series A Junior Participating Preferred Stock; $0.01 par value; none issued and outstanding		—		—
Common stock—authorized 300,000,000 shares; $0.01 par value; issued 134,053,132 and 133,545,864 shares, respectively		1		1
Treasury stock— 9,987,627 and 8,878,489 shares at cost, respectively		(164)		(136)
Additional paid-in capital		1,278		1,262
Retained earnings		584		492
Accumulated other comprehensive loss		(33)		(52)
Total ILG stockholders’ equity		1,666		1,567
Noncontrolling interests		37		26
Total equity		1,703		1,593
TOTAL LIABILITIES AND EQUITY	$	3,671	$	3,304

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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ILG, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(In millions, except share data)

																	Accumulated
					Total ILG								Additional				Other
	Total		Noncontrolling		Stockholders’		Common Stock			Treasury Stock			Paid-in		Retained		Comprehensive
	Equity		Interests		Equity		Amount		Shares	Amount		Shares	Capital		Earnings		Loss
Balance as of December 31, 2014	$	420	$	36	$	384	$	1	59,463,200	$	(35)	2,363,324	$	202	$	236	$	(20)
Net income		75		2		73		—	—		—	—		—		73		—
Other comprehensive loss, net of tax		(11)		(2)		(9)		—	—		—	—		—		—		(9)
Non-cash compensation expense		13		—		13		—	—		—	—		13		—		—
Dividends paid to noncontrolling interest		(3)		(3)		—		—	—		—	—		—		—		—
Issuance of common stock upon exercise of stock options		—		—		—		—	11,084		—	—		—		—		—
Issuance of common stock upon vesting of restricted stock units, net of withholding taxes		(4)		—		(4)		—	379,649		—	—		(4)		—		—
Change in excess tax benefits from stock-based awards		2		—		2		—	—		—	—		2		—		—
Cash dividends declared		(27)		—		(27)		—	—		—	—		1		(28)		—
Balance as of December 31, 2015	$	465	$	33	$	432	$	1	59,853,933	$	(35)	2,363,324	$	214	$	281	$	(29)
Net income		267		2		265		—	—		—	—		—		265		—
Other comprehensive loss, net of tax		(29)		(6)		(23)		—	—		—	—		—		—		(23)
Non-cash compensation expense		18		—		18		—	—		—	—		18		—		—
Acquisition of partnership interest of noncontrolling interests		(1)		(1)		—		—	—		—	—		—		—		—
Dividends paid to noncontrolling interest		(2)		(2)		—		—	—		—	—		—		—		—
Issuance of common stock upon vesting of RSUs, net of withholding taxes		(1)		—		(1)		—	638,159		—	—		(1)		—		—
Issuance of restricted stock for converted shares in connection with the acquisition of Vistana		—		—		—		—	668,081		—	—		—		—		—
Fair value of restricted stock awards attributable to precombination services converted in connection with the Vistana acquisition		2		—		2		—	—		—	—		2		—		—
Issuance of common stock in connection with the Vistana acquisition		1,029		—		1,029		—	72,371,969		—	—		1,029		—		—
Change in excess tax benefits from stock-based awards		(2)		—		(2)		—	—		—	—		(2)		—		—
Dividends declared on common stock		(52)		—		(52)		—	13,722		—	—		2		(54)		—
Treasury stock purchases		(101)		—		(101)		—	—		(101)	6,515,165		—		—		—
Balance as of December 31, 2016	$	1,593	$	26	$	1,567	$	1	133,545,864	$	(136)	8,878,489	$	1,262	$	492	$	(52)
Net income		171		3		168		—	—		—	—		—		168		—
Other comprehensive income, net of tax		22		3		19		—	—		—	—		—		—		19
Non-cash compensation expense		22		—		22		—	—		—	—		22		—		—
Noncontrolling interest of consolidated HOAs		8		8		—		—	—		—	—		—		—		—
Dividends paid to noncontrolling interest		(3)		(3)		—		—	—		—	—		—		—		—
Cancellation of restricted stock for converted shares		—		—		—		—	(36,813)		—	—		—		—		—
Issuance of common stock upon vesting of RSUs, net of withholding taxes		(7)		—		(7)		—	537,573		—	—		(7)		—		—
Deferred stock compensation expense		(1)		—		(1)		—	—		—	—		(1)		—		—
Dividends declared on common stock		(74)		—		(74)		—	6,508		—	—		2		(76)		—
Treasury stock purchases		(28)		—		(28)		—	—		(28)	1,109,138		—		—		—
Balance as of December 31, 2017	$	1,703	$	37	$	1,666	$	1	134,053,132	$	(164)	9,987,627	$	1,278	$	584	$	(33)

The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.

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ILG, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

	Year Ended December 31,
	2017		2016		2015
Cash flows from operating activities:
Net income	$	171	$	267	$	75
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization expense of intangibles		20		19		14
Depreciation expense		60		43		18
Bad debt expense		4		1		—
Allowance for losses on originated loans		35		20		2
Allowance for impairment on acquired loans		5		—		—
Impairment on vacation ownership inventory		5		—		—
Loss on disposal of investment in subsidiary		5		—		—
Accretion of mortgages receivable		5		2		—
Non-cash compensation expense		22		18		13
Deferred income taxes		(24)		8		3
Equity in earnings from unconsolidated entities		(4)		(5)		(5)
Return on investments in unconsolidated entities		5		2		—
Gain on bargain purchase of Vistana acquisition		(2)		(163)		—
Changes in operating assets and liabilities:
Restricted cash		(126)		(15)		4
Accounts receivable		(8)		(11)		(3)
Vacation ownership mortgages receivable (originations)		(341)		(195)		2
Vacation ownership mortgages receivable collections		279		167		—
Vacation ownership inventory (additions)		(231)		(180)		7
Vacation ownership inventory disposals		81		83		—
Prepaid expenses and other current assets		(24)		4		4
Prepaid income taxes and income taxes payable		(4)		(43)		10
Accounts payable and other current liabilities		13		33		1
Other long term liabilities		53		4		—
Deferred income		72		(66)		(7)
Other, net		8		—		5
Net cash provided by (used in) operating activities		79		(7)		143
Cash flows from investing activities:
Capital expenditures		(119)		(95)		(20)
Acquisitions, net of cash acquired		—		(84)		—
Investments in unconsolidated entities		—		(5)		—
Other, net		4		(5)		(1)
Net cash used in investing activities		(115)		(189)		(21)
Cash flows from financing activities:
Proceeds from issuance of senior notes		—		—		350
Borrowings (payments) on revolving credit facility, net		(20)		165		(413)
Payments of debt issuance costs		(3)		(7)		(7)
Proceeds from securitized debt		325		375		—
Payments on securitized debt		(178)		(93)		—
Decrease (increase) in restricted cash		14		(25)		—
Purchases of treasury stock		(28)		(101)		—
Dividend payments to stockholders		(74)		(52)		(28)
Dividend payments to noncontrolling interest		(3)		(2)		(3)
Payment to former Vistana owner for subsidiary financing obligation		—		(24)		—
Withholding taxes on vesting of restricted stock units and restricted stock		(7)		(2)		(4)
Excess tax benefits from stock-based awards		—		—		2
Net cash provided by (used in) financing activities		26		234		(103)
Effect of exchange rate changes on cash and cash equivalents		6		(5)		(7)
Net increase (decrease) in cash and cash equivalents		(4)		33		12
Cash and cash equivalents at beginning of year		126		93		81
Cash and cash equivalents at end of year	$	122	$	126	$	93

See Note 22 for supplemental cash flow information.

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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ILG, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017

NOTE 1—ORGANIZATION AND BASIS OF PRESENTATION

Organization

ILG, Inc. is a leading provider of professionally delivered vacation experiences and the exclusive global licensee for the Hyatt®, Sheraton®, and Westin® brands in vacation ownership. We operate in the following two segments: Vacation Ownership (VO) and Exchange and Rental.

Our VO segment engages in sales, marketing, financing and development of vacation ownership interests (VOIs); the management of vacation ownership resorts; and related services to owners and associations. The VO operating segment consists of the VOI sales and financing business of Vistana Signature Experiences (Vistana) and Hyatt Vacation Ownership (HVO) as well as the management related lines of business of Vistana, HVO, Vacation Resorts International (VRI), Trading Places International (TPI), VRI Europe and certain homeowners’ associations (HOAs) under our control.

Our Exchange and Rental segment offers access to vacation accommodations and other travel-related transactions and services to members of our programs and other leisure travelers, by providing vacation exchange services and vacation rentals, working with resort developers, HOAs and operating vacation rental properties. The Exchange and Rental operating segment consists of Interval International (referred to as Interval), the Vistana Signature Network, the Hyatt Residence Club, the TPI exchange business, and Aqua-Aston Holdings, Inc. (Aqua-Aston).

ILG was incorporated as a Delaware corporation in May 2008 under the name Interval Leisure Group, Inc. and commenced trading on The NASDAQ Stock Market in August 2008 under the symbol "IILG" and now trades under “ILG.”

On May 11, 2016, we acquired the vacation ownership business of Starwood Hotels & Resorts Worldwide, LLC (Starwood), now known as Vistana. In connection with the acquisition, Vistana entered into an exclusive, 80 - year global license agreement with Starwood for the use of the Sheraton and Westin brands in vacation ownership. The global license agreement may also be extended for two 30 – year terms, subject to meeting certain sales performance tests. Also, Vistana has the non-exclusive license for the existing St. Regis and The Luxury Collection® vacation ownership properties and an affiliation with the Starwood Preferred Guest program.

Basis of Presentation

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of ILG, our wholly‑owned subsidiaries, and entities in which we have a controlling interest, including variable interest entities (“VIEs”) where we are the primary beneficiary in accordance with consolidation guidance. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. References in these financial statements to net income attributable to common stockholders and ILG stockholders’ equity do not include noncontrolling interests, which represent the outside ownership of our consolidated non‑wholly owned entities and are reported separately.

For the years ended December 31, 2017, 2016 and 2015, individual amounts presented herein by quarter may not add to the year-to-date amount due to rounding and, in the case of per share amounts, differences in the average common shares outstanding during each period.

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Accounting Estimates

We are required to make certain estimates and assumptions during the preparation of its consolidated financial statements in accordance with generally accepted accounting principles (“GAAP”). These estimates and assumptions impact the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. They also impact the reported amount of net earnings during any period. Actual results could differ from those estimates.

Significant estimates underlying the accompanying consolidated financial statements include:

· the recovery of long‑lived assets as well as goodwill and other intangible assets;

· purchase price allocations of business combinations;

· loan loss reserves for vacation ownership mortgages receivable;

· accounting for acquired vacation ownership mortgages receivable;

· revenue recognition pertaining to sales of vacation ownership products pursuant to the percentage of completion method;

· cost of vacation ownership product sales related estimates included in our relative sales value calculation, such as future projected sales revenue and expected project costs to complete;

· the accounting for income taxes including deferred income taxes and related valuation allowances;

· the determination of deferred revenue and deferred membership costs;

· and the determination of stock‑based compensation.

In our opinion, the assumptions underlying the historical consolidated financial statements of ILG and its subsidiaries are reasonable.

Seasonality

Revenue at ILG is influenced by the seasonal nature of travel. Within our VO segment, our sales and financing business experiences a modest impact from seasonality, with higher sales volumes during the traditional vacation periods. Our vacation ownership management businesses by and large do not experience significant seasonality, with the exception of our resort operations revenue which tends to be higher in the first quarter.

Within our Exchange and Rental segment, we recognize exchange and Getaway revenue based on confirmation of the vacation, with the first quarter generally experiencing higher revenue and the fourth quarter generally experiencing lower revenue. Remaining rental revenue is recognized based on occupancy. For the vacation rental business, the first and third quarters generally generate higher revenue as a result of increased leisure travel to our Hawaii‑based managed properties during these periods, and the second and fourth quarters generally generate lower revenue.

NOTE 2—SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

Vacation Ownership

Revenue from the VO segment is derived principally from sales of VOIs and related fees earned by Vistana and HVO, interest income earned for financing these sales, maintenance fees, fees for vacation ownership resort and homeowners’ association management services, and rental and ancillary revenues, including from hotels owned by Vistana and HVO.

Sales of VOIs

ILG recognizes revenue from sales of VOIs in accordance with Financial Accounting Standard Board (FASB) Accounting Standards Codification (ASC) 970, Real Estate—General, and FASB ASC 978, Real Estate—Time‑Sharing

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Activities. The stated sales price of the VOI is divided into separate revenue components, which include the revenue earned on the sale of the VOI and the revenue earned on the sales incentive given to the customer as motivation to purchase the VOI. We at times offer several types of sales incentives, including SPG and World of Hyatt points, free bonus week, and down payment credits to buyers.

Consolidated VOI sales are recognized and included in revenues after a binding sales contract has been executed, a 10% minimum down payment has been received as a measure of substantiating the purchaser’s commitment, the rescission period has expired, and construction is substantially complete. Pursuant to accounting rules for real estate time‑sharing transactions, as part of determining when we have met the criteria necessary for revenue recognition we must also take into consideration the fair value of certain incentives provided to the purchaser when assessing the adequacy of the purchaser’s initial down-payment. The agreement for sale generally provides for a down payment and a note secured by a mortgage payable in monthly installments, including interest, over a typical term ranging from 5 - 15 years. Customer deposits relating to contracts cancelled after the applicable rescission period are forfeited and recorded in revenue at the time of forfeiture.

If construction of the vacation ownership product is not complete, we determine the portion of revenues to recognize based upon the percentage of completion method, which includes judgments and estimates, including total project costs to complete. There were no deferrals as of December 31, 2017 and 2016 on our consolidated balance sheets pertaining to the application of percentage of completion accounting.

The provision for loan losses is recorded as an adjustment to sales of VOIs in the accompanying consolidated income statements rather than as an adjustment to bad debt expense. ILG records an estimate of uncollectible amounts at the time of the interval sale.

We capitalize direct costs attributable to the sale of VOIs until the sales are recognized. All such capitalized costs are included in prepaid expenses and other current assets in the consolidated balance sheets. If a contract is cancelled, we charge the unrecoverable direct selling costs to expense. Indirect sales and marketing costs are expensed as incurred.

Management fee and other revenue

Management fees and other revenue in this segment consist of base management fees, service fees, and annual maintenance fees, as applicable. Annual maintenance fees are amounts paid by timeshare owners for maintaining and operating the respective properties, which includes management services, and are recognized on a straight‑line basis over the respective annual maintenance period. Our day-to-day management services include activities such as housekeeping services, operation of a reservation system, maintenance, and certain accounting and administrative services. We receive compensation for such management services, which is generally based on either a percentage of the budgeted cost to operate such resorts or a fixed fee arrangement.

Resort operations revenue

Our resort operations activities are largely comprised of transient rental income at our vacation ownership and owned-hotel properties. We record rental revenue when occupancy has occurred or, in the case of unused prepaid rentals, upon forfeiture. Other ancillary services revenue consists of goods and services that are sold or provided by us at restaurants, golf courses and other retail and service outlets located at developed resorts. We recognize ancillary services revenue when goods have been provided and/or services have been rendered.

Exchange and Rental

Membership fee revenue

Revenue, net of sales incentives, from membership fees from our Exchange and Rental segment is deferred and recognized over the terms of the applicable memberships, typically ranging from one to five years, on a straight‑line basis. When multiple member benefits and services are provided over the term of the membership, revenue is recognized

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for each separable deliverable ratably over the membership period, as applicable. Generally, memberships are cancelable and refundable on a pro‑rata basis, with the exception of Interval Network’s Platinum tier which is non‑refundable. Direct costs of acquiring members (primarily commissions) and certain direct fulfillment costs related to deferred membership revenue are also deferred and amortized on a straight‑line basis over the terms of the applicable memberships or benefit period, whichever is shorter. Following the implementation of a proprietary IT platform in the fourth quarter of 2014, recognition of deferred membership revenue and expense is at the individual member‑level. The recognition of any remaining deferred revenue and expense originated prior to implementation is based on estimates derived from an aggregation of member‑level data.

Transaction revenue

Revenue from exchanges, Getaway transactions and other fee-based services provided to members of our networks is recognized when confirmation of the transaction is provided and services have been rendered as the earnings process is complete. Reservation servicing revenue is recognized when the service is performed or on a straight‑line basis over the applicable service period. All taxable revenue transactions are presented on a net‑of‑tax basis.

Club rental revenue

Club rental revenue represents rentals generated by the Vistana Signature Network and Hyatt Residence Club mainly to monetize inventory at their vacation ownership resorts to provide exchanges for our members through hotel loyalty programs. Revenue related to club rentals is recognized when occupancy has occurred.

Rental management revenue

Revenue from our vacation rental management businesses is comprised of base management fees which are typically either (i) fixed amounts, (ii) amounts based on a percentage of adjusted gross lodging revenue, or (iii) various revenue sharing arrangements with condominium owners based on stated formulas. Base management fees are recognized when earned in accordance with the terms of the contract. Incentive management fees for certain hotels and condominium resorts are generally a percentage of operating profits or improvement in operating profits. We recognize incentive management fees as earned throughout the incentive period based on actual results which are trued‑up at the culmination of the incentive period. Service fee revenue is based on the services provided to owners including reservations, sales and marketing, property accounting and information technology services either internally or through third party providers. Service fee revenue is recognized when the service is provided.

General

Cost reimbursement revenue

Represents the compensation and other employee-related costs directly associated with managing properties that are included in both revenue and cost of sales and that are passed on to the property owners or homeowner associations without mark-up. Cost reimbursement revenue of the Vacation Ownership segment also includes reimbursement of sales and marketing expenses, without mark-up, pursuant to contractual arrangements.

Deferred revenue in a business combination

When we acquire a business which records deferred revenue on their historical financial statements, we are required to re‑measure that deferred revenue as of the acquisition date pursuant to rules related to accounting for business combinations, as described further below. The post‑acquisition impact of that remeasurement results in recognizing revenue which solely comprises the cost of the associated legal performance obligation we assumed as part of the acquisition, plus a normal profit margin. This purchase accounting treatment typically results in lower amounts of revenue recognized in a reporting period following the acquisition than would have otherwise been recognized on a historical basis.

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Multiple‑element arrangements

When we enter into multiple‑element arrangements, we are required to determine whether the deliverables in these arrangements should be treated as separate units of accounting for revenue recognition purposes and, if so, how the contract price should be allocated to each element. We analyze our contracts upon execution to determine the appropriate revenue recognition accounting treatment. Our determination of whether to recognize revenue for separate deliverables will depend on the terms and specifics of our products and arrangements as well as the nature of changes to our existing products and services, if any. The allocation of contract revenue to the various elements does not change the total revenue recognized from a transaction or arrangement, but may impact the timing of revenue recognition.

Sales type taxes

All taxable revenue transactions are presented on a net‑of‑tax basis.

Cash and Cash Equivalents

Cash and cash equivalents include cash and highly liquid investments with original maturities of three months or less.

Restricted Cash and Cash Equivalents

Restricted cash and cash equivalents at December 31, 2017 and 2016 primarily includes maintenance fees, certain resort related reserves, and deposits received on sales of VOIs that are held in escrow until the applicable statutory rescission period has expired and the funds have been released from escrow and the deeding process has begun or title is otherwise transferred. We also may have the opportunity to release escrow funds by issuing a surety bond. Additionally, restricted cash and cash equivalents also include amounts held in trust and lock box accounts in connection with certain transactions related to management of vacation rental properties as well as cash held by our variable interest entities (“VIEs”) from our securitization transactions (refer to Note 13).

Accounts Receivable

Accounts receivable are stated at amounts due from customers, principally resort developers, members and managed properties, net of an allowance for doubtful accounts. Accounts receivable outstanding longer than the contractual payment terms are considered past due. We determine our allowance by considering a number of factors, including the length of time accounts receivable are past due, previous loss history, our judgment as to the specific customer’s current ability to pay its obligation and the condition of the general economy. More specifically, our policy for determining our allowance for doubtful accounts consists of both general and specific reserves. The general reserve methodology is distinct for each ILG business based on its historical collection experience and past practice. Predominantly, receivables greater than 120 days past due are applied a general reserve factor, while receivables 180 days or more past due are fully reserved. The determination of when to apply a specific reserve requires judgment and is directly related to the particular customer collection issue identified, such as known liquidity constraints, insolvency concerns or litigation.

The bad debt expense associated with the allowance for doubtful accounts is included within general and administrative expense within our consolidated statements of income. We write off accounts receivable when they become uncollectible once we have exhausted all means of collection.

Vacation Ownership Inventory and Cost of Sales

Our inventory consists of completed unsold vacation ownership interests, which has an operating cycle that generally exceeds twelve months, and vacation ownership projects under construction. On our consolidated balance sheet, completed unsold vacation ownership interests are presented as a current asset, while vacation ownership projects under construction are presented as a non-current asset given this inventory is in the development stage of its operating cycle. We carry our inventory presented within current assets at the lower of cost or fair value, less expected costs to sell, which can result in impairment charges and/or recoveries of previous impairments.

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We capitalize costs clearly associated with the acquisition, development and construction of a real estate project when it is probable that the project will move forward. We capitalize salary and related costs only to the extent they directly relate to the project. We capitalize interest expense, taxes and insurance costs when activities that are necessary to get the property ready for its intended use are underway. We cease capitalization of costs during prolonged gaps in development when substantially all activities are suspended or when projects are considered substantially complete.

We account for our vacation ownership inventory and cost of vacation ownership products in accordance with the authoritative guidance for accounting for real estate time-sharing transactions contained in ASC Topic 978, Real Estate—Time Sharing Activities, which defines a specific application of the relative sales value method for reducing vacation ownership inventory and recording cost of sales. Also, pursuant to the guidance for accounting for real estate time-sharing transactions, we do not reduce inventory for the cost of vacation ownership products related to anticipated credit losses (accordingly, no adjustment is made when inventory is reacquired upon default of originated receivables). These standards provide for changes in estimates within the relative sales value calculations to be accounted for as real estate inventory true-ups, which we refer to as cost of sales true-ups, and are recorded in cost of vacation ownership product sales to retrospectively adjust the margin previously recorded subject to those estimates. These cost of sales true-ups could result in material adjustments to cost of vacation ownership product sales in a given period.

Costs Incurred to Sell Vacation Ownership Products

We capitalize and defer direct costs attributable to the sale of vacation ownership products until the sales are recognized, in accordance with the guidelines of ASC Topic 978, Real Estate—Time Sharing Activities. All such capitalized costs are included in prepaid expenses and other current assets in the accompanying consolidated balance sheets, and are subsequently reflected in accompanying statements of consolidated income in selling and marketing expense when recognized. If a contract is cancelled, we charge the unrecoverable direct selling costs to expense. In accordance with ASC 978, indirect sales and marketing costs are expensed as incurred.

Vacation Ownership Mortgages Receivable and Allowance for Loan Losses

Vacation ownership mortgages receivable consist of loans to eligible customers who purchase VOIs and choose to finance their purchase. These mortgages receivable are collateralized by the underlying VOI, generally bear interest at a fixed rate, have a typical term ranging from 5-15 years and are generally made available to customers who make a down payment on the purchase price within established credit guidelines.

Vacation ownership mortgages receivable are composed of mortgage loans related to our financing of vacation ownership interval sales. Included within our vacation ownership mortgages receivable are originated loans and loans acquired in connection with our acquisitions of Vistana and HVO.

Acquired loans are segregated between those with deteriorated credit quality at acquisition and those deemed as performing. To make this determination, we consider such factors as credit collection history, past due status, non‑accrual status, credit risk ratings, interest rates and the underlying collateral securing the loans. The fair value of acquired loans deemed performing is determined by discounting cash flows, both principal and interest, for the loan pool at market interest rates while giving consideration to anticipated future defaults. The difference between fair value and principal balances due at acquisition date is accreted to interest income, within consolidated revenue, over the estimated life of the loan pool.

The collection activity associated with our securitized vacation ownership notes receivable determines the amount of our monthly repayments against our securitized debt. Collection activity includes contractual payments due and prepayments. In addition, defaulted loans are generally removed from the securitized pool and are substituted or repurchased, while upgraded loans are repurchased, for debt repayment purposes. The securitized debt is non-recourse without a specific repayment schedule. As the amount of each principal payment is contingent on the cash flows from underlying vacation ownership mortgages receivable in a given period, we have not disclosed future contractual debt repayments. Additionally, our vacation ownership mortgages receivable securitization agreements allow us to receive the net excess cash flows (spread between the collections on the notes and payments for third party obligations as defined in

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the securitization agreements) from the VIEs provided we do not meet certain triggers related to default levels and collateralization of the securitized pool, as discussed in Note 13.

Allowance for Loan Losses

For originated loans, we record an estimate of uncollectability as a reduction of sales of VOIs in the accompanying consolidated statements of income at the time revenue is recognized on a VOI sale. We evaluate our originated loan portfolio collectively as they are largely homogeneous, smaller‑balance, vacation ownership mortgages receivable. We use a technique referred to as static pool analysis, which tracks uncollectibles over the entire life of those mortgages receivable, as the basis for determining our general reserve requirements on our vacation ownership mortgages receivable. The adequacy of the related allowance is determined by management through analysis of several factors, such as current economic conditions and industry trends, as well as the specific risk characteristics of the portfolio, including defaults, aging, and historical write‑offs of these receivables. The allowance is maintained at a level deemed adequate by management based on a periodic analysis of the mortgage portfolio.

We generally determine our originated vacation ownership mortgages receivable to be nonperforming if either interest or principal is more than 30 days past due. All non‑performing loans are placed on non‑accrual status and we do not resume interest accrual until the receivable becomes contractually current. We apply payments we receive for vacation ownership notes receivable on non‑performing status first to interest, then to principal, and any remainder to fees.

Loans acquired in connection with a business combination are recorded at their estimated fair value on their purchase date with no carryover of the related allowance for loan losses. Acquired loans are subsequently evaluated for any required allowance at each reporting date. Refer to Note 5 for additional information on our acquired loans.

Investments in Unconsolidated Entities

We consolidate entities under our control, including variable interest entities (VIEs) where we are deemed to be the primary beneficiary as a result of qualitative and/or quantitative characteristics. The primary beneficiary is the party who has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be disproportionate to the entity. Investments in unconsolidated affiliates over which we exercise significant influence, but do not control, including joint ventures, are accounted for by the equity method. In addition, our limited partnership investments in which we hold more than a minimal investment are accounted for under the equity method of accounting.

We assess investments in unconsolidated entities for impairment quarterly to determine whether there is an indication that a loss in value that is other‑than‑temporary has occurred. If so, we evaluate the carrying value compared to the estimated fair value of the investment. Fair value is based upon internally developed discounted cash flow models, third‑party appraisals, or if appropriate, current estimated net sales proceeds from pending offers. If the estimated fair value is less than carrying value, we use our judgment to determine if the decline in value is other‑than‑temporary. In making this determination, we consider factors including, but not limited to, the length of time and extent of the decline, loss of values as a percentage of the cost, financial condition and near‑term financial projections, our intent and ability to recover the lost value, and current economic conditions. Impairments that are deemed other‑than‑temporary are charged to equity in losses from unconsolidated entities in our accompanying consolidated statements of income.

Property and Equipment

Property and equipment, including capitalized improvements, are recorded at cost. Repairs and maintenance and any gains or losses on dispositions are included in results of operations. Gains or losses on the sale or retirement of assets are included in net income when the assets are retired or sold provided there is reasonable assurance of the collectability of the sales price, if applicable, and any future activities to be performed by us relating to the assets sold are insignificant.

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Depreciation is recorded on a straight‑line basis to allocate the cost of depreciable assets to operations over their estimated useful lives. The following table summarizes depreciable life by asset category.

Asset Category	Depreciation Period
Computer equipment	3 to 5 Years
Capitalized software (including internally-developed software)	3 to 7 Years
Buildings and leasehold improvements(1)	1 to 40 Years
Furniture, fixtures and other equipment	3 to 10 Years

(1) The depreciation period for leasehold improvements is the lesser of the lease term or the economic useful life for leasehold improvements.

In accordance with ASC Topic 350, “Intangibles‑Goodwill and Other” (“ASC 350”), we capitalize certain qualified costs incurred in connection with the development of internal use software. Capitalization of internal use software costs begins when the preliminary project stage is completed, management with the relevant authority authorizes and commits to the funding of the software project, and it is probable that the project will be completed and the software will be used to perform the function intended. Depreciation of property and equipment is presented as a separate line item in the accompanying consolidated income statements.

Fair Value Measurements

In accordance with ASC Topic 820, “Fair Value Measurement,” (“ASC 820”) the fair value of an asset is considered to be the price at which the asset could be sold in an orderly transaction between unrelated knowledgeable and willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. We categorize assets and liabilities recorded at fair value using a three‑tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

· Level 1—Observable inputs that reflect quoted prices in active markets

· Level 2—Inputs other than quoted prices in active markets that are either directly or indirectly observable

· Level 3—Unobservable inputs in which little or no market data exists, therefore requiring the company to develop its own assumptions

Our non‑financial assets, such as goodwill, intangible assets, vacation ownership inventory and long‑lived assets, are adjusted to fair value only when an impairment charge is recognized. Such fair value measurements are based predominantly on Level 3 inputs.

Accounting for Business Combinations

In accordance with ASC Topic 805, “Business Combinations,” when accounting for business combinations we are required to recognize the assets acquired, liabilities assumed, contractual contingencies, noncontrolling interests and contingent consideration at their fair value as of the acquisition date. These items are recorded on our consolidated balance sheets as of the respective acquisition dates based upon their estimated fair values at such dates. The results of operations of acquired businesses are included in the consolidated statements of income since their respective acquisition dates.

The purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets, estimated contingent consideration payments and/or pre‑acquisition contingencies, all of which ultimately affect the fair value of goodwill established as of the acquisition date. Goodwill acquired in business combinations is assigned to the reporting unit(s) expected to benefit from the combination as of the acquisition date and is then subsequently tested for impairment at least annually. If the fair value of the net assets acquired exceeds the purchase price consideration, we record a gain on bargain purchase. However, in such a case, before the measurement period closes we perform a reassessment to reconfirm whether we have correctly identified all of the assets acquired and all of the liabilities assumed as of the acquisition date.

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As part of our accounting for business combinations we are required to determine the useful lives of identifiable intangible assets recognized separately from goodwill. The useful life of an intangible asset is the period over which the asset is expected to contribute directly or indirectly to the future cash flows of the acquired business. An intangible asset with a finite useful life shall be amortized; an intangible asset with an indefinite useful life shall not be amortized. We base the estimate of the useful life of an intangible asset on an analysis of all pertinent factors, in particular, all of the following factors with no one factor being more presumptive than the other:

· The expected use of the asset.

· The expected useful life of another asset or a group of assets to which the useful life of the intangible asset may relate.

· Any legal, regulatory, or contractual provisions that may limit the useful life.

· Our own historical experience in renewing or extending similar arrangements, consistent with our intended use of the asset, regardless of whether those arrangements have explicit renewal or extension provisions.

· The effects of obsolescence, demand, competition, and other economic factors.

· The level of maintenance expenditures required to obtain the expected future cash flows from the asset.

If no legal, regulatory, contractual, competitive, economic, or other factors limit the useful life of an intangible asset to the reporting entity, the useful life of the asset shall be considered to be indefinite. The term indefinite does not mean the same as infinite or indeterminate. The useful life of an intangible asset is indefinite if that life extends beyond the foreseeable horizon—that is, there is no foreseeable limit on the period of time over which it is expected to contribute to the cash flows of the acquired business.

Although we believe the assumptions and estimates we have made have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired entity and are inherently uncertain. Examples of critical estimates in accounting for acquisitions include but are not limited to:

· future expected cash flows from sales of products and services and related contracts and agreements;

· discount and long‑term growth rates; and

· the estimated fair value of the acquisition‑related contingent consideration, which is performed using a probability‑weighted income approach based upon the forecasted achievement of post‑acquisition pre‑determined targets;

Unanticipated events and circumstances may occur which could affect the accuracy or validity of our assumptions, estimates or actual results. Additionally, any change in the fair value of the acquisition‑related contingent consideration subsequent to the acquisition date, including changes resulting from events that occur after the acquisition date, such as changes in our estimated fair value of the targets that are expected to be achieved, will be recognized in earnings in the period of the change in estimated fair value.

Additionally, when acquiring a company who has recorded deferred revenue in its historical, pre‑acquisition financial statements, we are required as part of purchase accounting to re‑measure the deferred revenue as of the acquisition date. Deferred revenue is re‑measured to represent solely the cost that relates to the associated legal performance obligation which we assumed as part of the acquisition, plus a normal profit margin representing the level of effort or risk assumed. Legal performance obligations that simply relate to the passage of time would not result in recognized deferred revenue as there is little to no associated cost.

Goodwill and Indefinite-Lived Intangible Assets

Goodwill and indefinite-lived intangible assets are significant components of our consolidated balance sheets. Our policies regarding the valuation of intangible assets affect the amount of future amortization and possible impairment charges we may incur. Assumptions and estimates about future values and remaining useful lives of our intangible and other long‑lived assets are complex and subjective. They can be affected by a variety of factors, including external factors such as consumer spending habits and general economic trends, and internal factors such as changes in our business strategy and our internal forecasts.

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Goodwill acquired in business combinations is assigned to the reporting unit(s) expected to benefit from the combination as of the acquisition date. In accordance with ASC 350, we review the carrying value of goodwill and other intangible assets of each of our reporting units on an annual basis as of October 1, or more frequently upon the occurrence of certain events or substantive changes in circumstances, based on either a qualitative assessment or a two‑step impairment test. Our reporting units within each of our Vacation Ownership and Exchange and Rental operating segments are as follows:

OPERATING SEGMENTS
Vacation Ownership	Exchange and Rental
VO management reporting unit	Exchange reporting unit
VO sales and financing reporting unit	Rental reporting unit

During the year, we monitor the actual performance of our reporting units relative to the fair value assumptions used in our annual impairment test, including potential events and changes in circumstance affecting our key estimates and assumptions.

Qualitative Assessment

The qualitative assessment may be elected in any given year pursuant to ASC 350. Under this guidance, entities testing goodwill for impairment have the option of performing a qualitative assessment before calculating the fair value of a reporting unit. If entities determine, on the basis of qualitative factors, that it is more‑likely‑than‑not (i.e., a likelihood of more than 50 percent) that the fair value of the reporting unit is below the carrying amount, the two‑step impairment test would be required. The guidance also provides the option to skip the qualitative assessment in any given year and proceed directly with the two‑step impairment test at our discretion.

Our qualitative assessment is performed for the purpose of assessing whether events or circumstances have occurred in the intervening period between the date of our last two‑step impairment test (the “Baseline Valuation”) and the date of our current annual impairment test which could adversely affect the comparison of our reporting units’ fair value with its carrying amount. Examples of events and circumstances that might indicate that a reporting unit’s fair value is less than its carrying amount include macro‑economic conditions such as deterioration in the entity’s operating environment, industry or overall market conditions; reporting unit specific events such as increasing costs, declining financial performance, or loss of key personnel or contracts; or other events such as pending litigation, access to capital in the credit markets or a sustained decrease in ILG’s stock price on either an absolute basis or relative to peers. If it is determined, as a result of the qualitative assessment, that it is more‑likely‑than‑not that the fair value of a reporting unit is less than its carrying amount, we are then required to perform a two‑step impairment test on goodwill.

Two‑step Impairment Test

The first step of the impairment test compares the fair value of each reporting unit with its carrying amount, including goodwill. The fair value of each reporting unit is calculated using the average of an income approach and a market comparison approach which utilizes similar companies as the basis for the valuation. If the carrying amount exceeds fair value, then the second step of the impairment test is performed to measure the amount of any impairment loss. The impairment loss is determined by comparing the implied fair value of goodwill to the carrying value of goodwill. The implied fair value of goodwill represents the excess of the fair value of the reporting unit over amounts assigned to its net assets.

The determination of fair value utilizes an evaluation of historical and forecasted operating results and other estimates. Fair value measurements are generally determined through the use of valuation techniques that may include a discounted cash flow approach, which reflects our own assumptions of what market participants would use in pricing the asset or liability.

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Indefinite‑Lived Intangible Assets

Our intangible assets with indefinite lives relate principally to trade names, trademarks and certain resort management contracts. Pursuant to ASC 350, if an intangible asset is determined to have an indefinite useful life, it shall not be amortized until its useful life is determined to no longer be indefinite. Accordingly, we evaluate the remaining useful life of an intangible asset that is not being amortized each reporting period to determine whether events or circumstances continue to support an indefinite useful life. As of December 31, 2017, there have been no changes to the indefinite life determination pertaining to these intangible assets.

In addition, an intangible asset that is not subject to amortization shall be tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test consists of a comparison of the fair value of an intangible asset with its carrying amount. If the carrying amount of an indefinite‑lived intangible asset exceeds its estimated fair value, an impairment loss equal to the excess is recorded. However, entities testing an indefinite‑lived intangible asset for impairment have the option of performing a qualitative assessment before calculating the fair value of the asset. If entities determine, on the basis of qualitative factors, that the likelihood of the indefinite‑lived intangible asset being impaired is below a “more‑likely‑than‑not” threshold (i.e., a likelihood of more than 50 percent), the entity would not need to calculate the fair value of the asset.

Long‑Lived Assets and Intangible Assets with Definite Lives

We review the carrying value of all long‑lived assets - primarily property and equipment, vacation ownership inventory under construction and not in active sales, and definite‑lived intangible assets - for impairment whenever events or changes in circumstances indicate that the carrying value of a long‑lived asset (asset group) may be impaired. In accordance with guidance included within ASC Topic 360, “Property Plant and Equipment,” (“ASC 360”), recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset (asset group) to future undiscounted cash flows expected to be generated by the asset (asset group). An asset group is the lowest level of assets and liabilities for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. When estimating future cash flows, we consider:

· only the future cash flows that were directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the asset group;

· our own assumptions about our use of the asset group and all available evidence when estimating future cash flows;

· potential events and changes in circumstance affecting our key estimates and assumptions; and

· the existing service potential of the asset (asset group) at the date tested.

If an asset (asset group) is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset (asset group) exceeds its fair value. When determining the fair value of the asset (asset group), we consider the highest and best use of the assets from a market‑participant perspective. The fair value measurement is generally determined through the use of independent third party appraisals or an expected present value technique, both of which may include a discounted cash flow approach, which reflects our own assumptions of what market participants would utilize to price the asset (asset group).

Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Assets to be abandoned, or from which no further benefit is expected, are written down to zero at the time that the determination is made and the assets are removed entirely from service.

Advertising

Advertising and promotional expenditures primarily include printing and postage costs of directories and magazines, promotions, tradeshows, agency fees, and related commissions. Direct‑response advertising consists primarily of printing, postage, and freight costs related to our member resort directories. Advertising costs are expensed in the period incurred, except for magazine related costs that are expensed at time of mailing when the advertising takes

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place, and direct‑response advertising, which are amortized ratably over the applicable period following the mailing of the directories.

Advertising expense was $22 million, $20 million and $16 million for the years ended December 31, 2017, 2016 and 2015, respectively, of which $4 million, $3 million and $3 million, respectively, pertained to expenses related to our direct‑response advertising. As of December 31, 2017 and 2016, we had $6 million and $5 million, respectively, of capitalized advertising costs recorded in prepaid expenses on our accompanying consolidated balance sheets.

Income Taxes

ILG accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and attributable to tax loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences or tax loss or tax credit carryforwards are expected to be recovered or settled. On December 22, 2017, the President of the United States signed into law the Tax Reform Act, which lowered the federal corporate tax rate from 35% to 21% and made numerous other tax law changes. Further information on the tax impacts of the Tax Reform Act is included in Note 19 accompanying our consolidated financial statements.

A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not that the deferred tax asset will not be realized. In making this determination, we make estimates and assumptions regarding this realization, which is dependent upon the generation of future taxable income or the reversal of deferred tax liabilities during the periods in which those temporary differences become deductible. We consider the history of taxable income in recent years, the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies to make this assessment. A change in these assumptions may increase or decrease our valuation allowance resulting in an increase or decrease in our effective tax rate, which could materially affect our consolidated financial statements.

Pursuant to ASC Topic 740 “Income Taxes” (“ASC 740”), ILG recognizes liabilities for uncertain tax positions based on the two step process prescribed by the interpretation. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settling the uncertain tax position. ILG records interest on potential income tax contingencies as a component of income tax expense and records interest net of any applicable related income tax benefit.

Foreign Currency Translation and Transaction Gains and Losses

The financial position and operating results of substantially all foreign operations are consolidated using the local currency as the functional currency. Local currency assets and liabilities are translated at the rates of exchange as of the balance sheet date, and local currency revenue and expenses are translated at average rates of exchange during the period. Resulting translation gains or losses are included as a component of accumulated other comprehensive income (loss), a separate component of ILG stockholders’ equity. Accumulated other comprehensive income (loss) is solely related to foreign currency translation.

Transaction gains and losses arising from transactions and/or assets and liabilities denominated in a currency other than the functional currency of the entity involved are included in the consolidated statements of income. Operating foreign currency exchange attributable to foreign currency remeasurements of operating assets and liabilities denominated in a currency other than their functional currency, primarily related to Euro denominated value added tax liabilities, resulted in a net loss of $0.2 million for the year ended December 31, 2017 and net gains of $0.1 million and $0.2 million for the years ended December 31, 2016 and 2015, respectively, which is included in general and administrative expenses. Non‑operating foreign currency exchange which primarily relates to U.S. dollar denominated intercompany loan positions resulted in a net gain of $1 million for the year ended December 31, 2017, a net loss of

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$7 million for the year ended December 31, 2016, and a  net gain of $4 million for the year ended December 31, 2015, and are included in other income (expense) in the accompanying consolidated statements of income.

Stock‑Based Compensation

Stock‑based compensation is accounted for under ASC Topic 718, “Compensation—Stock Compensation” (“ASC 718”). Non‑cash compensation expense for stock‑based awards is measured at fair value on date of grant and recognized over the service period for awards expected to vest. The fair value of restricted stock and restricted stock units (“RSUs”) is determined based on the number of shares granted and the quoted price of our common stock on that date, except for RSUs subject to relative total shareholder return performance criteria, which the fair value is based on a Monte Carlo simulation analysis as further discussed in Note 18. We grant awards subject to graded vesting (i.e., portions of the award vest at different times during the vesting period) or to cliff vesting (i.e., all awards vest at the end of the vesting period). Certain RSUs, in addition, are subject to attaining specific performance criteria. For RSUs to be settled in stock, the accounting charge is measured at the grant date fair value and expensed as non‑cash compensation over the vesting term using the straight‑line basis for service‑only awards and the accelerated basis for performance‑based awards with graded vesting. For certain cliff vesting awards with performance criteria, we also use anticipated future results in determining the fair value of the award. Such value is recognized as an expense over the service period using the straight‑line recognition method. The amount of stock‑based compensation expense recognized in the consolidated statements of income for periods prior to January 1, 2017 is reduced by estimated forfeitures, as the amount recorded is based on awards ultimately expected to vest. Our forfeiture rate was estimated at the grant date based on historical experience. With the adoption of ASU 2016-09 “Compensation-Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting”, on January 1, 2017, we no longer reduce stock-based compensation by estimated forfeitures. Instead we account for forfeitures when they occur. For any vesting tranche of an award, the cumulative amount of compensation cost recognized is at least equal to the portion of the grant‑date value of the award tranche that is actually vested at that date. Stock‑based compensation is recorded within the same line item in our consolidated statements of income as the employee‑related compensation of the award recipient, as disclosed in tabular format in Note 18.

The expense associated with RSU awards to be settled in cash is initially measured at fair value at the grant date and expensed ratably over the vesting term, recording a liability subject to mark‑to‑market adjustments for changes in the price of the respective common stock as compensation expense.

Management must make certain estimates and assumptions regarding stock awards that will ultimately vest, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. Tax benefits resulting from tax deductions in excess of the stock‑based compensation expense recognized in the consolidated statements of income for periods prior to January 1, 2017 were reported as a component of financing cash flows. With the adoption of ASU 2016-09, we elected the prospective transition method for the presentation of excess tax benefits within the statement of cash flows. As such, in 2017, the excess tax benefits from stock based awards were classified along with other income tax cash flows as an operating activity in the statement of cash flows.  Gross excess tax benefits from stock‑based compensation reported as a component of financing cash flows had a negligible balance for the year ended December 31, 2016, and was $2 million in the year ended December 31, 2015.

Earnings per Share

Basic earnings per share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Treasury stock is excluded from the weighted average number of shares of common stock outstanding. Diluted earnings per share attributable to common stockholders is computed based on the weighted average number of shares of common stock and dilutive securities outstanding during the period. Dilutive securities are common stock equivalents that are freely exercisable into common stock at less than market prices or otherwise dilute earnings if converted. The net effect of common stock equivalents is based on the incremental common stock that would be issued upon the assumed exercise of common stock options and the vesting of RSUs and restricted stock using the treasury stock method. Common stock equivalents are not included in diluted earnings per share when their inclusion is antidilutive. The

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computations of diluted earnings per share available to common stockholders exclude approximately 0.3 and 0.2 million RSUs and restricted stock for each of the years ended December 31, 2017 and 2016, respectively, and 0.2 million stock options and 0.3 million RSUs for the year ended December 31, 2015, as the effect of their inclusion would have been antidilutive to earnings per share.

The computation of weighted average common and common equivalent shares used in the calculation of basic and diluted earnings per share is as follows (in thousands):

	Year Ended December 31,
	2017	2016	2015
Basic weighted average shares of common stock outstanding	124,032	100,868	57,400
Net effect of common stock equivalents assumed to be vested related to RSUs and restricted stock	1,801	864	588
Net effect of common stock equivalents assumed to be exercised related to stock options held by non-employees	—	—	1
Diluted weighted average shares of common stock outstanding	125,833	101,732	57,989

Earnings per share for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands, except per share data):

		Year Ended December 31,
		2017		2016		2015
Net income attributable to common stockholders	$	168,285	$	264,651	$	73,315
Weighted average number of shares of common stock outstanding:
Basic		124,032		100,868		57,400
Diluted		125,833		101,732		57,989
Earnings per share attributable to common stockholders:
Basic	$	1.36	$	2.62		1.28
Diluted	$	1.34	$	2.60		1.26

Certain Risks and Concentrations

Geographic Risk

In regards to our Exchange and Rental segment, a substantial percentage of the vacation ownership resorts in the Interval Network are located in Florida, Hawaii, Las Vegas, Mexico and Southern California, while the majority of the revenue from our vacation rental management businesses is derived from vacation properties located in Hawaii.

In regards to our Vacation Ownership segment, a substantial percentage of our VOIs available for sale are located in Hawaii, Florida and Mexico, and the largest concentration of revenue derived the management of vacation ownership properties resides in Spain with regard to our VRI Europe business.

From an ILG perspective, approximately $780million, $529 million and $232 million of 2017, 2016 and 2015 revenue, respectively, (excluding cost reimbursement revenue) was generated from travel to properties located in all of these locations, together with vacation ownership management services and sales and financing activities related to these locations.

Business Risk

ILG also depends on relationships with developers and vacation property owners, as well as third party service providers for processing certain fulfillment services. We do not consider our overall business to be dependent on any one of these resort developers, provided, that the loss of a few large developers (particularly those from which Interval receives membership renewal fees directly) could materially impact our business. The loss of several of our largest management agreements could materially impact our businesses.

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ILG’s business also is subject to certain risks and concentrations including exposure to risks associated with online commerce security and credit card fraud.

Credit Risk

ILG is exposed to credit risk in relation to its portfolio of mortgage receivables associated with its vacation ownership business, as further discussed in Note 5. We offer financing to purchasers of VOIs at our Hyatt, Sheraton and Westin‑branded vacation ownership resorts and, as a result, ILG bears the risk of default on these loans. Should a purchaser default, ILG has the ability to foreclose and attempt to resell the associated VOI at its own cost to resell.

Other financial instruments that potentially subject ILG to concentration of credit risk consist primarily of cash and cash equivalents and restricted cash, which are maintained with high quality financial institutions. Financial instruments also contain secured loans that are recorded at the time of origination for the principal amount financed and are carried at amortized cost, net of any allowance for credit losses, as further discussed in Note 13.

Interest Rate Risk

ILG is exposed to interest rate risk through borrowings under our amended credit agreement which bears interest at variable rates. The interest rate on the amended credit agreement is based on (at our election) either LIBOR plus a predetermined margin that ranges from 1.25% to 2.5%, or the Base Rate as defined in the amended credit agreement plus a predetermined margin that ranges from 0.25% to 1.5%, in each case based on ILG’s total leverage ratio.

Recent Accounting Pronouncements: General

With the exception of those discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the year ended December 31, 2017 that are of significance, or potential significance, to ILG based on our current operations. The following summary of recent accounting pronouncements is not intended to be an exhaustive description of the respective pronouncement.

In February 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” to address stakeholder concerns about the guidance in current generally accepted accounting principles (GAAP) that requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date. The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. We are currently evaluating the methods and impact of adopting this new standard on our consolidated financial statements.

In January 2018, the FASB issued ASU 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842” to address stakeholder concerns about the costs and complexity of complying with the transition provisions of the new lease requirements. The amendments in this Update provide an optional transition practical expedient to not evaluate under Topic 842 existing or expire land easements that were not previously accounted for as leases under the current leases guidance in Topic 840. We are currently evaluating the methods and impact of adopting this new standard on our consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting” to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under this new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The guidance is effective prospectively for annual periods beginning on or after December 15, 2017. Early adoption is permitted. We do not anticipate the adoption of this guidance will have a material impact on our consolidated financial statements.

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In March 2017, the FASB issued ASU No. 2017-08, “Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities”. The FASB issued this ASU to amend the amortization period for certain purchased callable debt securities held at a premium. Prior to the issuance of the ASU, GAAP excludes certain callable debt securities from consideration of early repayment of principal even if the holder is certain that the call will be exercised. As a result, upon the exercise of a call on a callable debt security held at a premium, the unamortized premium is recorded as a loss in earnings. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We do not anticipate the adoption of this guidance will have a material impact on our consolidated financial statements.

In February 2017, the FASB issued ASU No. 2017-05, “Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets”. The FASB issued this ASU to clarify the scope of subtopic 610-20, which was issued in May 2014 as part of Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The effective date and transition requirements of these amendments are the same as the effective date and transition requirements of ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)". We adopted this standard, as well as other clarifications and technical guidance issued by the FASB related to this new revenue standard, effective January 1, 2018. We do not anticipate the adoption of this guidance will have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323).” ASU 2017-03 states that a registrant should evaluate ASUs that have not yet been adopted to determine the appropriate financial statement disclosures about the potential material effects of those ASUs on the financial statements when adopted. We do not anticipate the adoption of this guidance will have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805),” to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses by clarifying the definition of a business. The definition of a business affects many areas of accounting including acquisition, disposals, goodwill and consolidation. This amendment covers Phase 1 of a three phase project. The update is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The amendments in this update should be applied prospectively on or after the effective date. We do not anticipate the adoption of this guidance will have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350),” to simplify the subsequent measurement of goodwill by eliminating the second step from the goodwill impairment test. An entity will no longer determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Instead, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The update is effective for annual periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not anticipate the adoption of this guidance will have a material impact on our consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230).” This ASU requires that a statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The update is effective for annual periods beginning after December 15, 2017, including interim periods within those periods.  We do not anticipate the adoption of this guidance will have a material impact on our consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory” (“ASU 2016-16”) as part of the Board’s initiative to reduce complexity in accounting standards.  This ASU eliminates an exception in ASC 740, which prohibits the immediate recognition of income tax consequences

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of intra-entity asset transfers other than inventory.  Under ASU 2016-16, entities will be required to recognize the immediate current and deferred income tax effects of intra-entity asset transfers, which often involve a subsidiary of a company transferring intellectual property to another subsidiary.  For public entities, the new guidance will be effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods.  This ASU’s amendments should be applied on a modified retrospective basis, recognizing the effects in retained earnings as of the beginning of the year of adoption.  Upon adoption we will record a cumulative adjustment of approximately $7 million to opening retained earnings. We do not anticipate the adoption of this guidance will have a material impact on our consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230).”  This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under existing guidance. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments should be applied using a retrospective transition method to each period presented. We do not anticipate the adoption of this guidance will have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326).” This ASU amends the Board’s guidance on the impairment of financial instruments. The ASU adds to GAAP an impairment model (known as the current expected credit losses model) that is based on an expected losses model rather than an incurred losses model. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The ASU is also intended to reduce the complexity of GAAP by decreasing the number of impairment models that entities use to account for debt instruments. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We do not anticipate the adoption of this guidance will have a material impact on our consolidated financial statements as we currently apply an expected losses model against our outstanding vacation ownership mortgages receivable.

In February 2016, the FASB issued ASU 2016‑02, “Leases (Topic 842)” (“ASU 2016‑02”). ASU 2016‑02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The new guidance will be effective for public entities for annual periods beginning after December 15, 2018 and interim periods therein. Early adoption of ASU 2016‑02 as of its issuance is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. We are currently evaluating the methods and impact of adopting this new standard on our consolidated financial statements.

In January 2016, the FASB issued ASU 2016‑01, “Financial Instruments—Overall (Subtopic 825‑10),” which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Although the ASU retains many current requirements, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The amendments in this update are effective for fiscal years beginning after December 31, 2017, including interim periods within those fiscal years. We do not anticipate the adoption of this guidance will have a material impact on our consolidated financial statements.

Recent Accounting Pronouncements: Revenue Recognition

In May 2014, the FASB issued ASU 2014‑09, “Revenue from Contracts with Customers (Topic 606) (“ASU 2014‑09”). The FASB and the International Accounting Standards Board (“IASB”) initiated a joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS that would: (i) remove inconsistencies and weaknesses in revenue requirements; (ii) provide a more robust framework for addressing revenue issues; (iii) improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; (iv) provide more useful information to users of financial statements through improved disclosure requirements; and (v) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. To meet those objectives, the FASB amended the FASB Accounting Standards Codification (“Codification”) and created a new Topic 606, Revenue from Contracts with Customers. The core principle of the

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guidance in ASU 2014‑09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance in this ASU supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry specific guidance throughout the Industry Topics of the Codification. Additionally, ASU 2014‑09 supersedes some cost guidance included in Subtopic 605‑35, Revenue Recognition—Construction‑Type and Production‑Type Contracts. The ASU is effective for fiscal years beginning after December 15, 2017 (and interim periods within that period).

In periods subsequent to the initial issuance of this ASU, the FASB has issued additional ASU’s clarifying items within Topic 606, as follows:

	In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which defers by one year the effective date of ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.
	In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations” (“ASU 2016-08”). The amendments in ASU 2016-08 serve to clarify the implementation guidance on principal vs. agent considerations.



In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-10”). The purpose of ASU 2016-10 is to clarify two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance (while retaining the related principles for those areas).



In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2016-12”). The purpose of ASU 2016-12 is to address certain issues identified to improve Topic 606 by enhancing guidance on assessing collectability, presentation of sales taxes and other similar taxes collected from customers, noncash consideration and completed contracts and contract modifications at transition.

 In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,” which amends certain aspects of the Board’s new revenue standard, ASU 2014-09.This ASU addresses thirteen specific issues pertaining to Topic 606, Revenue from Contracts with Customers.

Our evaluation of ASU 2014-09 is substantially complete. Our evaluation included identifying the potential differences in the timing and/or method of revenue recognition for our contracts and, ultimately, the expected impact on our business processes, systems and controls. As part of this evaluation, we reviewed customer contracts and applied the five-step model of the new standard to each contact type identified that’s associated to our material revenue streams and compared the results to our current accounting practices. We currently expect the main areas of impact will include:

· earlier recognition of certain VOI sales where the transaction price was deemed collectable yet we were deferring recognition due to specific buyers’ commitment requirements under legacy GAAP;  

· gross versus net presentation changes which would not impact profitability, such as incentives provided to customers on vacation ownership interest (“VOI”) sales (e.g., SPG points), management fees attributable to unsold VOI inventory, and administrative fees for VOI sales;

· classification of certain trial vacation package sales which would also not impact profitability;

· capitalization of certain incremental costs to obtain a contract related to trial vacation package sales;

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· the instances in which we can apply the percentage of completion revenue recognition method when construction of a vacation ownership project is not complete;

· classification of certain payments to developers in our exchange business who are functioning as agents in the member acquisition process.

We currently estimate that our 2016 beginning retained earnings will be reduced by less than $1 million as a result of this adoption, and that our 2017 and 2016 consolidated income statement will be impacted as follows:

· total revenues will increase by approximately $11 million in 2016 and will decrease by approximately $3 million in 2017.

· total expenses will increase by approximately $4 million in 2016 and decrease by approximately $9 million in 2017.

· net income attributable to common stockholders for both periods will increase by $5 million.

· diluted earnings per share will increase by $0.05 and $0.04, respectively.

At this time, we plan to adopt this standard, as well as other clarifications and technical guidance issued by the FASB related to this new revenue standard, on January 1, 2018, using the retrospective adoption method.

Adopted Accounting Pronouncements

In October 2016, the FASB issued ASU 2016-17, “Consolidation (Topic 810),” to amend the existing guidance issued with ASU 2015-02. This ASU was issued to amend the consolidation guidance on how a reporting entity, that is the single decision maker of a VIE, should treat indirect interests in the entity held through related parties that are under common control with the reporting entity, when determining whether it is the primary beneficiary of that VIE. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09 to simplify the current accounting for stock compensation. The areas for simplification in this update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. Under the new guidance, companies no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital. Instead, all excess tax benefits and tax deficiencies are recognized as income tax expense or benefit in the income statement. In accordance with this ASU, for the year ended December 31, 2017, ILG included a net benefit of $2 million within the income tax provision. In addition, with the adoption of this ASU, we elected to account for forfeitures when they occur, so therefore, effective January 1, 2017, we no longer estimate the number of awards that are expected to vest. We also elected the prospective transition method for the presentation of excess tax benefits within the statement of cash flows. As such, the excess tax benefits from stock based awards was presented as part of the operating activities within the current period consolidated statements of cash flows, and the prior period was not adjusted. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-07, “Investments – Equity Method and Joint Ventures (Topic 323)” (“ASU 2016-07”). The amendments in this ASU require, among other items, that an equity method investor add the cost of acquiring an additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting, as well as eliminates certain other existing requirements. The adoption of this guidance did not have a material impact on our consolidated financial statements.

NOTE 3—BUSINESS COMBINATION

On May 11, 2016, we completed the acquisition of Vistana from wholly‑owned subsidiaries of Starwood as discussed in Note 1. As part of the acquisition, ILG acquired 100% of the voting equity interests of Vistana and issued

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approximately 72.4 million shares of ILG common stock to the holders who received Vistana common stock in the spin-off. These shares were valued at $1 billion based on ILG’s closing stock price of $14.24 on May 11, 2016.

The Vistana acquisition is recorded on our consolidated balance sheet as of May 11, 2016 based upon estimated fair values as of such date. The results of operations related to this business are included in our consolidated statements of income beginning on May 12, 2016 and within our Exchange and Rental and Vacation Ownership segments for segment reporting purposes on the basis of its respective business activities.

Purchase Price Allocation (PPA)

The following table presents the final allocation of total purchase price consideration to the assets acquired and liabilities assumed, based on their estimated fair values as of their respective acquisition dates (in millions):

	Preliminary PPA		Adjustments to PPA(3)		Final PPA(4)
Cash	$	45	$	—	$	45
Vacation ownership inventory		221		7		228
Vacation ownership mortgages receivable		712		(19)		693
Other current assets		143		3		146
Intangibles		241		(3)		238
Property plant and equipment		465		(10)		455
Other non-current assets		24		(9)		15
Deferred revenue		(60)		(4)		(64)
Securitized debt		(154)		—		(154)
Other current liabilities(2)		(187)		11		(176)
Other non-current liabilities		(98)		(2)		(100)
Gain on bargain purchase(1)		(197)		32		(165)
Net assets acquired	$	1,155	$	6	$	1,161

(1) Gain on bargain purchase represents the excess of the fair value of the net tangible and intangible assets acquired over the purchase price. This gain of $165 million is presented within Other income (expense), net, in our consolidated statement of income in two periods: (i) $163 million for the year ended December 31, 2016 and (ii) $2 million for the year ended December 31, 2017. The existence of a gain on bargain purchase pertaining to this transaction is principally related to the decrease in our stock price leading up to the acquisition date.

(2) Includes a $24 million accrual pertaining to a dividend declared by a subsidiary of Vistana to Starwood prior to our acquisition date which was settled subsequent to the acquisition closing.

(3) Represents adjustments to the preliminary purchase price allocation first presented in our June 30, 2016 Form 10-Q, including our reassessment of assets acquired and liabilities assumed, with respect to finalizing our purchase price allocation for this acquisition. The larger adjustments primarily pertained to refinements of certain estimates related to the valuation of our mortgages receivable and vacation ownership inventory based on additional information, adjustments to tax-related accounts as new information became available, and certain other reclasses between line items. 

(4) Measurement period was closed as of December 31, 2016 for all balance sheet items except those that are tax related for which the measurement period closed on May 11, 2017.

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The purchase price allocated to the fair value of identifiable intangible assets associated with the Vistana acquisition is as follows (in millions):

	Fair Value		Useful Life (years)
Resort management contracts	$	118	26
Customer relationships		119	25
Other		1	< 1
Total	$	238

In connection with the Vistana acquisition we recorded identifiable intangible assets of $238 million, all of which were definite-lived intangible assets, related to Vistana’s membership base in their Vistana Signature Network (described in table above as customer relationships) and their resort management contracts.

The valuation of the assets acquired and liabilities assumed in connection with this acquisition was based on fair values at the acquisition date. The assets purchased and liabilities assumed for the Vistana acquisition have been reflected in the accompanying consolidated balance sheets. The measurement period was closed as of December 31, 2016 for all balance sheet items except those that are tax-related for which the measurement period was closed May 11, 2017.

Results of operations

Related to the Vistana acquisition, revenue of $1.1 billion and $654 million was recognized in our consolidated statement of income for the years ended December 31, 2017 and 2016, respectively. Additionally, net income of $123 million and $45 million was recognized in our consolidated statement of income for the years ended December 31, 2017 and 2016, respectively.

Pro forma financial information (unaudited)

The following unaudited pro forma financial information presents the consolidated results of ILG and Vistana as if the acquisition had occurred on January 1, 2015, the beginning of the last full fiscal year prior to the May 11, 2016 acquisition date. The pro forma results presented below for the years ended December 31, 2017 and 2016 are based on the historical financial statements of ILG and Vistana (where applicable), adjusted to reflect the purchase method of accounting, with ILG as accounting acquirer. The pro forma information is not necessarily indicative of the consolidated results of operations that might have been achieved for the periods or dates indicated, nor is it necessarily indicative of the future results of the combined company. It does not reflect cost savings expected to be realized from the elimination of certain expenses and from synergies expected to be created or the costs to achieve such cost savings or synergies, if any. Income taxes do not reflect the amounts that would have resulted had ILG and Vistana filed consolidated income tax returns during the pre-acquisition periods presented. The 2017 and 2016 periods have been adjusted to eliminate the respective adjustments recorded to our pre-tax gain on bargain purchase for purposes of this pro forma presentation. This adjustment was tax-effected at an estimated effective tax rate of 13.2%, 35.0% and 37.2% for 2017, 2016 and 2015 respectively.

	Year Ended December 31,
(In millions, except per share data)		2017	2016		2015
Revenue	$	1,786	$	1,733	$	1,593
Net income attributable to common stockholders	$	166	$	126	$	311
Earnings per share:
Basic	$	1.34	$	0.99	$	2.39
Diluted	$	1.32	$	0.98	$	2.38

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Other

On April 1, 2017, ILG gained the ability to appoint the majority of the board of Great Destinations Inc., a fee-for-service, real-estate brokerage firm that specializes in reselling resort timeshare properties on behalf of independent homeowners’ associations of which we own 50% of the equity, thereby acquiring control of the joint venture. Consequently, we consolidated the business into our consolidated financial statements as of the date control was obtained. In connection with the step-acquisition of this investment we recorded goodwill of $4 million. The valuation of the assets acquired and liabilities assumed in connection with this event was based on fair values at April 1, 2017. No other intangible assets apart from goodwill were established. The measurement period pertaining to this acquisition is deemed closed as of September 30, 2017.

NOTE 4—RESTRICTED CASH

Restricted cash consists of the following (in millions):

	December 31,		December 31,
	2017		2016
Escrow deposits on vacation ownership products	$	70	$	67
HOAs		137		—
Securitization VIEs		20		34
Other		3		17
Total restricted cash	$	230	$	118

Restricted cash associated with escrow deposits on vacation ownership products represents amounts that are held in escrow until statutory requirements for release are satisfied, at which time that cash is no longer restricted. Restricted cash of securitization VIEs represents cash held in accounts related to vacation ownership mortgages receivable securitizations, which is generally used to pay down securitized vacation ownership debt in the period following the quarter in which the cash is received.

HOAs restricted cash predominantly pertains to maintenance fees collected from their respective owners which are designated for resort operations and HOA specific uses, such as reserves, and not freely available for immediate or general business use at ILG’s discretion.

NOTE 5—VACATION OWNERSHIP MORTGAGES RECEIVABLE

Vacation ownership mortgages receivable is comprised of various mortgage loans related to our financing of vacation ownership interval sales. As part of our acquisitions of HVO and Vistana, we acquired existing portfolios of vacation ownership mortgages receivable. These loans are accounted for using the expected cash flows method of recognizing discount accretion based on the acquired loans’ expected cash flows pursuant to ASC 310-30, “Loans acquired with deteriorated credit quality.” At acquisition, we recorded these acquired loans at fair value, including a credit discount or premium, as applicable, which is accreted as an adjustment to yield over the loans’ estimated life. Originated loans as of December 31, 2017 and 2016 represent vacation ownership mortgages receivable originated by ILG, or more specifically our Vacation Ownership segment, subsequent to the acquisitions of HVO and Vistana on October 1, 2014 and May 11, 2016, respectively.

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Vacation ownership mortgages receivable carrying amounts as of December 31, 2017 and 2016 were as follows (in millions):

	December 31,						December 31,
	2017						2016
	Securitized		Unsecuritized(2)		Total		Securitized		Unsecuritized(2)		Total
Acquired vacation ownership mortgages receivable(1)	$	345	$	38	$	383	$	419	$	127	$	546
Originated vacation ownership mortgages receivable(1)		251		147		398		11		184		195
Less: allowance for impairment on acquired loans		(4)		(1)		(5)		—		—		—
Less: allowance for losses on originated loans		(33)		(21)		(54)		(1)		(21)		(22)
Net vacation ownership mortgages receivable	$	559	$	163	$	722	$	429	$	290	$	719

(1) At various interest rates with varying payment terms through 2032 for acquired receivables and for originated receivables.

(2) As of December 31, 2017, $9 million of unsecuritized vacation ownership receivables were not eligible for securitization. During the year ended December 31, 2017, approximately $19 million of unsecuritized receivables as of December 31, 2016 were moved into the 2016 securitized pool, thereby releasing the same amount from restricted cash. The remaining change in the unsecuritized balance between year-end 2016 and 2017 pertains to the 2017 securitization described in Note 13.

The fair value of our acquired loans as of the respective acquisition dates was determined by use of a discounted cash flow approach which calculates a present value of expected future cash flows based on scheduled principal and interest payments over the term of the respective loans, while considering anticipated defaults and early repayments determined based on historical experience. Consequently, the fair value of these acquired loans recorded on our consolidated balance sheet as of the acquisition date includes an estimate for future loan losses which becomes the historical cost basis for that existing portfolio going forward. As of December 31, 2017 and 2016, the contractual outstanding balance of the acquired loans, which represents contractually-owed future principal amounts, was $296 million and $466 million, respectively.

The table below (in millions) presents a rollforward from December 31, 2015 of the accretable yield (interest income) expected to be earned related to our acquired loans, as well as the amount of non-accretable difference at the end of the period. Nonaccretable difference represents estimated contractually required payments in excess of estimated cash flows expected to be collected. The accretable yield represents the excess of estimated cash flows expected to be collected over the carrying amount of the acquired loans.

	Year Ended		Year Ended
Accretable Yield	December 31, 2017		December 31, 2016
Balance, beginning of period	$	156	$	12
Vistana acquired accretable yield		—		205
Accretion		(53)		(49)
Reclassification from nonaccretable difference		(4)		(12)
Balance, end of period	$	99	$	156
Nonaccretable difference, end of period balance	$	31	$	35

The accretable yield is recognized into interest income (within consolidated revenue) over the estimated life of the acquired loans using the level yield method. The accretable yield may change in future periods due to changes in the anticipated remaining life of the acquired loans, which may alter the amount of future interest income expected to be collected, and changes in expected future principal and interest cash collections which impacts the nonaccretable difference.

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Vacation ownership mortgages receivable as of December 31, 2017 are scheduled to mature as follows (in millions):

	Vacation Ownership Mortgages Receivable
	Acquired				Originated
Twelve month period ending December 31,	Securitized Loans		Unsecuritized Loans		Securitized Loans		Unsecuritized Loans		Total
2018	$	38	$	4	$	16	$	13	$	71
2019		37		3		17		9		66
2020		37		3		19		10		69
2021		35		3		21		11		70
2022		32		3		24		12		71
2023 and thereafter		89		12		154		92		347
Total		268		28		251		147		694
Plus: net premium on acquired loans(1)		77		10		—		—		87
Less: allowance for impairment on acquired loans		(4)		(1)		—		—		(5)
Less: allowance for losses on originated loans		—		—		(33)		(21)		(54)
Net vacation ownership mortgages receivable	$	341	$	37	$	218	$	126	$	722
Weighted average stated interest rate as of December 31, 2017		13.3%				13.4%
Range of stated interest rates as of December 31, 2017		8.00% to 15.90%				9.90% to 15.90%

(1) The difference between the contractual principal amount of acquired loans of $296 million and the net carrying amount of $378 million as of December 31, 2017 is related to the application of ASC 310-30.

Collectability

We assess our vacation ownership mortgages receivable portfolio of loans for collectability on an aggregate basis. Estimates of uncollectability pertaining to our originated loans are recorded as provisions in the vacation ownership mortgages receivable allowance for loan losses. For originated loans, we record an estimate of uncollectability as a reduction of sales of vacation ownership products in the accompanying consolidated statements of income at the time revenue is recognized on a vacation ownership product sale. We evaluate our originated loan portfolio collectively as it is comprised of homogeneous, smaller-balance, vacation ownership mortgages receivable. We use a technique referred to as static pool analysis, which tracks uncollectibles over the entire life of those mortgages receivable, as the basis for determining our general reserve requirements on our vacation ownership mortgages receivable. The adequacy of the related allowance is determined by management through analysis of several factors, such as current economic conditions and industry trends, as well as the specific risk characteristics of the portfolio, including defaults, aging, and historical write-offs of these receivables. The allowance is maintained at a level deemed adequate by management based on a periodic analysis of the mortgage portfolio. As of December 31, 2017, allowance for loan losses of $54 million for uncollectability was recorded against our vacation ownership mortgages receivable for estimated losses related solely to our originated loans. Our allowance for loan losses as of December 31, 2016 was $22 million; the change in 2017 principally pertains to additional loan loss provision recorded against sales of vacation ownership products on our consolidated income statement during the year, consistent with a comparatively larger outstanding originated receivables balance.

Our acquired loans are remeasured at period end based on expected future cash flows which uses an estimated measure of anticipated defaults. We consider the allowance for loan losses on our originated loans and estimates of defaults used in the remeasurements of our acquired loans to be adequate and based on the economic environment and our assessment of the future collectability of the outstanding loans.

We use the origination of the notes by brand (Hyatt, Sheraton, Westin, and other) and the FICO scores of the buyers as the primary credit quality indicators to calculate the allowance for loan losses for our originated vacation ownership mortgages receivable, as we believe there is a relationship between the default behavior of borrowers and the brand associated with the vacation ownership property they have acquired, supplemented by the FICO scores of the

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buyers. In addition to quantitatively calculating the allowance based on our static pool analysis, we supplement the process by evaluating certain qualitative data, including the aging of the respective receivables, current default trends by brand and origination year and various macroeconomic indicators.

At December 31, 2017, the weighted average FICO score within our consolidated loan pools was 713 based upon the outstanding loan balance at time of origination. The average estimated rate for all future defaults for our consolidated outstanding pool of loans as of December 31, 2017 was 10.9%.

Balances of our vacation ownership mortgages receivable by brand and by FICO score (at time of loan origination) were as follows (in millions):

		As of  December 31, 2017
	700+		600-699		<600		No Score(1)		Total
Westin	$	198	$	94	$	4	$	30	$	326
Sheraton		173		151		14		66		404
Hyatt		21		13		2		1		37
Other		5		1		-		3		9
Vacation ownership mortgages receivable, gross	$	397	$	259	$	20	$	100	$	776

(1) Mortgages receivable with no FICO score primarily relate to non-U.S. resident borrowers.

On an ongoing basis, we monitor credit quality of our vacation ownership mortgages receivable portfolio based on payment activity as follows:

· Current—The consumer’s note is in good standing as payments and reporting are current per the terms contractually stipulated in the agreement.

· Delinquent—We consider a vacation ownership mortgage receivable to be delinquent based on the contractual terms of each individual financing agreement.

· Non‑performing—Our vacation ownership mortgages receivable are generally considered non‑performing if interest or principal is more than 30 days past due. All non‑performing loans are placed on non‑accrual status and we do not resume interest accrual until the receivable becomes contractually current. We apply payments we receive for vacation ownership notes receivable on non‑performing status first to interest, then to principal, and any remainder to fees.

In the event of a default, we generally have the right to recover the mortgaged VOIs and consider loans to be in default upon reaching 120 days outstanding. Our aged analysis of delinquent vacation ownership mortgages receivable and the gross balance of vacation ownership mortgages receivable greater than 120 days past‑due as of December 31, 2017 and December 31, 2016 for our originated loans are as follows (in millions):

					Delinquent							Defaulted(1)
	Receivables		Current		30-59 Days		60-89 Days		90-119 Days		≥120			Total Delinquent & Defaulted
Originated Loans
December 31, 2017	$	398	$	378	$	6	$	5	$	3	$	6	$	20
December 31, 2016	$	195	$	190	$	2	$	1	$	1	$	1	$	5

(1) Mortgages receivable equal to or greater than 120 days are considered defaulted and have been fully reserved in our allowance of loan losses for originated loans.

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NOTE 6—VACATION OWNERSHIP INVENTORY

Our inventory consists of completed unsold vacation ownership interests, with an operating cycle that generally exceeds twelve months, and vacation ownership projects under construction. On our consolidated balance sheet, completed unsold vacation ownership interests are presented as a current asset, while vacation ownership projects under construction are presented as a non-current asset given this inventory is in the development stage of its operating cycle.

As of December 31, 2017 and 2016, vacation ownership inventory is comprised of the following (in millions):

	December 31,		December 31,
	2017		2016
Completed unsold vacation ownership interests (current asset)	$	495	$	197
Vacation ownership projects construction in process (non-current asset)		60		189
Other		4		—
Total vacation ownership inventory	$	559	$	386

The increase in inventory as of December 31, 2017 from December 31, 2016 largely pertains to our ongoing development activities, in particular related to The Westin Los Cabos Resort Villas & Spa, The Westin Nanea Ocean Villas, The Westin Desert Willow, The Westin Resort & Spa, Cancun, and the Sheraton Steamboat Resort Villas, among other resorts to a lesser extent. This increase was partly offset by sales of VOI and the inventory impairment described below.

Impairment event

In September 2017, Hurricanes Irma and Maria affected several Vistana and HVO resorts and sales centers. In particular, resorts in Florida, the U.S. Virgin Islands, and Puerto Rico were in the path of these storms. As a consequence of these weather events, we recorded an estimated vacation ownership inventory impairment charge of $15 million in the period pertaining to our St. John resort, of which $10 million is offset by expected insurance proceeds deemed probable of collection. See Note 21 for more information on our insurance receivable related to this event.

This impairment charge and related expected insurance recovery pertains to our Vacation Ownership segment and are presented within general and administrative expenses in our consolidated income statement for the year-ended December 31, 2017. We used an income approach with Level 3 inputs as our valuation method to estimate the fair value of the related vacation ownership inventory. The estimates used in this valuation are subject to refinement as additional information becomes available with regard to repairs and reconstruction plans for this resort. Our Puerto Rico resort is predominantly sold-out and, consequently, our unsold vacation ownership inventory balance is inconsequential.

NOTE 7—INVESTMENTS IN UNCONSOLIDATED ENTITIES

Our investments in unconsolidated entities, recorded under the equity method of accounting in accordance with guidance in ASC 323, “Investments—Equity Method and Joint Ventures,” primarily consists of an ownership interest in Maui Timeshare Venture, LLC, a joint venture to develop and operate a Hyatt branded vacation ownership resort in Hawaii, and Vistana’s Harborside at Atlantis joint venture which performs sales, marketing and management services for a vacation ownership resort in the Bahamas. Our equity income from investments in unconsolidated entities, recorded in equity in earnings from unconsolidated entities in the accompanying consolidated statement of income, was $4 million for the year-ended December 31, 2017, and $5 million for each of the years ended 2016 and 2015.

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Our ownership percentages of the Maui Timeshare Venture and Harborside investments are 33% and 50%, respectively, and ownership percentage of the other investments is 25%. The carrying value of our investments in unconsolidated entities as of December 31, 2017 and 2016 were as follows (in millions):

	December 31,		December 31,
	2017		2016
Maui Timeshare Venture, LLC	$	42	$	42
Harborside at Atlantis		11		12
Other		1		5
Total	$	54	$	59

The change in Other investments from December 31, 2016 in the table above reflects the consolidation of our Great Destinations joint venture, as further discussed in Note 3.

NOTE 8—PROPERTY AND EQUIPMENT

Property and equipment, net is as follows (in millions):

	December 31,		December 31,
	2017		2016
Computer equipment	$	43	$	38
Capitalized software (including internally developed software)		177		150
Land, buildings and leasehold improvements		431		368
Land held for development		56		56
Furniture, fixtures and other equipment		72		52
Construction projects in progress		20		47
Other projects in progress		40		37
Total property and equipment		839		748
Less: accumulated depreciation and amortization		(223)		(168)
Total property and equipment, net	$	616	$	580

The increase in property and equipment as of December 31, 2017 from December 31, 2016 is in large part attributable to our development activities pertaining to assets primarily used to support marketing and sales activities and resort operations at the following resorts:

· Sheraton Kauai Resort,

· Westin Los Cabos Resort Villas & Spa

· Westin Nanea Ocean Villas

· Westin Resort & Spa, Cancun

The increase to property and equipment was partly offset by transfers to inventory (non-current) related to the conversion activities at Sheraton Steamboat Resort Villas and The Westin Resort and Spa, Cancun, as well as a $11 million disposal of long-lived assets attributable to our Westin resort in St. John due to the weather events discussed in Note 6. This disposal pertains to our Vacation Ownership segment and was fully offset by expected insurance proceeds deemed probable of collection. 

Additionally, our categorization of property and equipment as of December 31, 2016 presented in the table above contains certain recategorizations for purposes of consistency; specifically, amounts were recategorized from furniture, fixtures and other equipment to other classifications.

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NOTE 9—GOODWILL AND OTHER INTANGIBLE ASSETS

Pursuant to FASB guidance as codified within ASC 350, “Intangibles—Goodwill and Other,” goodwill acquired in business combinations is assigned to the reporting unit(s) expected to benefit from the combination as of the acquisition date.

ILG is comprised of two operating and reportable segments: Vacation Ownership and Exchange and Rental, each of which contain two reporting units as follows:

OPERATING SEGMENTS
Vacation Ownership	Exchange and Rental
VO management reporting unit	Exchange reporting unit
VO sales and financing reporting unit	Rental reporting unit

The following tables present the balance of goodwill by reporting unit, including the changes in carrying amount of goodwill, for the years ended December 31, 2017 and 2016 (in millions):

							Foreign
	Balance as of						Currency		Goodwill		Balance as of
	January 1, 2017		Additions		Deductions		Translation		Impairment		December 31, 2017
VO management	$	35	$	—	$	—	$	2	$	—	$	37
VO sales and financing		7		4		—		—		—		11
Exchange		496		—		—		—		—		496
Rental		20		—		—		—		—		20
Total	$	558	$	4	$	—	$	2	$	—	$	564

							Foreign
	Balance as of						Currency		Goodwill		Balance as of
	January 1, 2016		Additions		Deductions		Translation		Impairment		December 31, 2016
VO management	$	38	$	—	$	—	$	(3)	$	—	$	35
VO sales and financing		7		—		—		—		—		7
Exchange		496		—		—		—		—		496
Rental		20		—		—		—		—		20
Total	$	561	$	—	$	—	$	(3)	$	—	$	558

The $6 million increase in our goodwill balance as of December 31, 2017 from December 31, 2016 consists of $4 million of additional goodwill recorded as part of the consolidation of our Great Destinations joint venture, as further discussed in Note 3, and $2 million related to foreign currency translation of goodwill carried on the books of an ILG entity whose functional currency is not the US dollar.

Goodwill Impairment Tests

ILG tests goodwill and other indefinite‑lived intangible assets for impairment annually as of October 1, or more frequently if events or changes in circumstances indicate that the assets might be impaired. Goodwill is tested for impairment based on either a qualitative assessment or a two‑step impairment test, as more fully described in Note 2. When performing the two‑step impairment test, if the carrying amount of a reporting unit’s goodwill exceeds its implied fair value, an impairment loss equal to the excess is recorded.

As of October 1, 2017, we assessed the carrying value of goodwill and other intangible assets of each of our four reporting units pursuant to the two-step impairment approach. Goodwill assigned to VO Sales and Financing, VO Management, Exchange, and Rental, our reporting units as of that date, was $11 million, $37 million, $496 million and $20 million, respectively. The first step of the impairment test concluded the carrying value of our reporting units did not exceed its fair value; consequently, the second step of the impairment test was not necessary and goodwill was not determined to be impaired.

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As of October 1, 2016, we assessed the carrying value of goodwill and other intangible assets of each of our four reporting units pursuant to the two-step impairment approach. Goodwill assigned to VO Sales and Financing, VO Management, Exchange and Rental, our reporting units as of that date, was $7 million, $36 million, $496 million and $20 million, respectively. The first step of the impairment test concluded the carrying value of our reporting units did not exceed its fair value; consequently, the second step of the impairment test was not necessary and goodwill was not determined to be impaired.

Accumulated historical goodwill impairment losses as of January 1, 2016 were $34 million which related to components within our Rental reporting unit. There have been no accumulated historical impairments of goodwill for any of our other reporting units through December 31, 2017.

Other Intangible Assets

As of October 1, 2017 and 2016, we performed a full impairment test on our indefinite-lived intangible assets which was comprised of calculating the fair value of these intangible assets and comparing such against their carrying amount and concluded no impairment was present.

The balance of other intangible assets, net for the years ended December 31, 2017 and 2016 is as follows (in millions):

	December 31,		December 31,
	2017		2016
Intangible assets with indefinite lives	$	120	$	114
Intangible assets with definite lives, net		320		339
Total intangible assets, net	$	440	$	453

The $6 million increase in our indefinite‑lived intangible assets during the year ended December 31, 2017 pertains to associated foreign currency translation of intangible assets carried on the books of an ILG entity whose functional currency is not the US dollar.

At December 31, 2017 and 2016, intangible assets with indefinite lives relate to the following (in millions):

		December 31,		December 31,
		2017		2016
Resort management contracts	$	76	$	70
Trade names and trademarks		44		44
Total	$	120	$	114

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At December 31, 2017, intangible assets with definite lives relate to the following (in millions):

	Cost		Accumulated Amortization		Net		Weighted Average Remaining Amortization Life (Years)
Customer relationships	$	287	$	(143)	$	144	22
Purchase agreements		76		(76)		—	—
Resort management contracts		246		(71)		175	20
Technology		25		(25)		—	—
Other		23		(22)		1	—
Total	$	657	$	(337)	$	320	21

At December 31, 2016, intangible assets with definite lives relate to the following (in millions):

	Cost		Accumulated Amortization		Net		Weighted Average Remaining Amortization Life (Years)
Customer relationships	$	287	$	(137)	$	150	23
Purchase agreements		76		(76)		—	—
Resort management contracts		245		(58)		187	21
Technology		25		(25)		—	—
Other		23		(21)		2	2
Total	$	656	$	(317)	$	339	22

In accordance with our policy on the recoverability of long‑lived assets, we review the carrying value of all long‑lived assets, primarily property and equipment and definite‑lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of a long‑lived asset (asset group) may be impaired. For the years ended December 31, 2017 and 2016, we did not identify any events or changes in circumstances indicating that the carrying value of a long lived asset (or asset group) may be impaired; accordingly, a recoverability test was not warranted.

Amortization of intangible assets with definite lives is primarily computed on a straight‑line basis. Total amortization expense for intangible assets with definite lives was $20 million, $19 million and $14 million for the years ended December 31, 2017, 2016 and 2015, respectively. Based on the December 31, 2017 balances, amortization expense for the next five years and thereafter is estimated to be as follows (in millions):

Twelve month period ending December 31,
2018	$	19
2019		19
2020		19
2021		17
2022		15
2023 and thereafter		231
	$	320

NOTE 10—CONSOLIDATED VARIABLE INTEREST ENTITIES

We have variable interests in the entities associated with Vistana’s three outstanding securitization transactions. As these securitizations consist of similar, homogenous loans, they have been aggregated for disclosure purposes. We applied the variable interest model and determined we are the primary beneficiary of these VIEs and, accordingly, these

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VIEs are consolidated in our results. In making that determination, we evaluated the activities that significantly impact the economics of the VIEs, including the management of the securitized vacation ownership mortgages receivable and any related non-performing loans. We are the servicer of the securitized vacation ownership mortgages receivable. We also have the option, subject to certain limitations, to repurchase or replace vacation ownership mortgages receivable that are in default at their outstanding principal amounts. Historically, Vistana has been able to resell the vacation ownership products underlying the vacation ownership mortgages repurchased or replaced under these provisions without incurring significant losses. We also hold the risk of potential loss (or gain), as we are the last to be paid out by proceeds of the VIEs under the terms of the agreements. As such, we hold both the power to direct the activities of the VIEs and obligation to absorb the losses (or benefits) from the VIEs.

The securitization agreements are without recourse to us, except for breaches of representations and warranties with material adverse effect to the holders. We have the right to substitute loans for, or repurchase, defaulted loans at our option, subject to certain limitations. Based on industry practice and our past practices, we currently expect that we will exercise this option.

The following table shows assets which are collateral for the related obligations of the variable interest entities, included in our consolidated balance sheets (in millions):

	Vacation Ownership Notes Receivable Securitization (1)
	December 31,		December 31,
	2017		2016
Assets
Restricted cash	$	20	$	34
Interest receivable		4		3
Vacation ownership mortgages receivable, net		559		429
Total	$	583	$	466
Liabilities
Interest payable	$	1	$	1
Securitized debt		575		430
Total	$	576	$	431

(1) The creditors of these entities do not have general recourse to us.

Upon transfer of vacation ownership mortgages receivable, net to the VIEs, the receivables and certain cash flows derived from them become restricted for use in meeting obligations to the VIE creditors. The VIEs utilize trusts which have ownership of cash balances that also have restrictions, the amounts of which are reported in our restricted cash. Our interests in trust assets are subordinate to the interests of third-party investors and, as such, may not be realized by us if needed to absorb deficiencies in cash flows that are allocated to the investors in the trusts' debt. Unless we exceed certain triggers related to default levels and collateralization of the securitized pool, we are contractually entitled to receive the excess cash flows (spread between the collections on the mortgages and payment of third party obligations and debt service on the trusts’ debt defined in the securitization agreements) from the VIEs. Such activity totaled $50 million from December 31, 2016 through December 31, 2017.

The net cash flows generated by the VO mortgages receivable in the VIEs are used to repay our securitized debt from VIEs and, excluding any restricted cash balances, are reflected in the operating activities section of our consolidated statements of cash flows. Proceeds and repayments pertaining to our securitized debt from VIEs is reflected in the financing activities section of our consolidated statements of cash flows. Refer to Note 13 for additional discussion on our securitized debt from VIEs.

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NOTE 11—ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

The following table summarizes the general components of accrued expenses and other current liabilities (in millions):

	December 31,		December 31,
	2017		2016
General accrued expenses	$	84	$	62
Accrued other taxes		19		13
Customer deposits		76		71
Accrued membership-related costs		17		18
Accrued construction costs		15		16
Member deposits		6		7
Accrued expenses and other current liabilities	$	217	$	187

NOTE 12—DEFERRED REVENUE

The following table summarized the general components of deferred revenue (in millions):

	December 31,		December 31,
	2017			2016
Deferred membership-related revenue	$	152		$	157
HOAs		76			—
Other		10			9
Total	$	238		$	166

Deferred membership-related revenue primarily relates to membership fees from our Exchange and Rental segment, which are deferred and recognized over the terms of the applicable memberships, typically ranging from one to five years, on a straight-line basis. HOAs deferred revenue predominantly pertains to maintenance fees collected from their respective owners which are earned over the applicable maintenance period.

Other deferred revenue pertains primarily to annual maintenance fees collected in our European VO management business which are not yet earned and other items.

NOTE 13—SECURITIZED VACATION OWNERSHIP DEBT

As discussed in Note 10, the VIEs associated with the securitization of our VOI mortgages receivable are consolidated in our financial statements. Securitized vacation ownership debt consisted of the following (in millions):

	December 31,		December 31,
	2017		2016
2011 securitization, interest rates ranging from 3.67% to 4.82%, maturing 2026	$	—	$	44
2012 securitization, interest rates ranging from 2.00% to 2.76%, maturing 2023		33		46
2016 securitization, interest rates ranging from 2.54% to 2.74%, maturing 2026		244		345
2017 securitization, interest rates ranging from 2.33% to 2.93%, maturing 2029		305		—
Unamortized debt issuance costs (2016 & 2017 securitization)		(7)		(5)
Total securitized vacation ownership debt, net of debt issuance costs	$	575	$	430

On September 22, 2017, we completed a term securitization transaction involving the issuance of $325 million of asset-backed notes. An indirect wholly-owned subsidiary of Vistana issued $240 million of Class A notes, $59 million of Class B notes and $26 million of Class C notes. The notes are backed by vacation ownership loans and have coupons of 2.33%, 2.63% and 2.93%, respectively, for an overall weighted average coupon of 2.43%. The advance rate for this transaction was approximately 97%.

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Of the $325 million in proceeds from the transaction, approximately $65 million was held in escrow to purchase additional vacation ownership loans, including the redemption of the outstanding balance on Vistana’s 2011 securitization completed in December 2017. The remainder of the proceeds were used to pay down a portion of the borrowings outstanding under our $600 million revolving credit facility, pay transaction expenses, fund required reserves  and for general corporate purposes.

On September 20, 2016, we completed a term securitization transaction involving the issuance of $375 million of asset-backed notes. An indirect wholly-owned subsidiary of Vistana issued $346 million of Class A notes and $29 million of Class B notes. The notes are backed by vacation ownership loans and have coupons of 2.54% and 2.74%, respectively, for an overall weighted average coupon of 2.56%. The advance rate for this transaction was approximately 96.5%.

Of the $375 million in proceeds from the transaction, approximately $33 million was used to repay the outstanding balance on Vistana’s 2010 securitization and the remainder was used to pay down a portion of the borrowings outstanding under our $600 million revolving credit facility, pay transaction expenses, fund required reserves and for general corporate purposes. In the first quarter of 2017, the VIE purchased approximately $19 million of loans, allowing for the release of the proceeds held in escrow as of December 31, 2016.

During the years ended December 31, 2017 and 2016, interest expense associated with securitized vacation ownership debt totaled $12 million and $5 million, respectively, and is reflected within consumer financing expenses in our accompanying consolidated statements of income. The securitized debt is non-recourse with no contractual minimum repayment amounts throughout its term. The amount of each principal payment is contingent on the cash flows from the underlying vacation ownership notes in a given period. Refer to Note 5 for the stated maturities of our securitized vacation ownership notes receivable, which provide an indication of the potential repayment pattern before the impact of any prepayments or defaults.

As of December 31, 2017 and 2016, total unamortized debt issuance costs pertaining to the 2016 and 2017 securitizations were $7 million and $5 million, respectively, which is presented as a reduction of securitized debt from VIEs in the accompanying consolidated balance sheets. Unamortized debt issuance costs pertaining to our securitized debt are amortized to interest expense using the effective interest method through the estimated life of the respective debt instruments.

NOTE 14—LONG-TERM DEBT

Long‑term debt is as follows (in millions):

	December 31,		December 31,
	2017		2016
Revolving credit facility (interest rate of 3.10% at December 31, 2017 and of 2.27% at December 31, 2016)	$	220	$	240
5.625% senior notes		350		350
Unamortized debt issuance costs (revolving credit facility)		(3)		(4)
Unamortized debt issuance costs (senior notes)		(5)		(6)
Total long-term debt, net of debt issuance costs	$	562	$	580

Credit Facility

On April 10, 2015, we entered into a third amendment to the amended credit agreement which changed the leverage‑based financial covenant from a maximum consolidated total leverage to EBITDA ratio of 3.5 to 1.0 to a maximum consolidated secured leverage to EBITDA ratio of 3.25 to 1.0. In addition, the amendment added an incurrence test requiring a maximum consolidated total leverage to EBITDA ratio of 4.5 to 1.0 on a pro forma basis in certain circumstances in which we make acquisitions or investments, incur additional indebtedness or make restricted payments. Also, the amendment added an additional pricing level to the pricing grid for when the consolidated leverage to EBITDA ratio equals or exceeds 3.5 to 1.0. This pricing level is either LIBOR plus 2.5% or the base rate plus 1.5%

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and requires a commitment fee on undrawn amounts of 0.4% per annum. There were no other material changes under this amendment.

On May 5, 2015, we entered into a fourth amendment which changes the definition of change of control to remove the provision that certain changes in the composition of the board of directors would constitute a change of control and therefore be a default under the credit agreement. The amendment also includes additional clarifying language regarding provisions that relate to our 5.625% senior notes due in 2023. There were no other material changes under this amendment.

On May 17, 2016, we entered into a fifth amendment to the amended credit agreement which extended the maturity of the credit facility through May 17, 2021, and modified requirements with respect to assignments by lenders in connection with the acquisition of Vistana in May of 2016. There were no other material changes under this amendment.

As of December 31, 2017, there was $220 million outstanding with $366 million available to be drawn, net of letters of credit. Any principal amounts outstanding under the revolving credit facility are due at maturity. The interest rate on the amended credit agreement is based on (at our election) either LIBOR plus a predetermined margin that ranges from 1.25% to 2.5%, or the Base Rate as defined in the amended credit agreement plus a predetermined margin that ranges from 0.25% to 1.5%, in each case based on our consolidated total leverage ratio. At December 31, 2017, the applicable margin was 1.75% per annum for LIBOR revolving loans and 0.75% per annum for Base Rate loans. The amended credit agreement has a commitment fee on undrawn amounts that ranges from 0.25% to 0.40% per annum based on our leverage ratio and as of December 31, 2017 the commitment fee was 0.275%.

Pursuant to the amended credit agreement, all obligations under the revolving credit facility are unconditionally guaranteed by ILG and certain of its subsidiaries. Borrowings are further secured by (1) 100% of the voting equity securities of ILG’s U.S. subsidiaries and 65% of the equity in our first‑tier foreign subsidiaries and (2) substantially all of our domestic tangible and intangible property.

Senior Notes

In April 2015, we completed a private offering of $350 million in aggregate principal amount of our 5.625% senior notes due in 2023. As of December 31, 2017, total unamortized debt issuance costs relating to these senior notes were $5 million, which are presented as a direct deduction from the principal amount. Interest on the senior notes is paid semi-annually in arrears on April 15 and October 15 of each year. The senior notes are unsecured and fully and unconditionally guaranteed on a joint and several basis by our domestic subsidiaries that are required to guarantee the amended credit facility. Additionally, the voting stock of the issuer and the subsidiary guarantors is 100% owned by ILG. The senior notes are redeemable from April 15, 2018 at a redemption price starting at 104.219% which declines over time.

Restrictions and Covenants

The senior notes and amended credit agreement have various financial and operating covenants that place significant restrictions on us, including our ability to incur additional indebtedness, incur additional liens, issue redeemable stock and preferred stock, pay dividends or distributions or redeem or repurchase capital stock, prepay, redeem or repurchase debt, make loans and investments, enter into agreements that restrict distributions from our subsidiaries, sell assets and capital stock of our subsidiaries, enter into certain transactions with affiliates and consolidate or merge with or into or sell substantially all of our assets to another person.

The indenture governing the senior notes restricts our ability to issue additional debt in the event we are not in compliance with the minimum fixed charge coverage ratio of 2.0 to 1.0 and limits restricted payments and investments unless we are in compliance with the minimum fixed charge coverage ratio and the amount is within a bucket that grows with our consolidated net income. We met the minimum fixed charge coverage ratio as of December 31, 2017. In addition, the amended credit agreement requires us to meet certain financial covenants regarding the maintenance of a maximum consolidated secured leverage ratio of consolidated secured debt, over consolidated Earnings Before Interest,

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Taxes, Depreciation and Amortization (“EBITDA”), as defined. We are also required to maintain a minimum consolidated interest coverage ratio of consolidated EBITDA over consolidated interest expense. As of December 31, 2017, the maximum consolidated secured leverage ratio was 3.25x and the minimum consolidated interest coverage ratio was 3.0x. ILG was in compliance in all material respects with the requirements of all applicable financial and operating covenants, and our consolidated secured leverage ratio and consolidated interest coverage ratio under the amended credit agreement were 0.68 and 14.31, respectively.

Interest Expense and Debt Issuance Costs

Interest expense for the years ended December 31, 2017, 2016 and 2015 was $26 million, $23 million and $21 million, respectively. Interest expense is net of capitalized interest relating primarily to VO resorts under construction and internally-developed software totaling $5 million and $4 million for the years ended December 31, 2017 and 2016, respectively, and a neglible amount for the year ended December 31, 2015.

As of December 31, 2017, total unamortized debt issuance costs were $8 million, net of $7 million of accumulated amortization, incurred in connection with the issuance and various amendments to our amended credit agreement, the issuance of our senior notes in April 2015 and the exchange for registered notes in June 2016. As of December 31, 2016, total unamortized debt issuance costs were $10 million, net of $5 million of accumulated amortization. Unamortized debt issuance costs are presented as a reduction of long-term debt in the accompanying consolidated balance sheets, pursuant to ASC 2015-03. Unamortized debt issuance costs are amortized to interest expense through the maturity date of our respective debt instruments using the effective interest method for those costs related to our senior notes, and on a straight-line basis for costs related to our amended credit agreement.

NOTE 15—FAIR VALUE MEASUREMENTS

Fair Value of Financial Instruments

The estimated fair value of financial instruments below has been determined using available market information and appropriate valuation methodologies, as applicable. There have been no changes in the methods and significant assumptions used to estimate the fair value of financial instruments during the year ended December 31, 2017. Our financial instruments are detailed in the following table.

	December 31, 2017				December 31, 2016
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	(In millions)
Cash and cash equivalents	$	122	$	122	$	126	$	126
Restricted cash and cash equivalents		230		230		118		118
Financing receivables		20		20		19		19
Vacation ownership mortgages receivable		722		770		719		737
Investments in marketable securities		13		13		14		14
Securitized debt		575		563		430		425
Revolving credit facility(1)		(217)		(220)		(236)		(240)
Senior notes(1)		(345)		(364)		(344)		(361)

(1) The carrying value of our revolving credit facility and senior notes as of December 31, 2017 include $3 million and $5 million of unamortized debt issuance costs, respectively, and $4 million and $6 million as of December 31, 2016, which are presented as a direct reduction of the corresponding liability.

The carrying amounts of cash and cash equivalents and restricted cash and cash equivalents reflected in the accompanying consolidated balance sheets approximate fair value as they are redeemable at par upon notice or maintained with various high‑quality financial institutions and have original maturities of three months or less. Under the fair value hierarchy established in ASC 820, cash and cash equivalents and restricted cash and cash equivalents are stated at fair value based on quoted prices in active markets for identical assets (Level 1).

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The financing receivables as of December 31, 2017 are presented in our consolidated balance sheet within other non‑current assets and principally pertain to a convertible secured loan to CLC that matures October of 2019 with interest payable monthly. The outstanding loan is to be repaid in full at maturity either in cash or by means of a share option exercisable by ILG, at its sole discretion. The carrying value of this financing receivable approximates fair value through inputs inherent to the originating value of this loan, such as interest rates and ongoing credit risk accounted for through non‑recurring adjustments for estimated credit losses as necessary (Level 2). The stated interest rate on this loan is comparable to market. Interest is recognized within our “Interest income” line item in our accompanying consolidated statements of income for the years ended December 31, 2017, 2016 and 2015.

We estimate the fair value of vacation ownership mortgages receivable using a discounted cash flow model. We believe this is comparable to the model that an independent third party would use in the current market. Our model incorporates default rates, prepayment rates, coupon rates and loan terms respective to the portfolio based on current market assumptions for similar types of arrangements. Based upon the availability of market data, we have classified inputs used in the valuation of our vacation ownership mortgages receivable as Level 3. The primary sensitivity in these assumptions relates to forecasted defaults and projected prepayments which could cause the estimated fair value to vary.

Investments in marketable securities consist of marketable securities (mutual funds) related to deferred compensation plans which are funded in a Rabbi trust as of December 31, 2017 and 2016 and classified as other noncurrent assets in the accompanying consolidated balance sheets. Participants in the deferred compensation plan unilaterally determine how their compensation deferrals are invested within the confines of the Rabbi trust which holds the marketable securities. Consequently, management has designated these marketable securities as trading investments, as allowed by applicable accounting guidance, even though there is no intent by ILG to actively buy or sell securities with the objective of generating profits on short‑term differences in market prices. These marketable securities are recorded at a fair value of $13 million and $14 million as of December 31, 2017 and 2016, respectively, based on quoted market prices in active markets for identical assets (Level 1). We recognized a $2 million unrealized trading gain for the year ended December 31, 2017 and a $1 million unrealized trading gain for the year ended December 31, 2016. These unrealized trading gains have an accompanying offsetting adjustment to employee compensation expense and are each included within general and administrative expenses in the accompanying consolidated statement of income. See Note 17 for further discussion in regards to this deferred compensation plan.

Our non-public, securitized debt fair value is determined based upon discounted cash flows for the debt using Level 3 inputs such as rates deemed reasonable for the type of debt, prevailing market conditions and the length of maturity for the debt.

Borrowings under our senior notes (issued April 2015) and revolving credit facility are carried at historical cost and adjusted for principal payments. The fair value of our senior notes was estimated at December 31, 2017 using an input of quoted prices from an inactive market due to the infrequency at which trades occur on our senior notes (Level 2). The carrying value of the outstanding balance under our revolving credit facility, exclusive of debt issuance costs, approximates fair value as of December 31, 2017 and 2016 through inputs inherent to the debt such as variable interest rates and credit risk (Level 2).

NOTE 16—EQUITY

ILG has 300 million authorized shares of common stock, par value of $0.01 per share. At December 31, 2017, there were 134.1 million shares of ILG common stock issued, of which 124.1 million are outstanding with 10.0 million shares held as treasury stock. At December 31, 2016, there were 133.5 million shares of ILG common stock issued, of which 124.7 million were outstanding with 8.9 million shares held as treasury stock.

ILG has 25 million authorized shares of preferred stock, par value of $0.01 per share, none of which are issued or outstanding as of December 31, 2017 and 2016. The Board of Directors has the authority to issue the preferred stock in one or more series and to establish the rights, preferences and dividends.

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In connection with the acquisition of Vistana in May 2016, we issued 72.4 million shares of ILG common stock, valued at $1 billion as of the acquisition date, to the holders who received Vistana common stock in the spin-off from its former parent.

Dividend Declared

In February, May, August and November of 2017, our Board of Directors declared a quarterly dividend payment of $0.15 per share paid in March, June, September and December of 2017, respectively, amounting to $19 million each.

In February 2018, our Board of Directors declared a $0.175 per share dividend payable March 30, 2018 to shareholders of record on March 16, 2018.

Our ability to continue to pay dividends in the future may be restricted by covenants in our credit agreement or if we do not have sufficient surplus under Delaware law. Additionally, our Board of Directors may determine not to declare dividends if they deem this action to be in ILG’s best interests. Discontinuing payment of dividends could change the manner, timing and/or ability to realize gains on investment in ILG common stock.

Stockholder Rights Plan

In June 2009, ILG’s Board of Directors approved the creation of a Series A Junior Participating Preferred Stock, adopted a stockholders rights plan and declared a dividend of one right for each outstanding share of common stock held by our stockholders of record as of the close of business on June 22, 2009. On December 6, 2017, we amended the rights plan to accelerate the expiration of our preferred stock purchase rights from June 10, 2019 to December 6, 2017, which effectively terminated the rights agreement on such date and all rights expired.

Share Repurchase Program

In May 2016, our Board of Directors increased the then remaining share repurchase authorization to a total of $100 million. In November 2016, the Board authorized repurchases of up to $50 million of ILG common stock. During the year ended December 31, 2017, we repurchased 1.1 million shares for $28 million, including commissions, with $21 million available for future repurchases as of December 31, 2017. During the year ended December 31, 2016, we repurchased 6.5 million shares for $101 million, including commissions and there were no repurchases of common stock during the year ended December 31, 2015.

Acquired shares of our common stock are held as treasury shares carried at cost on our consolidated financial statements. Common stock repurchases may be conducted in the open market or in privately negotiated transactions. The amount and timing of all repurchase transactions are contingent upon market conditions, applicable legal requirements and other factors. This program may be modified, suspended or terminated by us at any time without notice.

Accumulated Other Comprehensive Loss

Entities are required to disclose additional information about reclassification adjustments within accumulated other comprehensive income/loss, referred to as AOCL including (1) changes in AOCL balances by component and (2) significant items reclassified out of AOCL in the period. For the years ended December 31, 2017, 2016 and 2015 there were no significant items reclassified out of AOCL, and the change in AOCL pertains to current period foreign currency translation adjustments, as disclosed in our accompanying consolidated statements of comprehensive income.

Noncontrolling Interests

Noncontrolling Interest—VRI Europe

In connection with the VRI Europe transaction on November 4, 2013, CLC was issued a noncontrolling interest in VRI Europe representing 24.5% of the business, which was determined based on the purchase price paid by ILG for its 75.5% ownership interest as of the acquisition date. As of December 31, 2017 and 2016, this noncontrolling interest

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amounts to $29 million and $26 million, respectively, and is presented on our consolidated balance sheets as a component of equity. The change from December 31, 2016 to December 31, 2017 relates to the recognition of the noncontrolling interest holder’s proportional share of VRI Europe’s earnings, as well as the translation effect on the foreign currency based amount.

The parties have agreed not to transfer their interests in VRI Europe or CLC’s related development business for a period of five years from the acquisition. In addition, they have agreed to certain rights of first refusal, and customary drag along and tag along rights, including a right by CLC to drag along ILG’s VRI Europe shares in connection with a sale of the entire CLC resort business subject to achieving minimum returns and a preemptive right by ILG. As of December 31, 2017, there have been no changes in ILG’s ownership interest in VRI Europe.

Additionally, in connection with this arrangement, ILG and CLC entered into a loan agreement whereby ILG made available to CLC a convertible secured loan facility of $15 million that matures in October of 2019 with interest payable monthly. The outstanding loan is to be repaid in full at maturity either in cash or by means of a share option exercisable by ILG, at its sole discretion, which would allow for settlement of the loan in CLC’s shares of VRI Europe for contractually determined equivalent value. ILG has the right to exercise this share option at any time prior to maturity of the loan; however, the equivalent value for these shares would be measured at a 20% premium to its acquisition date value. We have determined the value of this embedded derivative is not material to warrant bifurcating from the host instrument (loan) at this time.

Noncontrolling Interest—Hyatt Vacation Ownership

In connection with the HVO acquisition on October 1, 2014, ILG assumed a noncontrolling interest in a joint venture entity, which we fully consolidate, formed for the purpose of developing and selling VOIs. The fair value of the noncontrolling interest at acquisition was determined based on the noncontrolling party’s ownership interest applied against the fair value allocated to the respective joint venture entity. During the fourth quarter of 2016, we acquired this noncontrolling interest for $1 million and have accounted for this event as an equity transaction.

Noncontrolling Interest – HOAs

A component of ILG’s noncontrolling interest balance pertains to our consolidated HOAs and represents the proportion related to individual or third-party VOI owners. As of December 31, 2017, this noncontrolling interest amounted to $8 million and is presented on our consolidated balance sheet as a component of equity.

NOTE 17—BENEFIT PLANS

Under retirement savings plans sponsored by ILG, qualified under Section 401(k) of the Internal Revenue Code, participating employees may contribute up to 50.0% of their pre‑tax earnings, but not more than statutory limits. ILG provides a discretionary match of fifty cents for each dollar a participant contributes into a plan with a maximum contribution of 3% of a participant’s eligible earnings, with employees participating in the safe harbor plan, also receiving a 100% match for the first 1% of the participant’s eligible earnings, subject to Internal Revenue Service (“IRS”) restrictions. Net matching contributions for the ILG plans were $9 million, $5 million and $2 million for the years ended December 31, 2017, 2016 and 2015, respectively. Matching contributions were invested in the same manner as each participant’s voluntary contributions in the investment options provided under the plans.

Effective August 20, 2008, a deferred compensation plan (the “Director Plan”) was established to provide non‑employee directors of ILG an option to defer director fees on a tax‑deferred basis. Participants in the Director Plan are allowed to defer a portion or all of their compensation and are 100% vested in their respective deferrals and earnings. With respect to director fees earned for services performed after the date of such election, participants may choose from receiving cash or stock at the end of the deferral period. ILG has reserved 100,000 shares of common stock for issuance pursuant to this plan, of which 69,788 share units were outstanding at December 31, 2017. ILG does not provide matching or discretionary contributions to participants in the Director Plan. Any deferred compensation elected to be received in stock is included in diluted earnings per share.

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Effective October 1, 2014, a non-qualified deferred compensation plan (the “DCP”) was established to allow eligible employees of ILG an option to defer compensation on a tax-deferred basis. Participants in the DCP currently include only certain HVO and Vistana employees that participated in similar plans prior to the respective acquisitions. Participants are fully vested in all amounts held in their individual accounts. Participants have only an unsecured claim against ILG for the future payment of the deferred amounts, although payment is indirectly secured through a fully funded Rabbi trust. The Rabbi trust is subject to creditor claims in the event of insolvency, but the assets held in the Rabbi trust are not available for general corporate purposes. Amounts in the Rabbi trust are invested in mutual funds, as selected by participants, which are designated as trading securities and carried at fair value. As of December 31, 2017 and 2016, the fair value of the investments in the Rabbi trust was $13 million and $14 million, respectively, which is recorded in other non-current assets with the corresponding deferred compensation liability recorded in other long-term liabilities in the consolidated balance sheets. Unrealized gains or losses related to the investments are offset by a corresponding adjustment to compensation expense, all within general and administration expense in our consolidated income statements.

NOTE 18—STOCK‑BASED COMPENSATION

On May 21, 2013, ILG adopted the Interval Leisure Group, Inc. 2013 Stock and Incentive Plan (2013 Stock and Incentive Plan) which provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock‑based awards. RSUs are awards in the form of phantom shares or units, denominated in a hypothetical equivalent number of shares of ILG common stock whereby the value of each award is equal to the fair value of ILG common stock at the date of grant. The exception being for RSUs subject to relative total shareholder return performance criteria, for which the fair value is based on a Monte Carlo simulation analysis. Each RSU and share of restricted stock is subject to service‑based vesting, where a specific period of continued employment must pass before an award vests. We grant awards subject to graded vesting (i.e., portions of the award vest at different times during the vesting period) or to cliff vesting (i.e., all awards vest at the end of the vesting period). In addition, certain RSUs are subject to attaining specific performance criteria.

We recognize non‑cash compensation expense for all RSUs and restricted stock held by our employees. For RSUs to be settled in stock, the accounting charge is measured at the grant date as the fair value of ILG common stock and expensed as non‑cash compensation over the vesting term using the straight‑line basis for service awards and the accelerated basis for performance‑based awards with graded vesting. Certain cliff vesting awards with performance criteria are tied to anticipated future financial performance in determining the fair value of the award, while other cliff vesting awards with performance criteria are tied to the achievement of relative total shareholder return criteria. This value is recognized as expense over the service period using the straight‑line recognition method. The expense associated with RSU awards to be settled in cash is initially measured at fair value at the grant date and expensed ratably over the vesting term, recording a liability subject to mark‑to‑market adjustments for changes in the price of the respective common stock, as compensation expense.

Shares underlying RSUs are not issued or outstanding until vested. In relation to our quarterly dividend, unvested RSUs and restricted stock are credited with dividend equivalents, in the form of additional RSUs, when dividends are paid on our shares of common stock. Such additional RSUs are forfeitable and will have the same vesting dates and will vest under the same terms as the RSUs and restricted stock in respect of which such additional RSUs are credited. Given such dividend equivalents are forfeitable, we do not consider them to be participating securities and, consequently, they are not subject to the two‑class method of determining earnings per share.

Under the 2013 Stock and Incentive Compensation Plan, the maximum aggregate number of shares of common stock reserved for issuance as of adoption is 4.1 million shares, less one share for every share granted under any prior plan after December 31, 2012. In August 2016, the 2013 Stock and Incentive Compensation Plan was amended to increase the plan balance by 4 million shares. As of December 31, 2017, 3.3 million shares were available for future issuance under the 2013 Stock and Incentive Compensation Plan.

During 2017, 2016 and 2015, the Compensation Committee granted 950,000, 1.6 million and 521,000 RSUs, respectively, vesting over one to four years, to certain officers, board of directors and employees of ILG and its subsidiaries. Of these RSUs granted in 2017, 2016 and 2015, approximately 251,000, 533,000 and 105,000, respectively,

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cliff vest in three years and approximately 213,000, 402,000 and 54,000, respectively, are subject to performance criteria that could result between 0% and 200% of these awards being earned either based on defined adjusted EBITDA, revenue, or relative total shareholder return targets over the respective performance period, as specified in the award document. Additionally, on May 11, 2016, in connection with the acquisition of Vistana, we issued a total of 713,000 shares of restricted stock and 11,000 RSUs upon conversion of unvested equity grants held by Vistana’s employees to grants under the 2013 Stock and Incentive Plan with a fair value of $10 million, of which $2 million and $8 million were attributed to pre-acquisition and post-acquisition services, respectively. The converted awards generally have the same terms and conditions as the original Starwood awards and vest through the first quarter of 2019.

For the 2017, 2016 and 2015 RSUs subject to relative total shareholder return performance criteria, the number of RSUs that may ultimately be awarded depends on whether the market condition is achieved. We used a Monte Carlo simulation analysis to estimate a per unit grant date fair value of $28.23 for 2017, $13.13 for 2016 and $40.71 for 2015, for these performance based RSUs. This analysis estimates the total shareholder return ranking of ILG as of the grant date relative to two peer groups approved by the Compensation Committee, over the remaining performance period. The expected volatility of ILG’s common stock at the date of grant was estimated based on a historical average volatility rate for the approximate three-year performance period. The dividend yield assumption was based on historical and anticipated dividend payouts. The risk‑free interest rate assumption was based on observed interest rates consistent with the approximate three–year performance measurement period.

Non‑cash compensation expense related to RSUs and restricted stock for the years ended December 31, 2017, 2016 and 2015 was $22 million, $18 million and $13 million, respectively. At December 31, 2017, there was approximately $23 million of unrecognized compensation cost related to RSUs and restricted stock, which is currently expected to be recognized over a weighted average period of approximately 1.8 years.

The amount of stock‑based compensation expense recognized in the consolidated statements of income for periods prior to January 1, 2017 was reduced by estimated forfeitures, as the amount recorded is based on awards ultimately expected to vest. The forfeiture rate was estimated at the grant date based on historical experience and revised, if necessary, in subsequent periods for any changes to the estimated forfeiture rate from that previously estimated. With the adoption of ASU 2016-09 on January 1, 2017, we no longer reduce stock-based compensation by estimated forfeitures. Instead we account for forfeitures when they occur. For any vesting tranche of an award, the cumulative amount of compensation cost recognized is at least equal to the portion of the grant‑date value of the award tranche that is actually vested at that date.

Non‑cash stock‑based compensation expense related to equity awards is included in the following line items in the accompanying consolidated statements of income for the years ended December 31, 2017, 2016 and 2015 (in millions):

	Year Ended December 31,
	2017		2016		2015
Cost of sales	$	2	$	2	$	1
Selling and marketing expense		2		2		1
General and administrative expense		18		14		11
Non-cash compensation expense		22		18		13
Income tax benefit		(8)		(7)		(5)
Non-cash compensation expense after income taxes	$	14	$	11	$	8

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The following table summarizes RSU activity during the years ended December 31, 2017, 2016 and 2015:

		Weighted-Average
		Grant Date
	Shares	Fair Value
	(In millions)
Non-vested RSUs at December 31, 2014	2	$	20.23
Granted	1		25.64
Vested	(1)		17.34
Forfeited	—		21.98
Non-vested RSUs at December 31, 2015	2	$	22.98
Granted	2		13.53
Vested	(1)		20.52
Forfeited	—		16.36
Non-vested RSUs at December 31, 2016	3	$	16.71
Granted	1		20.55
Vested	(1)		17.58
Forfeited	—		20.01
Non-vested RSUs at December 31, 2017	3	$	17.53

NOTE 19—INCOME TAXES

U.S. Tax Reform

On December 22, 2017, the President of the United States signed into law the Tax Reform Act. Changes in tax law are accounted for in the period of enactment. The Tax Reform Act, which was enacted on December 22, 2017, significantly changes U.S. tax law by, among other things, lowering the statutory corporate tax rate from 35% to 21% effective in 2018, eliminating certain deductions, requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years, introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax. The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. SAB 118 allows registrants to record provisional amounts during a one year “measurement period” similar to that used when accounting for business combinations. We have not completed our determination of the accounting implications of the Tax Reform Act on our tax accruals. However, we have reasonably estimated the effects of the Tax Reform Act and recorded provisional amounts in our financial statements as of December 31, 2017. We recorded a provisional tax benefit for the impact of the Tax Reform Act of approximately $51 million. This amount is primarily comprised of the remeasurement of federal net deferred tax liabilities resulting from the permanent reduction in the U.S. statutory corporate tax rate from 35% to 21%, partially offset by the mandatory one-time tax on the accumulated earnings of our foreign subsidiaries (the “Transition Tax”).

Of the provisional tax benefit recorded of $51 million, $63 million relates to the remeasurement of our net deferred tax liabilities to reflect the reduction in the U.S. statutory corporate tax rate. This provisional benefit was partially offset by a provisional tax expense of $12 million related to the one-time Transition Tax and the implications of repatriating those foreign earnings in the future. Under the Tax Reform Act, all accumulated foreign earnings are mandatorily deemed to be repatriated and taxed, which is also referred to as the Transition Tax. The Transition Tax is assessed regardless of whether ILG will actually repatriate its undistributed foreign earnings. Historically, it has been ILG’s practice and intention to reinvest the earnings of certain of its foreign subsidiaries. In light of the significant changes made by the Tax Reform Act, ILG will no longer be permanently reinvested with regards to the earnings of its foreign subsidiaries. A provisional tax expense was recorded related to taxes that could apply to these earnings such as foreign withholding taxes and certain U.S. state taxes. ILG will continue to be permanently reinvested with respect to the remaining excess of the amount for financial reporting over the tax basis of investments in our foreign subsidiaries.

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The ultimate impact of the Tax Reform Act may differ, possibly materially, from these provisional amounts due to among other things, additional analysis, changes in interpretations and assumptions ILG has made, additional regulatory guidance that may be issued, and actions ILG may take as a result of the Tax Reform Act. Any such revisions will be treated in accordance with the measurement period guidance outlined in SAB 118.  As such, we expect to complete our analysis no later than December 22, 2018.

U.S. and foreign earnings from continuing operations before income taxes and noncontrolling interest are as follows (in millions):

	Year Ended December 31,
	2017		2016		2015
U.S.	$	167	$	308	$	91
Foreign		30		16		25
Total	$	197	$	324	$	116

The components of the provision for income taxes attributable to continuing operations are as follows (in millions):

	Year Ended December 31,
	2017		2016		2015
Current income tax provision
Federal	$	27	$	31	$	29
State		3		7		5
Foreign		20		11		4
Current income tax provision		50		49		38
Deferred income tax provision (benefit)
Federal		(44)		19		1
State		6		1		1
Foreign		14		(12)		1
Deferred income tax provision (benefit)		(24)		8		3
Income tax provision	$	26	$	57	$	41

ILG records a deferred tax asset, or future tax benefit, based on the amount of non cash compensation expense recognized in the financial statements for stock based awards. For income tax purposes, ILG receives a tax deduction equal to the stock price on the vesting date of the stock based awards. Upon vesting of these awards, the deferred tax assets are reversed, and the difference between the deferred tax asset and the realized income tax benefit creates an excess tax benefit or deficiency. In March 2016, the FASB issued ASU 2016-09 to simplify the current accounting for stock compensation. Under the new guidance, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital. Instead, all excess tax benefits and tax deficiencies should be recognized as income tax expense or benefit in the income statement. In accordance with this ASU, for the year ended December 31, 2017, ILG included a net benefit of $2 million within the income tax provision. During 2016, ILG recorded to APIC a net deficiency of approximately $2 million associated with stock-based awards, while in 2015, net excess tax benefits associated with stock based awards of approximately $2 million was recorded to APIC.

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The tax effects of cumulative temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2017 and 2016 are presented below (in millions). The valuation allowance is related to items for which it is more likely than not that the tax benefit will not be realized.

	December 31,
	2017		2016
Deferred tax assets:
Deferred revenue	$	17	$	36
Inventory		5		48
Provision for accrued expenses		19		25
Non-cash compensation		8		10
Net operating loss, capital loss and tax credit carryforwards		38		45
Other		6		9
Total deferred tax assets		93		173
Less valuation allowance		(47)		(36)
Net deferred tax assets		46		137
Deferred tax liabilities:
Intangible and other assets		(125)		(192)
Deferred membership costs		(3)		(6)
Property and equipment		(17)		(8)
Investments in unconsolidated entities		(4)		(5)
Sales of vacation ownership interests		(12)		(63)
Other		(13)		(15)
Total deferred tax liabilities		(174)		(289)
Net deferred tax liability	$	(128)	$	(152)

At December 31, 2017 and 2016, ILG had foreign NOLs of approximately $35 million ($10 million tax effected) and $46 million ($14 million tax effected), respectively, available to offset future income, virtually all of which will expire in various years beginning in 2021 and extending through 2027.

At December 31, 2017 and 2016, ILG had state NOLs of approximately $42 million and $50 million, respectively, which each is approximately $2 million tax effected and will expire in various years beginning in 2018 and extending through 2036.

At December 31, 2017 and 2016, ILG had capital loss carryforwards of approximately $58 million ($15 million tax effected) and $55 million ($21 million tax effected), respectively, which will expire in 2019 and 2020.

At December 31, 2017 and 2016, ILG had state tax credit carryforwards of approximately $2 million, all of which are indefinite.  It is more likely than not that substantially all of these state tax credits will be realized.

At December 31, 2017 and 2016, ILG had other various tax credit carryforwards of approximately $9 million and $6 million, respectively, which will expire in 2026 and 2027. It is more likely than not that substantially all of these tax credits will be realized.

A valuation allowance for deferred tax assets is provided when it is more likely than not that certain deferred tax assets will not be realized. Realization is dependent upon the generation of future taxable income or the reversal of deferred tax liabilities during the periods in which those temporary differences become deductible. We consider the history of taxable income in recent years, the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies to make this assessment. At December 31, 2017, ILG had a valuation allowance of approximately $47 million related to a portion of the foreign NOLs, other foreign assets and materially all of the state NOLs and all capital loss carryforwards for which, more likely than not, the tax benefit will not be realized. During 2017, ILG’s valuation allowance increased by $11 million.  This net increase is primarily related to a determination that

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it is more likely than not that certain deferred tax assets in Mexico will not be realized, partially offset by the remeasurement of certain valuation allowances as a result of the Tax Reform Act.

A reconciliation of total income tax provision to the amounts computed by applying the statutory federal income tax rate to earnings before income taxes and noncontrolling interest is shown as follows (in millions, except percentages):

	Year Ended December 31,
	2017			2016			2015
	Amount		%	Amount		%	Amount		%
Income tax provision at the federal statutory rate of 35%	$	69	35.0	$	113	35.0	$	41	35.0
State income taxes, net of effect of federal tax benefit		7	3.3		5	1.4		4	3.5
Foreign income taxed at a different statutory tax rate		(5)	(2.5)		(3)	(0.9)		(4)	(3.5)
U.S. tax consequences of foreign operations		1	0.7		(1)	(0.2)		—	0.1
Gain on acquisition		(1)	(0.3)		(57)	(17.6)		—	—
Tax Reform Act		(51)	(25.8)		—	—		—	—
Foreign branch operations		(23)	(12.0)		—	—		—	—
Change in valuation allowance		18	9.3		—	—		—	—
Mexico inflation adjustment		4	2.1		—	—		—	—
Other, net		7	3.4		—	—		—	0.2
Income tax provision	$	26	13.2	$	57	17.7	$	41	35.3

ILG has certain U.S. subsidiaries that have a foreign branch in Mexico and are subject to tax in both jurisdictions.  During the period, a valuation allowance was recorded on certain deferred tax assets in Mexico of approximately $21 million since it was determined that it was more likely than not that these assets will not be realized.  This adjustment is recorded in the change in valuation allowance line in the reconciliation.  In addition, an offsetting adjustment of $21 million was recorded in the foreign branch operations line to account for the decrease in the corresponding deferred tax liability recorded in the U.S. Overall, the impact of these two adjustments entirely offset.

ASC 740 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. ASC 740 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

As of December 31, 2017, 2016 and 2015, ILG did not have any material unrecognized tax benefits. All amounts rounded to less than a million, but which if recognized, would favorably affect the effective tax rate. ILG recognizes interest and, if applicable, penalties related to unrecognized tax benefits in income tax expense. There were no material accruals for interest during 2017, 2016 and 2015. In connection with the acquisition of Vistana, Starwood and ILG entered into a Tax Matters Agreement. Under the Tax Matters Agreement, Starwood indemnifies ILG for all consolidated tax liabilities and related interest and penalties for the pre-close period. Accordingly, any unrecognized tax benefits and related interest for Vistana related to the pre-close period that are the obligation of its former parent have not been recorded.

ILG believes that its unrecognized tax benefits will not materially change within twelve months of the current reporting date. An estimate of other changes in unrecognized tax benefits cannot be made, but is not expected to be significant.

ILG files income tax returns in the U.S. federal jurisdiction and various state, local, and foreign jurisdictions. As of December 31, 2017, no open tax years are currently under examination by the IRS. The U.S. federal statute of limitations for years prior to and including 2013 has closed. ILG’s consolidated state tax return for the tax years, 2013 through 2015, was under examination by the State of Florida. During the third quarter of 2017, the State of Florida completed its audit and issued a Notice of Proposed Assessment with no changes. The audit is now closed. No other tax years are currently under examination in any material state and local jurisdictions. Vistana, by virtue of previously filed consolidated tax returns with Starwood, is under audit by the IRS for several pre-close periods. Vistana is also under

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audit in Mexico for the tax years ended December 31, 2012 and 2013. Under the Tax Matters Agreement, Starwood indemnifies ILG for all income tax liabilities and related interest and penalties for the pre-close period.

The Tax Reform Act is comprehensive tax legislation containing several other provisions that will affect 2018 and later years and which will need to be further analyzed by ILG. Such additional provisions, beginning in 2018, include two new U.S. tax base erosion provisions, the global intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”) provisions.

The GILTI provisions require ILG to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. ILG may be subject to incremental U.S. tax on GILTI income beginning in 2018 or in later years. ILG has elected to account for GILTI tax in the period in which it is incurred, and therefore, ILG has not provided any deferred tax impacts of GILTI in its consolidated financial statements for the year ended December 31, 2017.

The BEAT provisions in the Tax Reform Act disallows the deduction of certain base-erosion payments made to foreign corporations by imposing a minimum tax if greater than regular tax. ILG does not expect it will be subject to this tax, but has not completed its analysis of the provision and the implications to ILG.

NOTE 20—SEGMENT INFORMATION

Pursuant to FASB guidance as codified in ASC 280, an operating segment is a component of a public entity (1) that engages in business activities that may earn revenues and incur expenses; (2) for which operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segments and assess its performance; and (3) for which discrete financial information is available. We also considered how the businesses are organized as to segment management, and the focus of the businesses with regards to the types of products or services offered. ILG is comprised of two operating and reportable segments: Vacation Ownership and Exchange and Rental.

Our Vacation Ownership segment engages in the management, sales, marketing, financing, rental and ancillary services, and development of VOIs as well as related services to owners and associations. Our Exchange and Rental segment offers access to vacation accommodations and other travel‑related transactions and services to members of our programs and other leisure travelers, by providing vacation exchange services and vacation rental, working with resort developers, HOAs and operating vacation rental properties.

ILG provides certain corporate functions that benefit the organization as a whole. Such corporate functions include corporate services relating to oversight, corporate development, finance and accounting, legal, treasury, tax, internal audit, human resources, and certain IT functions. Costs relating to such corporate functions that are not directly cross‑charged to individual businesses are being allocated to our two operating and reportable segments based on a pre‑determined measure of profitability relative to total ILG. All such allocations relate only to general and administrative expenses. The consolidated statements of income are not impacted by this cross‑segment allocation.

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Information on reportable segments and reconciliation to consolidated operating income is as follows (in millions):

	Year Ended December 31,
	2017		2016		2015
Vacation Ownership:
Resort operations revenue	$	213	$	136	$	17
Management fee and other revenue		158		111		88
Sales of vacation ownership products, net		465		306		28
Consumer financing revenue		89		57		5
Cost reimbursement revenue		242		179		58
Total revenue		1,167		789		196
Cost of service and membership related		83		48		34
Cost of sales of vacation ownership products		90		99		20
Cost of sales of rental and ancillary services		207		116		7
Cost of consumer financing		29		13		—
Cost reimbursements		242		179		58
Total cost of sales		651		455		119
Royalty fee expense		41		27		2
Selling and marketing expense		251		139		13
General and administrative expense		102		82		47
Amortization expense of intangibles		8		8		5
Depreciation expense		39		25		2
Segment operating income	$	75	$	53	$	8

	Year Ended December 31,
	2017		2016		2015
Exchange and Rental:
Transaction revenue	$	198	$	198	$	193
Membership fee revenue		140		134		126
Ancillary member revenue		7		6		6
Total member revenue		345		338		325
Club rental revenue		105		63		9
Other revenue		22		23		23
Rental management revenue		49		48		50
Cost reimbursement revenue		98		95		94
Total revenue		619		567		501
Cost of service and membership related		75		70		66
Cost of sales of rental and ancillary services		92		69		34
Cost reimbursements		98		95		94
Total cost of sales		265		234		194
Royalty fee expense		2		1		1
Selling and marketing expense		52		55		58
General and administrative expense		123		116		103
Amortization expense of intangibles		12		11		9
Depreciation expense		21		18		16
Segment operating income	$	144	$	132	$	120

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	Year Ended December 31,
	2017		2016		2015
Consolidated:
Revenue	$	1,786	$	1,356	$	697
Cost of sales		916		689		313
Operating expenses		651		482		256
Operating income	$	219	$	185	$	128

Selected financial information by reporting segment is presented below (in millions).

	December 31,
	2017		2016
Total Assets:
Vacation Ownership	$	2,588	$	2,220
Exchange and Rental		1,083		1,084
Total	$	3,671	$	3,304

	Year Ended December 31,
	2017		2016			2015
Capital expenditures
Vacation Ownership	$	102	$	66	$	4
Exchange and Rental		17		29		16
Total	$	119	$	95	$	20

Geographic Information

We conduct operations through offices in the U.S. and 14 other countries. For the years ended December 31, 2017 and 2016 revenue is sourced from over 100 countries worldwide. Other than the United States, no revenue sourced from any individual country or geographic region exceeded 10% of consolidated revenue for the years ended December 31, 2017 and 2016.

Geographic information on revenue, based on sourcing, and long‑lived assets, based on physical location, is presented in the table below (in millions).

	Year Ended December 31,
	2017		2016		2015
Revenue:
United States	$	1,513	$	1,153	$	577
All other countries(1)		273		203		120
Total	$	1,786	$	1,356	$	697

(1) Includes countries within the following continents: Africa, Asia, Australia, Europe, North America and South America.

	December 31,		December 31,
	2017		2016
Long-lived assets, net (excluding goodwill and intangible assets):
United States	$	486	$	469
Mexico		126		107
Europe		4		4
Total	$	616	$	580

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NOTE 21—COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, ILG is a party to various legal proceedings. ILG establishes reserves for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. ILG does not establish reserves for identified legal matters when ILG believes that the likelihood of an unfavorable outcome is not probable. Although management currently believes that an unfavorable resolution of claims against ILG, including claims where an unfavorable outcome is reasonably possible, will not have a material impact on the liquidity, results of operations, or financial condition of ILG, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.

Litigation

On December 5, 2016, individuals and entities who own or owned 107 fractional interests of a total of 372 interests created in the Fifth and Fifty-Fifth Residence Club located within The St. Regis, New York (the “Club”) filed suit against ILG, certain of our subsidiaries, Marriott International Inc. (“Marriott”) and certain of its subsidiaries including Starwood. The case is filed as a mass action in federal court in the Southern District of New York, not as a class action. In response to our request to file a motion to dismiss, the plaintiffs filed an amended complaint on March 6, 2017. Plaintiffs principally challenge the sale of less than all interests offered in the fractional offering plan, the amendment of the plan to include additional units, and the rental of unsold fractional interests by the plan’s sponsor, claiming that alleged acts by us and the other defendants breached the relevant agreements and harmed the value of plaintiffs’ fractional interests. The relief sought includes, among other things, compensatory damages, rescission, disgorgement, attorneys’ fees, and pre- and post-judgment interest. We filed a motion to dismiss the amended complaint on April 21, 2017. The court has not yet rendered any decision on the motion. We dispute the material allegations in the amended complaint and intend to defend against the action vigorously. Given the early stages of the action and the inherent uncertainties of litigation, we cannot estimate a range of the potential liability, if any, at this time.

On February 28, 2017, the owners association for the Club filed a separate suit against us and certain of our subsidiaries in federal court in the Southern District of New York. On March 13, 2017, before it had served the initial complaint, Plaintiff filed an amended complaint that added Marriott and Starwood as defendants and added additional claims. Plaintiff then filed a second amended complaint on July 14, 2017. The complaint, as amended, asserts claims against the sponsor of the Club, St. Regis Residence Club, New York, Inc., the Club manager, St. Regis New York Management, Inc., and certain affiliated entities, as well as against Marriott and Starwood, for alleged breach of fiduciary duties principally related to sale and rental practices, tortious interference with the management agreement, alleged unjust enrichment, seeks certain declaratory relief in connection with the Starpoints conversion program and the exchange program at the Club, and asserts claims based on alleged anticompetitive conduct by the defendants in connection with Plaintiff’s renewal of the Club management agreement. In addition to the declaratory relief sought, Plaintiff seeks unspecified actual damages, punitive damages, and disgorgement of payments under the management and purchase agreements, as well as related agreements. We filed a motion to dismiss the second amended complaint on September 8, 2017. The court has not yet rendered any decision on the motion. We dispute the material allegations in the second amended complaint and intend to defend against the action vigorously. Given the early stages of the action and the inherent uncertainties of litigation, we cannot estimate a range of the potential liability, if any, at this time.

Other matters

ILG also evaluates other contingent matters, including tax contingencies, to assess the probability and estimated extent of potential loss. See Note 19 for a discussion of income tax contingencies.

Lease commitments

ILG leases office space, computers and equipment used in connection with its operations under various operating leases, many of which contain escalation clauses. We account for leases under ASC Topic 840, “Leases” (“ASC 840”).

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Future minimum payments under operating lease agreements are as follows (in millions):

Years Ending December 31,
2018	$	21
2019		17
2020		15
2021		11
2022		9
Thereafter through 2022		75
Total	$	148

Expense charged to operations under these agreements was $12 million, $11 million and $12 million for the years ended December 31, 2017, 2016 and 2015, respectively. Lease expense is recognized on a straight‑line basis over the term of the lease, including any option periods, as appropriate. The same lease term is used for lease classification, the amortization period of related leasehold improvements, and the estimation of future lease commitments.

Other obligations

Other items, such as certain purchase commitments and guarantees are not recognized as liabilities in our consolidated financial statements but are required to be disclosed in the footnotes to the financial statements. These funding commitments could potentially require our performance in the event of demands by third parties or contingent events. The following table summarizes these items, on an undiscounted basis, at December 31, 2017 and the future periods in which such obligations are expected to be settled in cash. In addition, the table reflects the timing of principal and interest payments on outstanding borrowings.

Years Ending December 31,	Total		2018		2019		2020		2021		2022		Thereafter
	(Dollars in millions)
Debt principal	$	570	$	—	$	—	$	—	$	220	$	—	$	350
Debt interest (projected)		133		28		28		28		23		20		6
Guarantees, surety bonds, and letters of credit		102		70		14		9		7		2		—
Purchase obligations and other commitments		71		37		15		10		9		—		—
Total commitments	$	876	$	135	$	57	$	47	$	259	$	22	$	356

At December 31, 2017, guarantees, surety bonds and letters of credit totaled $102 million, with the highest annual amount of $70 million occurring in year one. The total also includes maximum exposure under guarantees of $50 million which primarily relates to our Exchange and Rental segment’s rental management agreements, including those with guaranteed dollar amounts, and accommodation leases supporting the segment’s management activities that are entered into on behalf of the property owners for which either party generally may terminate such leases upon 60 to 90 days prior written notice to the other party.

In addition, certain of our rental management agreements provide that owners receive specified percentages or guaranteed amounts of the rental revenue generated under its management. In these cases, the operating expenses for the rental operations are paid from the revenue generated by the rentals, the owners are then paid their contractual percentages or guaranteed amounts, and our vacation rental business either retain the balance (if any) as its fee or makes up the deficit. Although such deficits are reasonably possible in a few of these agreements, as of December 31, 2017, future amounts are not expected to be material either individually or in the aggregate.

Additionally, as of December 31, 2017, our letters of credit totaled $14 million and were principally related to our VO sales and financing activities. More specifically, these letter of credits provide alternate assurance on amounts held in escrow which enable our developer entities to access purchaser deposits prior to closings, as well as provide a guarantee of maintenance fees owed by our developer entities during subsidy periods at a particular vacation ownership resort, among other items.

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The purchase obligations primarily relate to future guaranteed purchases of rental inventory, operational support services, marketing related benefits and membership fulfillment benefits. Certain of our vacation rental businesses also enter into agreements, as principal, for services purchased on behalf of property owners for which it is subsequently reimbursed. As such, we are the primary obligor and may be liable for unreimbursed costs. As of December 31, 2017, amounts pending reimbursement are not material.

Insurance recoveries

As discussed in Notes 6 and 8, during September 2017 we sustained damages at our Westin St. John Resort Villas property as a result of Hurricane Irma. The resort has remained closed while rebuilding activities are in process. The reopening of the resort is currently targeted for January of 2019. As of December 31, 2017, our insurance claims receivable related to this event amounts to $26 million and is presented within accounts receivable on our consolidated balance sheet, and reflects $10 million of proceeds received in the fourth quarter of 2017. This is not a final claim figure and does not include any claims pertaining to business interruption.

NOTE 22—SUPPLEMENTAL CASH FLOW INFORMATION

	Year Ended December 31,
	2017		2016		2015
	(In millions)
Cash paid during the period for:
Interest, net of amounts capitalized	$	34	$	24	$	15
Income taxes, net of refunds	$	54	$	93	$	28
Non-cash financing activity:
Issuance of stock in connection with Vistana acquisition	$	—	$	1,031	$	—

NOTE 23—SUPPLEMENTAL GUARANTOR INFORMATION

The senior notes are guaranteed by ILG and certain other subsidiaries for which 100% of the voting securities are owned directly or indirectly by ILG (collectively, the “Guarantor Subsidiaries”). These guarantees are full and unconditional and joint and several. The guarantees of the Guarantor Subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. The indenture governing the senior notes contains covenants that, among other things, limit the ability of Interval Acquisition Corp. (the “Issuer”) and the Guarantor Subsidiaries to pay dividends to us or make distributions, loans or advances to us.

The following tables present consolidating financial information as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015 for ILG on a stand-alone basis, the Issuer on a stand-alone basis, the combined Guarantor Subsidiaries of ILG (collectively, the “Guarantor Subsidiaries”), the combined non-guarantor subsidiaries of ILG (collectively, the “Non-Guarantor Subsidiaries”) and ILG on a consolidated basis (in millions).

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Balance Sheet as of December 31, 2017	ILG		Interval Acquisition Corp.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Total Eliminations		ILG Consolidated
Current assets	$	1	$	3	$	789	$	406	$	—	$	1,199
Property and equipment, net		1		—		464		151		—		616
Goodwill and intangible assets, net		—		266		628		110		—		1,004
Investments in subsidiaries		811		1,508		1,021		—		(3,340)		—
Other assets		—		—		270		582		—		852
Total assets	$	813	$	1,777	$	3,172	$	1,249	$	(3,340)	$	3,671
Current liabilities	$	3	$	5	$	339	$	296	$	—	$	643
Other long-term liabilities		—		—		232		101		—		333
Long term debt and securitized debt from VIEs (noncurrent portion)		—		562		—		429		—		991
Intercompany liabilities (receivables) / equity		(856)		399		1,093		(636)		—		—
Redeemable noncontrolling interest		—		—		1		—		—		1
ILG stockholders' equity		1,666		811		1,508		1,021		(3,340)		1,666
Noncontrolling interests		—		—		(1)		38		—		37
Total liabilities and equity	$	813	$	1,777	$	3,172	$	1,249	$	(3,340)	$	3,671

Balance Sheet as of December 31, 2016	ILG		Interval Acquisition Corp.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Total Eliminations		ILG Consolidated
Current assets	$	1	$	2	$	491	$	252	$	—	$	746
Property and equipment, net		1		—		420		159		—		580
Goodwill and intangible assets, net		—		267		647		97		—		1,011
Investments in subsidiaries		619		1,289		390		—		(2,298)		—
Other assets		—		—		462		505		—		967
Total assets	$	621	$	1,558	$	2,410	$	1,013	$	(2,298)	$	3,304
Current liabilities	$	1	$	5	$	344	$	169	$	—	$	519
Other long-term liabilities		—		—		266		26		—		292
Long term debt and securitized debt from VIEs (noncurrent portion)		—		581		(12)		330		—		899
Intercompany liabilities (receivables) / equity		(947)		353		522		72		—		—
Redeemable noncontrolling interest		—		—		1		—		—		1
ILG stockholders' equity		1,567		619		1,289		390		(2,298)		1,567
Noncontrolling interests		—		—		—		26		—		26
Total liabilities and equity	$	621	$	1,558	$	2,410	$	1,013	$	(2,298)	$	3,304

Statement of Income for the Year Ended December 31, 2017	ILG		Interval Acquisition Corp.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Total Eliminations		ILG Consolidated
Revenue	$	—	$	—	$	1,494	$	292	$	—	$	1,786
Operating expenses		(7)		(1)		(1,356)		(203)		—		(1,567)
Interest income (expense), net		—		(27)		7		(6)		—		(26)
Other income (expense), net (1)		172		187		58		(28)		(389)		—
Income tax benefit (provision)		3		10		(21)		(18)		—		(26)
Equity in earnings from unconsolidated entities		—		—		4		—		—		4
Net income (loss)		168		169		186		37		(389)		171
Net income (loss) attributable to noncontrolling interests		—		—		1		(4)		—		(3)
Net income (loss) attributable to common stockholders	$	168	$	169	$	187	$	33	$	(389)	$	168

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Statement of Income for the Year Ended December 31, 2016	ILG		Interval Acquisition Corp.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Total Eliminations		ILG Consolidated
Revenue	$	—	$	—	$	1,148	$	208	$	—	$	1,356
Operating expenses		(5)		—		(990)		(176)		—		(1,171)
Interest income (expense), net		—		(25)		6		(3)		—		(22)
Other income (expense), net (1)		268		120		15		(7)		(240)		156
Income tax benefit (provision)		2		10		(65)		(4)		—		(57)
Equity in earnings from unconsolidated entities		—		—		5		—		—		5
Net income (loss)		265		105		119		18		(240)		267
Net income (loss) attributable to noncontrolling interests		—		—		1		(3)		—		(2)
Net income (loss) attributable to common stockholders	$	265	$	105	$	120	$	15	$	(240)	$	265

Statement of Income for the Year Ended December 31, 2015	ILG		Interval Acquisition Corp.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Total Eliminations		ILG Consolidated
Revenue	$	—	$	—	$	592	$	105	$	—	$	697
Operating expenses		(4)		(1)		(479)		(85)		—		(569)
Interest (expense) income, net		—		(22)		2		—		—		(20)
Other income (expense), net (1)		76		89		15		3		(180)		3
Income tax  (provision) benefit		1		9		(46)		(5)		—		(41)
Equity in earnings from unconsolidated entities		—		—		5		—		—		5
Net income (loss)		73		75		89		18		(180)		75
Net income (loss) attributable to noncontrolling interests		—		—		1		(3)		—		(2)
Net income (loss) attributable to common stockholders	$	73	$	75	$	90	$	15	$	(180)	$	73

(1) Includes equity in earnings of wholly-owned subsidiaries.

Statement of Cash Flows for the Year Ended December 31, 2017	ILG		Interval Acquisition Corp.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		ILG Consolidated
Cash flows provided by (used in) operating activities	$	(1)	$	(13)	$	132	$	(39)	$	79
Cash flows used in investing activities		—		—		(90)		(25)		(115)
Cash flows provided by (used in) financing activities		1		15		(63)		73		26
Effect of exchange rate changes on cash and cash equivalents		—		—		—		6		6
Cash and cash equivalents at beginning of period		—		—		38		88		126
Cash and cash equivalents at end of period	$	—	$	2	$	17	$	103	$	122

Statement of Cash Flows for the Year Ended December 31, 2016	ILG		Interval Acquisition Corp.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		ILG Consolidated
Cash flows provided by (used in) operating activities	$	(2)	$	(14)	$	315	$	(306)	$	(7)
Cash flows provided by (used in) investing activities		1,196		—		(1,345)		(40)		(189)
Cash flows provided by (used in) financing activities		(1,194)		14		1,054		360		234
Effect of exchange rate changes on cash and cash equivalents		—		—		—		(5)		(5)
Cash and cash equivalents at beginning of period		—		—		14		79		93
Cash and cash equivalents at end of period	$	—	$	—	$	38	$	88	$	126

157

Statement of Cash Flows for the Year Ended December 31, 2015	ILG		Interval Acquisition Corp.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		ILG Consolidated
Cash flows provided by (used in) operating activities	$	(2)	$	(5)	$	116	$	34	$	143
Cash flows used in investing activities		—		—		(20)		(1)		(21)
Cash flows provided by (used in) financing activities		2		5		(99)		(11)		(103)
Effect of exchange rate changes on cash and cash equivalents		—		—		—		(7)		(7)
Cash and cash equivalents at beginning of period		—		—		17		64		81
Cash and cash equivalents at end of period	$	—	$	—	$	14	$	79	$	93

NOTE 24—RELATED PARTY TRANSACTIONS

Agreements with Liberty

In connection with the transactions contemplated by the Merger Agreement and Separation Agreement, ILG and Liberty Interactive Corp. agreed to amend and restate that certain Spinco Agreement, dated May 13, 2008, by and among Liberty, certain affiliates of Liberty and IAC/InterActive Corp., as subsequently assigned to ILG on August 20, 2008. This amended agreement provides that Liberty is entitled to appoint two directors to the Board. So long as Liberty continues to beneficially own at least 10% of ILG’s common stock, Liberty has the right to nominate a proportionate number of directors to ILG’s board of directors. The amended agreement restricts Liberty and its affiliates from acquiring in excess of 35% of ILG’s outstanding shares of common stock without ILG’s consent.

The amended agreement with Liberty, and the respective rights and obligations thereunder, will terminate if Liberty’s beneficial ownership falls below 10% of ILG’s outstanding equity, unless Liberty’s ownership was reduced below 10% not in conjunction with Liberty transferring its shares. In that event, Liberty’s rights will terminate three years from the date of the amended agreement.

Also in connection with the Vistana acquisition, ILG and Liberty amended and restated that certain registration rights agreement, dated as of August 20, 2008, by and among ILG, Liberty and an affiliate of Liberty. The Amended Registration Rights Agreement provides Liberty with four demand registration rights and sets the aggregate offering price threshold for any demand registration statement at $50 million. Pursuant to the Amended Registration Rights Agreement, ILG must prepare a demand registration statement requested by Liberty no earlier than upon termination of the Merger Agreement or sixty days following the consummation of the transactions contemplated by the Merger Agreement.

CLC World Resorts and Hotels

Effective November 4, 2013, CLC became a related party of ILG when VRI Europe Limited, a subsidiary of ILG, purchased CLC’s European shared ownership resort management business and, in connection with this purchase, issued to CLC a noncontrolling interest in VRI Europe. As part of this arrangement, VRI Europe and CLC entered into a shared services arrangement whereby each party provides certain services to one another at an agreed upon cost. VRI Europe’s corresponding income and expense resulting from this shared services arrangement is recorded on a straight‑line basis throughout the year. Additionally, we have an ongoing business relationship with CLC as part of their Interval Network affiliation.

During the year ended December 31, 2017, VRI Europe recorded $1 million and $3 million of income and expense, respectively, in shared services with CLC, which is included within our VO segment. Additionally, we recorded $1 million of Exchange and Rental revenue in 2017 related to membership enrollments and sales of marketing materials. As of December 31, 2017, we had a trade payable of less than $1 million due to CLC, and a receivable of $5 million due from CLC.

During the year ended December 31, 2016, VRI Europe recorded $1 million and $3 million of income and expense, respectively, in shared services with CLC, which is included within our VO segment. Additionally, we recorded less than $1 million of Exchange and Rental revenue in 2016 related to membership enrollments and sales of marketing

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materials. As of December 31, 2016, we had a trade payable of less than $1 million due to CLC, and a receivable of $1 million due from CLC.

During the year ended December 31, 2015, VRI Europe recorded $1 million and $3 million of income and expense, respectively, in shared services with CLC, which is included within our VO segment. Additionally, we recorded $1 million of Exchange and Rental revenue in 2015 related to membership enrollments and sales of marketing materials.

As of December 31, 2017 and 2016, we had a loan of $15 million due from CLC which is presented within other non-current assets in our consolidated balance sheets. The loan is secured and matures five years subsequent to the funding date with a fixed interest rate payable monthly. The outstanding loan is to be repaid in full at maturity either in cash or by means of a share option exercisable by ILG, at its sole discretion, which would allow for settlement of the loan in CLC’s shares of VRI Europe for contractually determined equivalent value. The funding of this loan was in October 2014. We recorded interest income of $1 million each for the years ended December 31, 2017, 2016 and 2015 in the consolidated statements of income.

Starwood Hotels and Resorts

In connection with the acquisition of Vistana in May 2016, ILG entered into several agreements with Starwood including the license agreement, tax matters agreement, management agreements for certain transferred hotels, transition services agreement, and other commercial agreements. One of our directors was an executive of Starwood during the period from the closing of the Vistana acquisition until he left Starwood following its sale.

Maui Timeshare Venture

In connection with the acquisition of HVO in October of 2014, we acquired a noncontrolling ownership interest in Maui Timeshare Venture, LLC, a joint venture to develop and operate a vacation ownership resort in the state of Hawaii.

During the years ended December 31, 2017 and 2016, we recorded revenue of $15 million and $17 million, respectively, from this joint venture related primarily to resort management and vacation ownership sales and marketing services performed on behalf of the joint venture pursuant to contractual arrangements at market rates. As of December 31, 2017, we had a trade payable of $2 million due to the joint venture.

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NOTE 25—QUARTERLY RESULTS (UNAUDITED)

Revenue at ILG is influenced by the seasonal nature of travel. The timeshare management part of this business does not experience significant seasonality. The vacation rental business recognizes rental revenue based on occupancy, with the first and third quarters generally generating higher revenue and the second and fourth quarters generally generating lower revenue. The vacation exchange business generally recognizes exchange and Getaway revenue based on confirmation of the vacation, with the first quarter generally experiencing higher revenue and the fourth quarter generally experiencing lower revenue.

	Quarter Ended(1)
	March 31,		June 30,		September 30,		December 31,
	(In millions, except for share data)
2017
Revenue	$	452	$	450	$	446	$	438
Operating income		64		46		54		55
Net income		45		27		30		68
Net income attributable to common stockholders		44		27		29		67
Earnings per share attributable to common stockholders:
Basic		0.36		0.22		0.24		0.55
Diluted		0.35		0.22		0.23		0.54
2016
Revenue	$	186	$	297	$	418	$	455
Operating income		40		27		47		71
Net income		23		184		32		28
Net income attributable to common stockholders		22		183		32		28
Earnings per share attributable to common stockholders:
Basic		0.38		1.89		0.26		0.22
Diluted		0.38		1.87		0.25		0.22

(1) For the years ended December 31, 2017 and 2016, individual amounts for the quarters may not add to the annual amount because of rounding and, in the case of per share amounts, differences in the average common shares outstanding during each period. Additionally, the second quarter of 2016 included a pre-tax $197 million gain on bargain purchase,  while the third and fourth quarters of 2016 included downward adjustments to that gain of $9 million and $25 million, respectively, and the second quarter of 2017 included an upward and final adjustment of $2 million. See Note 3 for related discussion.

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Item 9.    Changes in and Disagreements with Accountant on Accounting and Financial Disclosure.

Not applicable.

Item 9A.    Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We monitor and evaluate on an ongoing basis our disclosure controls and internal control over financial reporting in order to improve our overall effectiveness. In the course of this evaluation, we modify and refine our internal processes as conditions warrant.

As required by Rule 13a‑15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined by Rule 13a‑15(e) and 15d‑15(e) under the Exchange Act). Based upon that evaluation, our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective in providing reasonable assurance that information we are required to disclose in our filings with the Securities and Exchange Commission under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a‑15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (the “2013 framework”). In making this assessment, our management used the criteria for effective internal control over financial reporting described in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our assessment of and conclusion on the effectiveness of internal control over financial reporting included the internal controls of our Vistana Signature Experiences business acquired in May 2016.  Based on this assessment, management has determined that, as of December 31, 2017, our internal control over financial reporting is effective based on the criteria established in the 2013 framework.

The effectiveness of our internal control over financial reporting as of December 31, 2017 has been audited by Ernst & Young LLP, an independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10‑K, as stated in their attestation report, included herein.

Changes in Internal Control over Financial Reporting

We monitor and evaluate on an ongoing basis our disclosure controls and internal control over financial reporting in order to improve our overall effectiveness. In the course of this evaluation, we modify and refine our internal processes as conditions warrant.

As required by Rule 13a-15(d) of the Exchange Act, we, under the supervision and with the participation of our management, including the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, also evaluated whether any changes occurred to our internal control over financial reporting during the period covered by this

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report that have materially affected, or are reasonably likely to materially affect, such control. Our integration of Vistana’s operations into our overall financial reporting materially affected our internal controls over financial reporting. 

Limitation on Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The inherent limitations of these systems include the realities that judgments in decision‑making may be flawed and that breakdowns may occur because of simple error or mistake. Additionally, controls could be circumvented by the individual acts of some persons or by collusion of two or more people. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of ILG, Inc. and subsidiaries

Opinion on Internal Control over Financial Reporting

We have audited ILG, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, ILG, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2017 consolidated financial statements of the Company and our report dated February 28, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Certified Public Accountants

Miami, Florida

February 28, 2018

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Item 9B.    Other Information.

None.

PART III

The information required by Part III (Items 10, 11, 12, 13 and 14) has been incorporated herein by reference to ILG’s definitive Proxy Statement to be used in connection with its 2018 Annual Meeting of Stockholders, or the 2018 Proxy Statement, as set forth below, in accordance with General Instruction G(3) of Form 10‑K.

Item 10.    Directors, Executive Officers and Corporate Governance.

Information relating to directors of ILG and the compliance of our directors and executive officers with Section 16(a) of the Exchange Act is set forth in the sections entitled “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance,” respectively, in the 2017 Proxy Statement and is incorporated herein by reference. The information required by subsections (c)(3), (d)(4) and (d)(5) of Item 407 of Regulation S‑K is set forth in the section entitled “Corporate Governance” in the 2016 Proxy Statement and is incorporated herein by reference. We have included information regarding our executive officers and our Code of Ethics below.

Item 11.    Executive Compensation.

The information required by Item 402 of Regulation S‑K is set forth in the sections entitled “Executive Compensation,” “Compensation Discussion and Analysis” and “Director Compensation” in the 2018 Proxy Statement and is incorporated herein by reference. The information required by subsections (e)(4) and (e)(5) of Item 407 of Regulation S‑K is set forth in the sections entitled: “Committees of the Board of Directors,” “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report,” respectively, in the 2018 Proxy Statement and is incorporated herein by reference; provided, that the information set forth in the section entitled “Compensation Committee Report” shall be deemed furnished herein and shall not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Information regarding ownership of ILG common stock, and securities authorized for issuance under ILG’s equity compensation plans, is set forth in the sections entitled “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information,” respectively, in the 2018 Proxy Statement and is incorporated herein by reference.

Item 13.    Certain Relationships and Related Transactions, and Director Independence.

Information regarding certain relationships and related transactions with ILG and director independence is set forth in the sections entitled “Certain Relationships and Related Person Transactions” and “Corporate Governance,” respectively, in the 2018 Proxy Statement and is incorporated herein by reference.

Item 14.    Principal Accountant Fees and Services.

Information regarding the fees and services of ILG’s independent registered public accounting firm and the pre‑approval policies and procedures applicable to services provided to ILG by such firm is set forth in the section entitled “Independent Registered Public Accountants’ Fees” in the 2018 Proxy Statement and is incorporated herein by reference.

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Executive Officers of the Registrant

The following information about ILG’s executive officers and certain other key personnel is as of February 25, 2018.

Craig M. Nash, age 64, has served as President and Chief Executive Officer of ILG since May 2008 and as Chairman of the Board of ILG since August 2008. Mr. Nash served as President of Interval International from August 1989 until September 2014. Prior to assuming this role, Mr. Nash served in a series of increasingly significant roles with Interval International, including as General Counsel. Mr. Nash joined Interval in 1982. Mr. Nash serves on the Board of Directors of the American Resort Development Association and is also a member of its Executive Committee.

Kelly Frank, age 56, has served as Chief Human Resources Officer of ILG since October 2016. Prior to joining ILG, she served as Senior Vice President of Human Resources at Starwood from October 2006 to September 2016. During this time period she was responsible for leading the human resources function for the largest division in the company, including North America, Latin America and the vacation ownership business. Prior to this role she was the Senior Vice President of Human Resources Corporate Shared Services responsible for leading these global functions: recruiting, ethics and compliance, human resources service center and the human resources generalist function.She also serves as a director and President of the ILG Relief Fund.

John A. Galea, age 62, has served as Chief Accounting Officer of ILG since August 2008 and as Senior Vice President and Treasurer of ILG since June 2009. He has served as Chief Financial Officer for Interval since October 2006. Prior to this appointment, Mr. Galea served as Interval’s Vice President and Chief Accounting Officer from January 2004. Mr. Galea joined Interval in 2000 as its Vice President, Accounting and Corporate Controller. Mr. Galea also serves as the Treasurer of the ILG Relief Fund.

William L. Harvey, age 61, has served as Chief Financial Officer of ILG since August 2008 and as Executive Vice President since June 2009. Prior to joining ILG in June 2008, Mr. Harvey served as the Chief Financial Officer for TrialGraphix, Inc., a Miami‑based litigation support firm from August 2006 through November 2007. Between June 2003 and July 2006, Mr. Harvey served as a Vice President at LNR Property Corporation, a Miami‑based diversified real estate and finance company, managing various financial and accounting units. From September 1992 through February 2003, Mr. Harvey served as the Executive Vice President and Chief Financial Officer of Pan Am International Flight Academy, Inc., a private provider of flight training services. Mr. Harvey is a registered CPA who began his professional career at Deloitte & Touche and was a partner in their Miami office prior to September 1992. Prior to June 2014, Mr. Harvey was a member of the Board of Directors of Summit Financial Services Group, Inc. and chair of the audit committee.

Victoria J. Kincke, age 62, has served as Secretary of ILG since May 2008 and as Senior Vice President and General Counsel of ILG since August 2008 and has served as Senior Vice President and General Counsel of Interval since May 2005. Prior to this time, Ms. Kincke served as General Counsel of Interval from July 1999. Ms. Kincke joined Interval in 1997. She also serves as a director and Secretary of the ILG Relief Fund.

Marie A. Lee, age 62 has served as Chief Information Officer of ILG since August 2008 and as Senior Vice President since June 2009. Since May 2005, she has served as Chief Information Officer and Senior Vice President, U.S. Operations of Interval. Prior to this time, Ms. Lee served as Chief Information Officer of Interval from January 2004 and Senior Vice President, Information Technology of Interval from May 2000 to December 2003.

Jeanette E. Marbert, age 61, has served as the President and Chief Executive Officer of the Exchange and Rental Segment since November 2017 and has been Executive Vice President of ILG since June 2009. Previously she was Chief Operating Officer of ILG from August 2008 to November 2017 and served as a Director of ILG from February 2015 to May 2016. She served as Chief Operating Officer for Interval beginning June 1999. Prior to her tenure as Chief Operating Officer, Ms. Marbert served as General Counsel of Interval from 1994 to 1999. Ms. Marbert joined Interval in 1984. She also serves as a director and Chairperson of the ILG Relief Fund.

Sergio D. Rivera, age 55, has served as a director of ILG since May 2016 and President and CEO of the Vacation Ownership segment since November 2016. Prior to joining ILG, Mr. Rivera was President of The Americas for Starwood. He was previously was Co‑President, The Americas for Starwood from July 2012 to February 2014, and President and Chief Executive Officer of Starwood Vacation Ownership (now known as Vistana Signature Experiences),

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now a wholly owned subsidiary of ILG. Prior to 2008, Mr. Rivera held progressively senior management roles within Starwood, including Controller, Vice President of Sales and Marketing, Senior Vice President of International Operations, and President of Global Real Estate. Mr. Rivera began his career with Starwood through its predecessor company, Vistana Resorts, in 1989. Mr. Rivera is a member of the board of directors of Welltower, Inc., a NYSE-listed REIT that invests with leading senior housing operators, post-acute providers and health systems. He also serves as a member of the Urban Land Institute, trustee of The Nature Conservancy Florida Chapter, a member of the University of Central Florida Rosen College of Hospitality Management Advisory Board, as well as the Florida International University Chaplin School of Hospitality & Tourism Management Dean’s Advisory Council. Mr. Rivera was nominated as a director of ILG by Starwood.

Stephen G. Williams, age 59 is the Chief Commercial Officer of Vacation Ownership since May 2017 and is also the Chief Operating Officer of Vistana Signature Experiences. Mr. Williams has over 36 years of experience in the vacation ownership, residential and branded hospitality industry. Since July 2012, Mr. Williams has served as Senior Vice President, Chief Operating Officer of Vistana’s predecessor, Starwood Vacation Ownership, responsible for leading its sales and marketing, resort/vacation network operations, development and construction, brands, creative design and guest/owner relationship teams. Prior to this role, Mr. Williams served Starwood Vacation Ownership as Senior Vice President, Sales and Marketing from May 2005 to July 2012, and prior to that, from September 2000 to May 2005, Mr. Williams was Vice President, West Region Sales and Marketing and National Distribution. Mr. Williams started in the resort industry in 1980 and, prior to joining Starwood in 2000, worked for Marriott Vacation Club International, Fairfield Communities Inc., as well as Eaton International Corporation.

Code of Ethics.

Our code of business conduct and ethics, which applies to all employees, including all executive officers and senior financial officers (including ILG’s CFO, CAO and Controller) and directors, is posted on the Corporate Governance section of our website at www.ilg.com. The code of ethics complies with Item 406 of SEC Regulation S‑K and the rules of The NASDAQ Stock Market. Any changes to the code of ethics that affect the provisions required by Item 406 of Regulation S‑K, and any waivers of the code of ethics for ILG’s executive officers, directors or senior financial officers, will also be disclosed on ILG’s website.

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PART IV

Item 15.    Exhibits and Financial Statement Schedules

(a)List of documents filed as part of this Report:

(1)Consolidated Financial Statements of ILG

Report of Independent Registered Public Accounting Firm.

Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015.

Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015.

Consolidated Balance Sheets as of December 31, 2017 and 2016.

Consolidated Statements of Equity for the years ended December 31, 2017, 2016 and 2015.

Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015.

Notes to Consolidated Financial Statements.

(2)Consolidated Financial Statement Schedule of ILG

Schedule Number II Valuation and Qualifying Accounts.

All other financial statements and schedules not listed have been omitted since the required information is included in the Consolidated Financial Statements or the notes thereto, or is not applicable or required.

(3)Exhibits

The documents set forth below in the Index of Exhibits, numbered in accordance with Item 601 of Regulation S‑K, are filed herewith or incorporated herein by reference to the location indicated.

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INDEX TO EXHIBITS

Exhibit	Description	Incorporated By Reference Location
2.1	Equity Interest Purchase Agreement, dated May 6, 2014 among Hyatt Corporation, HTS‑Aspen, L.L.C., S.O.I. Acquisition Corp. and Interval Leisure Group.	ILG’s Quarterly Report on Form 10‑Q filed on August 6, 2014
2.2	Amended and Restated Agreement and Plan of Merger, dated as of April 18, 2016, by and among Interval Leisure Group, Inc., Iris Merger Sub, Inc., Starwood Hotels & Resorts Worldwide, Inc. and Vistana Signature Experiences, Inc.	Exhibit 2.2 to the Current Report on Form 8‑K filed on April 19, 2016
2.3	Amended and Restated Separation Agreement, dated as of April 18, 2016, by and among Interval Leisure Group, Inc., Starwood Hotels & Resorts Worldwide, Inc. and Vistana Signature Experiences, Inc.	Exhibit 2.1 to the Current Report on Form 8‑K filed on April 19, 2016
3.1	Amended and Restated Certificate of Incorporation of Interval Leisure Group, Inc.	ILG’s Current Report on Form 8‑K filed on August 25, 2008
3.2	Fifth Amended and Restated By‑laws of Interval Leisure Group, Inc.	ILG’s Current Report on Form 8‑K filed on October 17, 2016
3.3	Certificate of Amendment of Amended and restated Certificate of Incorporation of ILG, Inc.	ILG’s Current Report on Form 8‑K filed on October 17, 2016
4.1	Indenture, dated April 10, 2015, among Interval Acquisition Corp., Interval Leisure Group, Inc., the other Guarantors party thereto and HSBC Bank USA, National Association	ILG’s Current Report on Form 8‑K filed on April 10, 2015
4.2	Registration Rights Agreement among Interval Acquisition Corp., Interval Leisure Group, Inc., the other Guarantors party thereto, and Wells Fargo Securities, LLC, dated April 10, 2015	ILG’s Current Report on Form 8‑K filed on April 10, 2015
4.3	Form of 5.625% Senior Note due 2023	Exhibit A to Exhibit 4.2 hereof
4.4	Supplemental Indenture, dated as of June 29, 2016, among Interval acquisition Corp, certain subsidiary guarantors and HSBC Bank USA, National Association	ILG’s Current Report on Form 8‑K filed on July 1, 2016
10.1	Tax Sharing Agreement among HSN, Inc., Interval Leisure Group, Inc., Ticketmaster, Tree.com, Inc. and IAC/InterActiveCorp	ILG’s Current Report on Form 8‑K filed on August 25, 2008
10.2	Employee Matters Agreement among HSN, Inc., Interval Leisure Group, Inc., Ticketmaster, Tree.com, Inc. and IAC/InterActiveCorp	ILG’s Current Report on Form 8‑K filed on August 25, 2008
10.3	ILG Spinco Agreement, dated as of October 27, 2015, by and among Interval Leisure Group, Inc., Liberty Interactive Corporation and Liberty USA Holding, LLC	ILG’s Quarterly Report on Form 10‑Q filed on November 11, 2015
10.4	Amended and Restated Employment Agreement between ILG, Inc. and Craig M. Nash, dated as of March 24, 2017†	ILG’s Quarterly Report on Form 10-Q filed on May 5, 2017
10.5	Amended and Restated Employment Agreement between ILG, Inc. and Jeanette E. Marbert, dated as of March 24, 2017†	ILG’s Quarterly Report on Form 10-Q filed on May 5, 2017
10.6	Amended and Restated Employment Agreement between ILG, Inc. and William L. Harvey, dated as of March 24, 2017†	ILG’s Quarterly Report on Form 10-Q filed on May 5, 2017

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Exhibit	Description	Incorporated By Reference Location
10.7	Amended and Restated Employment Agreement between ILG, Inc. and Sergio D. Rivera, dated as of March 24, 2017†	ILG’s Quarterly Report on Form 10-Q filed on May 5, 2017
10.8	Amended and Restated Employment Agreement between ILG, Inc. and Stephen G. Williams, dated as of March 24, 2017†	ILG’s Quarterly Report on Form 10-Q filed on May 5, 2017
10.9	Amended and Restated Lease Agreement between Guilford Development Group, L.L.C. and Interval International, Inc., dated as of September 30, 2015	ILG’s Quarterly Report on Form 10‑Q filed on November 11, 2015
10.10	Deferred Compensation Plan for Non‑Employee Directors†	ILG’s Registration Statement on Form S‑1 (File No. 333‑152699)
10.11	Registration Rights Agreement, dated as of October 27, 2015, among Interval Leisure Group, Inc., Liberty Interactive Corporation and Liberty USA Holdings, LLC	ILG’s Quarterly Report on Form 10‑Q filed on August 6, 2015
10.12	Amended and Restated Credit Agreement among Interval Acquisition Corp, as Borrower, Interval Leisure Group, Inc., Certain Subsidiaries of the Borrower, as Guarantors, The Lenders Party thereto, Wells Fargo Bank, National Association, as Administrative Agent and Collateral Agent; Bank of America, N.A., PNC Bank, National Association, and SunTrust Bank, each as a Syndication Agent; Fifth Third Bank, KeyBank National Association, and Union Bank, N.A., each as a Documentation Agent; and Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, PNC Capital Markets, LLC and SunTrust Robinson Humphrey, Inc. as Joint Lead Arrangers and Joint Bookrunners, dated as of June 21, 2012	ILG’s Current Report on Form 8‑K filed on June 21, 2012
10.13	Interval Leisure Group, Inc. 2013 Stock and Incentive Compensation Plan, as amended†	ILG’s Registration Statement on Form S‑8 filed on August 5, 2016
10.14	Form of Terms and Conditions of Director Restricted Stock Units under the Interval Leisure Group, Inc. 2013 Stock and Incentive Compensation Plan†	ILG’s Quarterly Report on Form 10‑Q filed on May 8, 2014
10.15	Form of Terms and Conditions for Adjusted EBITDA Performance RSU Awards under the Interval Leisure Group, Inc. 2013 Stock and Incentive Compensation Plan†	ILG’s Quarterly Report on Form 10‑Q filed on May 8, 2014
10.16	Form of Terms and Conditions for TSR-Based Performance RSU Awards under the Interval Leisure Group, Inc. 2013 Stock and Incentive Compensation Plan†	G’s Quarterly Report on Form 10‑Q filed on May 8, 2014
10.17	Form of Terms and Conditions of Director Restricted Stock Units under the Interval Leisure Group, Inc. 2013 Stock and Incentive Compensation Plan†	ILG’s Quarterly Report on Form 10‑Q filed on August 8, 2013
10.18	Master License Agreement, dated October 1, 2014 between Hyatt Franchising, L.L.C. and S.O.I. Acquisitions Corp.	ILG’s Annual Report on Form 10‑K filed on February 27, 2012
10.19	First Amendment to Credit Agreement and Incremental Revolving Commitment Agreement, dated as of April 8, 2014, among Interval Acquisition Corp., as Borrower; Interval Leisure Group, Inc. and certain subsidiaries of the Borrower as Guarantors, the lenders who are party to the Amendment, and Wells Fargo Bank, National Association, as Administrative Agent for the lender.	ILG’s Current Report on Form 8‑K filed on April 8, 2014

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Exhibit	Description	Incorporated By Reference Location
10.20	Second Amendment to Credit Agreement, dated as of November 6, 2014, among Interval Acquisition Corp., as Borrower; Interval Leisure Group, Inc. and certain subsidiaries of the Borrower as Guarantors, the lenders who are party to the Amendment, and Wells Fargo Bank, National Association, as Administrative Agent for the lenders	ILG’s Current Report on Form 8‑K filed on November 7, 2014
10.21	Interval Leisure Group, Inc. Deferred Compensation Plan, effective October 1, 2014†	ILG’s Amendment No. 1 to Annual Report on Form 10‑K/A filed on April 7, 2015
10.22	Interval Leisure Group, Inc. Non‑Employee Director Stock Compensation Plan, effective May 20, 2015†	ILG’s Quarterly Report on Form 10‑Q filed on August 6, 2015
10.23	Purchase Agreement among Interval Acquisition Corp., Interval Leisure Group, Inc., the other Guarantors party thereto, and Wells Fargo Securities, LLC, dated April 2, 2015	ILG’s Current Report on Form 8‑K filed on April 10, 2015
10.24	Third Amendment to Credit Agreement, dated as of April 10, 2015, among Interval Acquisition Corp., as Borrower; Interval Leisure Group, Inc. and certain subsidiaries of the Borrower as Guarantors, the lenders who are party to the Amendment, and Wells Fargo Bank, National Association, as Administrative Agent for the lenders	ILG’s Current Report on Form 8‑K filed on April 10, 2015
10.25	Fourth Amendment to Credit Agreement, dated as of May 5, 2015, among Interval Acquisition Corp., as Borrower; Interval Leisure Group, Inc. and certain subsidiaries of the Borrower as Guarantors, the lenders who are party to the Amendment, and Wells Fargo Bank, National Association, as Administrative Agent for the lenders	ILG’s Current Report on Form 8‑K filed on May 6, 2015
10.26	Employee Matters Agreement, dated as of October 27, 2015 among Interval Leisure Group, Inc., Starwood Hotels & Resorts Worldwide, Inc. and Vistana Signature Experiences, Inc., as amended†	ILG’s Current Report on Form 8‑K filed on May 12, 2016
10.27	License, Services and Development Agreement, dated as of May 11, 2016, among Interval Leisure Group, Inc., Starwood Hotels & Resorts Worldwide, Inc. and Vistana Signature Experiences, Inc.	ILG’s Current Report on Form 8‑K filed on May 12, 2016
10.28	Noncompetition Agreement, dated as of May 11, 2016, among Starwood Hotels & Resorts Worldwide, Inc. and Vistana Signature Experiences, Inc.	ILG’s Current Report on Form 8‑K filed on May 12, 2016
10.29	Tax Matters Agreement, dated as of May 11, 2016, among Starwood Hotels & Resorts Worldwide, Inc. and Vistana Signature Experiences, Inc	ILG’s Current Report on Form 8‑K filed on May 12, 2016
10.30	Transition Services Agreement, dated as of May 11, 2016, among Starwood Hotels & Resorts Worldwide, Inc. and Interval Leisure Group, Inc.	ILG’s Current Report on Form 8‑K filed on May 12, 2016
10.31	Starwood Preferred Guest Affiliation Agreement, dated as of May 11, 2016, among Starwood Hotels & Resorts Worldwide, Inc., Preferred Guest, Inc. and Vistana Signature Experiences, Inc.	ILG’s Current Report on Form 8‑K filed on May 12, 2016
10.32	Fifth Amendment to Credit Agreement, dated as of May 17, 2016, among Interval Leisure Group, Inc., Interval Acquisition Corp., certain of its subsidiaries, Wells Fargo Bank, National Association and the lenders party thereto	ILG’s Current Report on Form 8‑K filed on May 12, 2016

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Exhibit	Description	Incorporated By Reference Location
21.1*	Subsidiaries of ILG, Inc.
23.1*	Consent of Independent Registered Public Accounting Firm
31.1*	Certification of the Chief Executive Officer pursuant to Rule 13a‑14(a) or Rule 15d‑14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes‑Oxley Act.
31.2*	Certification of the Chief Financial Officer pursuant to Rule 13a‑14(a) or Rule 15d‑14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes‑Oxley Act.
31.3*	Certification of the Chief Accounting Officer pursuant to Rule 13a‑14(a) or Rule 15d‑14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes‑Oxley Act.
32.1**	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act.
32.2**	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act.
32.3**	Certification of the Chief Accounting Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Calculation Linkbase Document
101.LAB*	XBRL Taxonomy Label Linkbase Document
101.PRE*	XBRL Taxonomy Presentation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document

†      Reflects management contracts and management and director compensatory plans

*      Filed Herewith.

**    Furnished Herewith

171

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 28, 2018.

ILG, Inc.
By:	/s/ Craig M. Nash Craig M. Nash Chairman, Chief Executive Officer and President

Pursuant to the requirements of the Securities Act of 1933, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Craig M. Nash Craig M. Nash	Chairman, President and Chief Executive Officer (Principal Executive Officer)	February 28, 2018
/s/ William L. Harvey William L. Harvey	Executive Vice President and Chief Financial Officer (Principal Financial Officer)	February 28, 2018
/s/ John A. Galea John A. Galea	Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)	February 28, 2018
/s/ David Flowers David Flowers	Director	February 28, 2018
/s/ Victoria L. Freed Victoria L. Freed	Director	February 28, 2018
/s/ Lizanne Galbreath	Director	February 28, 2018
Lizanne Galbreath
/s/ Chad Hollingsworth Chad Hollingsworth	Director	February 28, 2018
/s/ Lewis J. Korman Lewis J. Korman	Director	February 28, 2018
/s/ Thomas J. Kuhn Thomas J. Kuhn	Director	February 28, 2018
/s/ Thomas J. McInerney Thomas J. McInerney	Director	February 28, 2018
/s/ Thomas P. Murphy, Jr. Thomas P. Murphy, Jr.	Director	February 28, 2018

172

Signature	Title	Date
/s/ STEPHEN R. QUAZZO Stephen R. Quazzo	Director	February 28, 2018
/s/ SERGIO D. RIVERA Sergio D. Rivera	Director	February 28, 2018
/s/ Thomas O. RYDER Thomas O. Ryder	Director	February 28, 2018
/s/ Avy H. Stein Avy H. Stein	Director	February 28, 2018

173

Schedule II

ILG, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

			Charges		Charges
	Balance at		(Credits)		(Credits)				Balance at
	Beginning		to		to Other				End of
Description	of Period		Earnings		Accounts		Deductions		Period
	(In millions)
2017
Allowance for doubtful accounts on trade receivables(1)	$	—	$	4	$	9	$	—	$	13
Allowance for loan losses on mortgages receivable	$	22	$	35	$	(3)	$	—	$	54
Deferred tax valuation allowance	$	36	$	11	$	—	$	—	$	47
2016
Allowance for doubtful accounts on trade receivables	$	—	$	—	$	—	$	—	$	—
Allowance for loan losses on mortgages receivable	$	2	$	20	$	—	$	—	$	22
Deferred tax valuation allowance(2)	$	—	$	36	$	—	$	—	$	36
2015
Allowance for doubtful accounts on trade receivables	$	—	$	—	$	—	$	—	$	—
Allowance for loan losses on mortgages receivable	$	—	$	2	$	—	$	—	$	2
Deferred tax valuation allowance	$	—	$	—	$	—	$	—	$	—

(1) The $9 million balance  primarily relates to allowance pertaining to HOAs consolidated in the fourth quarter of 2017.

(2) Primarily related to the Vistana acquisition.

174