On September 1, 2018, (the “Acquisition Date”), we completed the ILG Acquisition. ILG is a leading provider of professionally delivered vacation experiences with a portfolio of leisure businesses ranging from vacation exchange and rental services to vacation ownership, and is the exclusive global licensee for the Hyatt, Sheraton and Westin brands in vacation ownership. The combination of our brands created a leading global provider of upper-upscale vacation ownership, exchange networks and management services with access to world-class loyalty programs and an expanded portfolio of highly demanded vacation destinations.

Shareholders of ILG received 0.165 shares of our common stock and $14.75 in cash for each share of ILG common stock. The following table presents the fair value of each class of consideration transferred at the Acquisition Date, as finalized at September 30, 2019.



(in millions, except per share amounts)
Equivalent shares of Marriott Vacations Worldwide common stock issued in exchange for ILG outstanding shares	20.5
Marriott Vacations Worldwide common stock price per share as of Acquisition Date	$	119.00
Fair value of Marriott Vacations Worldwide common stock issued in exchange for ILG outstanding shares	2,441
Cash consideration to ILG shareholders, net of cash acquired of $154 million	1,680
Fair value of ILG equity-based awards attributed to pre-combination service	64
Total consideration transferred, net of cash acquired	4,185
Noncontrolling interests	32
	$	4,217

We accounted for the ILG Acquisition as a business combination, which required us to record the assets acquired and liabilities assumed at fair value as of the Acquisition Date. The following table presents the fair values of the assets that we acquired and the liabilities that we assumed on the Acquisition Date in connection with the business combination as previously reported at December 31, 2018 and as finalized at September 30, 2019. During the first three quarters of 2019, we refined our valuation models related to certain acquired property and equipment, inventory, securitized debt and our assumptions related to certain acquired member relationship intangibles. In addition, we recorded an indemnification asset and corresponding liability for tax matters for which we believe we will be indemnified. See Footnote 5, “Income Taxes” for further information. Further, we recorded a receivable for business interruption proceeds collected and we recorded additional liabilities related to the vacation ownership business and for other tax matters.



($ in millions)	September 1, 2018 (as reported at December 31, 2018)			Adjustments			September 1, 2018 (as adjusted at September 30, 2019)
Vacation ownership notes receivable	$	753		$	—		$	753
Inventory	474			10			484
Property and equipment	374			11			385
Intangible assets	1,166			(21		)	1,145
Other assets	620			84			704
Deferred revenue	(217		)	(74		)	(291		)
Deferred taxes	(179		)	41			(138		)
Debt	(392		)	—			(392		)
Securitized debt from VIEs	(702		)	(16		)	(718		)
Other liabilities	(511		)	(94		)	(605		)
Net assets acquired	1,386			(59		)	1,327
Goodwill⁽¹⁾	2,828			62			2,890
	$	4,214		$	3		$	4,217

We acquired vacation ownership notes receivable, which consist of loans to customers who purchased vacation ownership products and chose to finance their purchase. These vacation ownership notes receivable are collateralized by the underlying vacation ownership interests (“VOIs”) and generally have terms ranging from five to 15 years. We valued vacation ownership notes receivable using a discounted cash flow model, which calculated a present value of expected future cash flows over the term of the respective vacation ownership notes receivable (Level 2). See Footnote 6 “Vacation Ownership Notes Receivable” for additional information.

We acquired inventory, which consisted of completed unsold VOIs and vacation ownership projects under construction. We valued acquired inventory using an income approach, which is primarily based on significant Level 3 assumptions, such as estimates of future income growth, capitalization rates, discount rates and capital expenditure needs of the relevant properties.

We acquired property and equipment, which included four owned hotels, information technology, ancillary business assets, furniture and equipment and land held for future development. We valued property and equipment using a combination of the income, cost, and market approaches, which are primarily based on significant Level 3 assumptions, such as estimates of future income growth, capitalization rates, discount rates and capital expenditure needs of the hotels.

We allocated the carrying amount of goodwill to our Vacation Ownership and our Exchange & Third-Party Management reporting units. The following table details the carrying amount of our goodwill at September 30, 2019 and December 31, 2018, and reflects goodwill attributed to the ILG Acquisition.



($ in millions)	Vacation Ownership Segment			Exchange & Third-Party Management Segment		Total Consolidated
Balance at December 31, 2018	$	2,448		$	380	$	2,828
Adjustments	(7		)	69		62
Balance at September 30, 2019	$	2,441		$	449	$	2,890



	Estimated Fair Value ($ in millions)		Estimated Useful Life (in years)
Member relationships	$	671	15 to 20
Management contracts	357		15 to 25
Management contracts⁽¹⁾	35		indefinite
Trade names and trademarks	82		indefinite
	$	1,145

We valued member relationships and management contracts using the multi-period excess earnings method, which is a variation of the income approach. This method estimates an intangible asset’s value based on the present value of the incremental after-tax cash flows attributable to the intangible asset. We valued trade names and trademarks using the relief-from-royalty method, which applies an estimated royalty rate to forecasted future cash flows, discounted to present value. These valuation approaches utilize Level 3 inputs.

Deferred revenue primarily relates to membership fees, which are deferred and recognized over the terms of the applicable memberships, ranging from one to five years, on a straight-line basis. Additionally, deferred revenue includes maintenance fees collected from owners, in certain cases, which are earned by the relevant property owners’ association over the applicable period. We valued deferred revenue utilizing Level 3 inputs based on a review of existing deferred revenue balances against legal performance obligations.

Deferred income taxes primarily relate to the fair value of assets and liabilities acquired, including vacation ownership notes receivable, inventory, property and equipment, intangible assets and debt. We estimated deferred income taxes based on statutory rates in the jurisdictions of the legal entities where the acquired assets and liabilities are recorded.

We valued the IAC Notes (as defined in Footnote 14 “Debt”) using a quoted market price, which is considered a Level 2 input as it is observable in the market; however these notes have only a limited trading volume and as such this fair value estimate is not necessarily indicative of the value at which the IAC Notes could be retired or transferred. The carrying value of the outstanding balance on the revolving credit facility that was acquired (the “ILG Revolving Credit Facility”) approximated fair value, as the contractual interest rate was variable plus an applicable margin based on credit rating (Level 3 input). The ILG Revolving Credit Facility was extinguished and all amounts due were repaid in full upon completion of the ILG Acquisition.

We valued securitized debt from VIEs using a discounted cash flow model. The significant assumptions in our analysis include default rates, prepayment rates, bond interest rates and other structural factors (Level 3 inputs).

The following unaudited pro forma information presents the combined results of operations of Marriott Vacations Worldwide and ILG as if we had completed the ILG Acquisition on December 30, 2016, the last day of our 2016 fiscal year, but using our fair values of assets and liabilities as of the Acquisition Date. As required by GAAP, these unaudited pro forma results do not reflect any synergies from operating efficiencies. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the ILG Acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations.



($ in millions, except per share data)	Nine Months Ended September 30, 2018
Revenues	$	3,164
Net income	$	159
Net income attributable to common shareholders	$	157
EARNINGS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS
Basic	$	3.34
Diluted	$	3.27

During the third quarter of 2019, we acquired 78 completed vacation ownership units, as well as a sales gallery, located at our Marriott Vacation Club Pulse, San Francisco resort for $58 million. We accounted for the transaction as an asset acquisition with the purchase price allocated to Inventory ($48 million) and Property and equipment ($10 million).