ILG, LLC - FORM 10-Q - May 4, 2017

Attached files

file	filename
EX-10.1 - EX-10.1 - ILG, LLC	ilg-20170331ex10195d1d9.htm
EX-32.3 - EX-32.3 - ILG, LLC	ilg-20170331ex3234705d5.htm
EX-32.2 - EX-32.2 - ILG, LLC	ilg-20170331ex32220760d.htm
EX-32.1 - EX-32.1 - ILG, LLC	ilg-20170331ex321783969.htm
EX-31.3 - EX-31.3 - ILG, LLC	ilg-20170331ex313650fde.htm
EX-31.2 - EX-31.2 - ILG, LLC	ilg-20170331ex312f0212f.htm
EX-31.1 - EX-31.1 - ILG, LLC	ilg-20170331ex31130c494.htm
EX-10.5 - EX-10.5 - ILG, LLC	ilg-20170331ex10584495c.htm
EX-10.4 - EX-10.4 - ILG, LLC	ilg-20170331ex10450c2eb.htm
EX-10.3 - EX-10.3 - ILG, LLC	ilg-20170331ex103f0e350.htm
EX-10.2 - EX-10.2 - ILG, LLC	ilg-20170331ex102a5cc7c.htm

Table of Contents

As filed with the Securities and Exchange Commission as of May 5, 2017

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q



(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 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)

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



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

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by checkmark 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. Yes ☐ No ☒

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 May 2, 2017, 124,768,184 shares of the registrant’s common stock were outstanding.

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TABLE OF CONTENTS


		Page
PART I
Item 1.	Financial Statements	3
	Condensed Consolidated Statements of Income	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statement of Equity	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	60
Item 4.	Controls and Procedures	61
PART II
Item 1.	Legal Proceedings	62
Item 1A.	Risk Factors	62
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62
Item 3-5.	Not applicable	63
Item 6.	Exhibits	64
Signatures		65

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PART I—FINANCIAL STATEMENTS

Item 1. Consolidated Financial Statements

ILG, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except share and per share data)

(Unaudited)


	Three Months Ended
	March 31,
	2017		2016
Revenues:
Service and membership related	$	126	$	112
Sales of vacation ownership products, net		110		9
Rental and ancillary services		107		26
Consumer financing		21		2
Cost reimbursements		88		37
Total revenues		452		186
Operating costs and expenses:
Cost of service and membership related sales		32		24
Cost of vacation ownership product sales		27		6
Cost of sales of rental and ancillary services		78		14
Cost of consumer financing		6		—
Cost reimbursements		88		37
Royalty fee expense		10		2
Selling and marketing expense		73		17
General and administrative expense		54		38
Amortization expense of intangibles		5		3
Depreciation expense		15		5
Total operating costs and expenses		388		146
Operating income		64		40
Other income (expense):
Interest expense		(5)		(6)
Other income, net		10		1
Equity in earnings from unconsolidated entities		1		1
Total other income (expense), net		6		(4)
Earnings before income taxes and noncontrolling interests		70		36
Income tax provision		(25)		(13)
Net income		45		23
Net income attributable to noncontrolling interests		(1)		(1)
Net income attributable to common stockholders	$	44	$	22
Earnings per share attributable to common stockholders:
Basic	$	0.36	$	0.38
Diluted	$	0.35	$	0.38
Weighted average number of shares of common stock outstanding (in 000's):
Basic		123,998		57,619
Diluted		125,582		57,954
Dividends declared per share of common stock	$	0.15	$	0.12

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

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ILG, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)


	Three Months Ended
	March 31,
	2017		2016
Net income	$	45	$	23
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax		6		(5)
Total comprehensive income, net of tax		51		18
Less: Net income attributable to noncontrolling interests, net of tax		(1)		(1)
Less: Other comprehensive income (loss) attributable to noncontrolling interests		—		(1)
Total comprehensive loss attributable to noncontrolling interests		(1)		(2)
Comprehensive income attributable to common stockholders	$	50	$	16

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

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ILG, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share data)


	(Unaudited)
	March 31,		December 31,
	2017		2016
ASSETS
Cash and cash equivalents	$	171	$	126
Restricted cash and cash equivalents (including $14 and $32 in variable interest entities, "VIEs," respectively)		66		114
Accounts receivable, net of allowance for doubtful accounts of $0.7 and $0.4, respectively		122		97
Vacation ownership mortgages receivable, net of allowance of $2 and $1, respectively (including a net $55 and $59 in VIEs, respectively)		84		87
Vacation ownership inventory		295		197
Prepaid income taxes		37		47
Prepaid expenses		79		49
Other current assets (including $3 of interest receivable in VIEs)		31		29
Total current assets		885		746
Restricted cash and cash equivalents (including $2 in VIEs)		4		4
Vacation ownership mortgages receivable, net of allowance of $27 and $21, respectively (including a net $357 and $370 in VIEs, respectively)		627		632
Vacation ownership inventory		134		189
Investments in unconsolidated entities		60		59
Property and equipment, net		604		580
Goodwill		559		558
Intangible assets, net		449		453
Deferred income taxes		10		9
Other non-current assets		72		74
TOTAL ASSETS	$	3,404	$	3,304
LIABILITIES AND EQUITY
LIABILITIES:
Accounts payable, trade	$	55	$	64
Current portion of securitized debt from VIEs		105		111
Deferred revenue		130		87
Accrued compensation and benefits		66		70
Accrued expenses and other current liabilities (including a net $1 of interest payable in VIEs)		222		187
Total current liabilities		578		519
Long-term debt		601		580
Securitized debt from VIEs		293		319
Income taxes payable, non-current		5		5
Other long-term liabilities		48		47
Deferred revenue		82		79
Deferred income taxes		173		161
Total liabilities		1,780		1,710
Redeemable noncontrolling interest		1		1
Commitments and contingencies
STOCKHOLDERS' 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 133,822,999 and 133,545,864 shares, respectively		1		1
Treasury stock— 9,037,627 and 8,878,489 shares at cost, respectively		(139)		(136)
Additional paid-in capital		1,263		1,262
Retained earnings		517		492
Accumulated other comprehensive loss		(46)		(52)
Total ILG stockholders’ equity		1,596		1,567
Noncontrolling interests		27		26
Total equity		1,623		1,593
TOTAL LIABILITIES AND EQUITY	$	3,404	$	3,304

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

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ILG, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In millions, except share data)

(Unaudited)


																	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, 2016	$	1,593	$	26	$	1,567	$	1	133,545,864	$	(136)	8,878,489	$	1,262	$	492	$	(52)
Net income		45		1		44		—	—		—	—		—		44		—
Other comprehensive loss, net of tax		6		—		6		—	—		—	—		—	—	—	—	6
Non-cash compensation expense		6		—		6		—	—		—	—		6	—	—	—	—
Issuance of common stock upon vesting of RSUs, net of withholding taxes		(6)		—		(6)		—	277,047		—	—		(6)	—	—	—	—
Issuance of restricted stock for converted shares in connection with the acquisition of Vistana		—		—		—		—	(2,535)		—	—		—	—	—	—	—
Dividends declared on common stock		(18)		—		(18)		—	2,623		—	—		1	—	(19)	—	—
Treasury stock purchases		(3)		—		(3)		—	—		(3)	159,138		—		—		—
Balance as of March 31, 2017	$	1,623	$	27	$	1,596	$	1	133,822,999	$	(139)	9,037,627	$	1,263	$	517	$	(46)

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

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ILG, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


	Three Months Ended March 31,
	2017		2016
Cash flows from operating activities:
Net income	$	45	$	23
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization expense of intangibles		5		3
Amortization of debt issuance costs		1		—
Depreciation expense		15		5
Allowance for losses on originated loans		7		—
Allowance for impairment on acquired loans		2		—
Accretion of mortgages receivable		2		—
Non-cash compensation expense		6		3
Deferred income taxes		12		1
Equity in earnings from unconsolidated entities		(1)		(1)
Changes in operating assets and liabilities:
Restricted cash		30		5
Accounts receivable		(25)		(36)
Vacation ownership mortgages receivable (originations)		(75)		(6)
Vacation ownership mortgages receivable (collections)		69		5
Vacation ownership inventory (additions)		(59)		—
Vacation ownership inventory (disposals)		24		2
Prepaid expenses and other current assets		(32)		(4)
Prepaid income taxes and income taxes payable		10		12
Accounts payable and other current liabilities		16		3
Deferred income		44		23
Other, net		(8)		2
Net cash provided by operating activities		88		40
Cash flows from investing activities:
Capital expenditures		(22)		(7)
Investments in unconsolidated entities		—		(5)
Investment in financing receivables		—		(2)
Other		—		1
Net cash used in investing activities		(22)		(13)
Cash flows from financing activities:
Borrowings (payments) on revolving credit facility, net		20		(13)
Payments on securitized debt		(32)		—
Decrease in restricted cash		18		—
Purchases of treasury stock		(3)		—
Dividend payments to stockholders		(19)		(7)
Withholding taxes on vesting of restricted stock units		(4)		(1)
Net cash used in financing activities		(20)		(21)
Effect of exchange rate changes on cash and cash equivalents		(1)		(2)
Net increase in cash and cash equivalents		45		4
Cash and cash equivalents at beginning of period		126		93
Cash and cash equivalents at end of period	$	171	$	97

Supplemental disclosures of cash flow information:
Interest paid, net of amounts capitalized	$	2	$	1
Income taxes paid, net of refunds	$	3	$	—

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

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ILG, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2017

(Unaudited)

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.

Vacation Ownership 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 Vacation Ownership 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), and VRI Europe.

Exchange and Rental 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, homeowners’ associations (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

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission. Accordingly, these financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of ILG’s management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Interim results are not indicative of the results that may be expected for a full year.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of ILG, our wholly‑owned subsidiaries, and companies in which we have a controlling interest, including variable interest entities (“VIEs”) where

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we are the primary beneficiary in accordance with consolidation guidance. All significant intercompany balances and transactions have been eliminated in these condensed 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.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our 2016 Annual Report on Form 10‑K.

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, 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

Our significant accounting policies were described in Note 2 to our audited consolidated financial statements included in our 2016 Annual Report on Form 10-K. There have been no significant changes in our significant accounting policies for the three months ended March 31, 2017.

Accounting Estimates

ILG’s management is 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 condensed 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 membership costs;

and the determination of stock‑based compensation.

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

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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 computations of diluted earnings per share available to common stockholders do not include approximately 0.8 million RSUs and restricted shares for the three months ended March 31, 2017 and 0.6 million RSUs for the three months ended March 31, 2016, 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):


	Three Months Ended March 31,
	2017	2016
Basic weighted average shares of common stock outstanding	123,998	57,619
Net effect of common stock equivalents assumed to be vested related to RSUs and restricted stock	1,584	335
Diluted weighted average shares of common stock outstanding	125,582	57,954

Earnings per share for the three month ended March 31, 2017 and 2016 are as follows (in thousands, except per share data):


		Three Months Ended
		March 31,
		2017		2016
Net income attributable to common stockholders	$	44,211	$	22,179
Weighted average number of shares of common stock outstanding:
Basic		123,998		57,619
Diluted		125,582		57,954
Earnings per share attributable to common stockholders:
Basic	$	0.36	$	0.38
Diluted	$	0.35	$	0.38

Recent Accounting Pronouncements: General

With the exception of those discussed below, there are no recent accounting pronouncements or changes in accounting pronouncements since the recent accounting pronouncements described in our 2016 Annual Report on Form 10 K 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 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 is issuing 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 are currently assessing the future impact of this accounting standard update on our consolidated financial statements.

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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 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. We are currently assessing the future impact of this accounting standard update 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 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 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 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. We are currently assessing the future impact of this accounting standard update 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

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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 are currently assessing the future impact of this new accounting standard update 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 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).

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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.

We are currently in the process of completing our qualitative evaluation of ASU 2014-09, including 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 are reviewing customer contracts and applying the five-step model of the new standard to each contact type identified that’s associated to our material revenue streams and will compare the results to our current accounting practices.

We currently expect possible areas of impact will include (i) timing adjustments to membership fee revenue resulting from estimating variable consideration, (ii) gross versus net presentation changes which would not impact profitability, (iii) capitalization of certain incremental costs to obtain a contract and (iv) the instances in which we can apply the percentage of completion revenue recognition method when construction of a vacation ownership project is not complete. We continue to evaluate the potential effects of adopting this standard and expect to complete our evaluation from a qualitative perspective during the first half of 2017. Consequently, given the complexities of this new standard, we are unable to determine, at this time, whether adoption of this standard will have a material impact on our consolidated financial position, results of operations, cash flows or related disclosures.

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. A determination as to whether we will apply the retrospective or modified retrospective adoption method will be made once our qualitative evaluation is complete and we commence quantifying the expected impacts.

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 is being 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 condensed consolidated financial statements.

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In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718) Improvements to Employee Share-Based Payments Accounting” (“ASU 2016-03”), 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 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, during the current period, ILG included a net benefit of $1 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 will 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 Condensed Consolidated Statements of Cash Flows and the prior period was not adjusted. Overall, the adoption of this guidance did not have a material impact on our condensed 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 condensed 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 to these condensed consolidated financial statements. As part of the acquisition, ILG acquired 100% of the voting equity interests of Vistana and issued 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 condensed 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 condensed 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.

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Purchase Price Allocation

The following table presents the preliminary 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)		Revised Preliminary PPA(4)
Cash	$	45	$	—	$	45
Vacation ownership inventory		221		7		228
Vacation ownership mortgages receivable		712		(19)		693
Other current assets		143		1		144
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)		34		(163)
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 $163 million is presented within Other income (expense), net, in our consolidated statement of income for the year ended December 31, 2016. 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 resulting from our ongoing activities, 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 is considered closed as of December 31, 2016 for all balance sheet items except those that are tax related, as discussed further below.

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 condensed consolidated balance sheets as of March 31, 2017 and December 31, 2016. The measurement period with respect to this acquisition was considered closed as of December 31, 2016, with the exception of tax related items which are pending additional analysis of tax attributes and tax returns, which will not be made available until sometime in 2017. Consequently, with respect to tax related items, the purchase price allocation disclosed herein (as well as the related gain on bargain purchase) remains provisional at this time and subject to further adjustment

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to reflect new information obtained about factors and circumstances that existed as of the acquisition date that if known would have affected the measurement of the amounts recognized as of that date, while the measurement period remains open.

Results of operations

Related to the Vistana acquisition, revenue and net income of $266 million and $22 million, respectively, were recognized in our condensed consolidated statement of income for the three months ended March 31, 2017.

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 three months ended March 31, 2016 are based on the historical financial statements of ILG and Vistana, 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 periods presented. Pro forma adjustments are tax-effected at ILG's estimated statutory tax rate of 37.2% for the 2016 period.


	Three Months Ended March 31,
(In millions, except per share data)	2017		2016
Revenue	$	452	$	431
Net income attributable to common stockholders	$	44	$	37
Earnings per share:
Basic	$	0.36	$	0.29
Diluted	$	0.35	$	0.29

NOTE 4—RESTRICTED CASH

Restricted cash consists of the following (in millions):


	March 31,		December 31,
	2017		2016
Escrow deposits on vacation ownership products	$	38	$	67
Securitization VIEs		16		34
Other		16		17
Total restricted cash	$	70	$	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.

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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 March 31, 2017 and December 31, 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.

Vacation ownership mortgages receivable carrying amounts as of March 31, 2017 and December 31, 2016 were as follows (in millions):


	March 31,						December 31,
	2017						2016
	Securitized		Unsecuritized(2)		Total		Securitized		Unsecuritized(2)		Total
Acquired vacation ownership mortgages receivable(1)	$	398	$	104	$	502	$	419	$	127	$	546
Originated vacation ownership mortgages receivable(1)		16		224		240		11		184		195
Less: allowance for impairment on acquired loans		—		(2)		(2)		—		—		—
Less: allowance for losses on originated loans		(2)		(27)		(29)		(1)		(21)		(22)
Net vacation ownership mortgages receivable	$	412	$	299	$	711	$	429	$	290	$	719

(1)

At various interest rates with varying payment terms through 2031 for acquired receivables and for originated receivables

(2)

As of March 31, 2017, $9 million of unsecuritized vacation ownership receivables were not eligible for securitization. Additionally, during the quarter 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 fair value of our acquired loans as of the respective acquisition dates were 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 condensed 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 March 31, 2017 and December 31, 2016, the contractual outstanding balance of the acquired loans, which represents contractually-owed future principal amounts, was $419 million and $466 million, respectively.

The table below (in millions) presents a rollforward from December 31, 2016 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.


	Three Months Ended
Accretable Yield	March 31, 2017
Balance, beginning of period	$	157
Accretion		(15)
Reclassification from nonaccretable difference		1
Balance, end of period	$	143
Nonaccretable difference, end of period balance	$	36

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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.

Vacation ownership mortgages receivable as of March 31, 2017 are scheduled to mature as follows (in millions):


	Vacation Ownership Mortgages Receivable
	Acquired				Originated
Twelve month period ending March 31,	Securitized Loans		Unsecuritized Loans		Securitized Loans		Unsecuritized Loans		Total
2018	$	43	$	12	$	2	$	18	$	75
2019		42		11		1		14		68
2020		42		10		1		15		68
2021		41		10		1		17		69
2022		38		11		2		19		70
2022 and thereafter		116		44		9		141		310
Total		322		98		16		224		660
Plus: net premium on acquired loans(1)		76		6		—		—		82
Less: allowance for impairment on acquired loans		—		(2)		—		—		(2)
Less: allowance for losses on originated loans		—		—		(2)		(27)		(29)
Net vacation ownership mortgages receivable	$	398	$	102	$	14	$	197	$	711
Weighted average stated interest rate as of March 31, 2017		13.4%				13.5%
Range of stated interest rates as of March 31, 2017		9.9% to 15.9%				10.9% to 15.9%

(1)

The difference between the contractual principal amount of acquired loans of $419 million and the net carrying amount of $500 million as of March 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 condensed 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 March 31, 2017 allowance for loan losses of $29 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 condensed consolidated income statement during the period.

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.

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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 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 March 31, 2017 the weighted average FICO score within our consolidated loan pools was 712 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 March 31, 2017 was 10.4%.

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 March 31, 2017
	700+		600-699		<600		No Score(1)		Total
Hyatt	$	21	$	14	$	2	$	1	$	38
Sheraton		163		145		13		64		385
Westin		184		89		4		30		307
Other		6		1		-		3		10
Vacation ownership mortgages receivable, gross	$	374	$	249	$	19	$	98	$	740

(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 March 31, 2017 and December 31, 2016 for our originated loans is as follows (in millions):


					Delinquent							Defaulted(1)
	Receivables		Current		30-59 Days		60-89 Days		90-119 Days		≥120			Total Delinquent & Defaulted
Originated Loans
March 31, 2017	$	240	$	232	$	3	$	2	$	1	$	2	$	8
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 condensed 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 March 31, 2017 and December 31, 2016, vacation ownership inventory is comprised of the following (in millions):


	March 31,		December 31,
	2017		2016
Completed unsold vacation ownership interests (current asset)	$	295	$	197
Vacation ownership products construction in process (non-current asset)		134		189
Total vacation ownership inventory	$	429	$	386

The increase in inventory balances as of March 31, 2017 from December 31, 2016 principally pertains to our ongoing development activities, in particular related to The Westin Los Cabos Resort Villas & Spa and The Westin Nanea Ocean Villas.

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 condensed consolidated statement of income, was $1 million each for the three months ended March 31, 2017 and 2016.

Our ownership percentages of the Maui Timeshare Venture and Harborside investments are 33% and 50%, respectively, and ownership percentages of the other investments range from 25% to 50%. The carrying value of our investments in unconsolidated entities as of March 31, 2017 and December 31, 2016 were as follows (in millions):


	March 31,		December 31,
	2017		2016
Maui Timeshare Venture, LLC	$	43	$	42
Harborside at Atlantis joint venture		12		12
Other		5		5
Total	$	60	$	59

The other line item largely represents our 50% ownership investment in Great Destinations Inc., a fee-for-service, real-estate brokerage firm that specializes in reselling resort timeshare properties on behalf of independent homeowners’ associations. In April 2017, ILG gained the ability to appoint the majority of the Board thereby acquiring control. Consequently, we expect to consolidate the business into our consolidated financial statements as of the date control was obtained.

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NOTE 8—PROPERTY AND EQUIPMENT

Property and equipment, net is as follows (in millions):


	March 31,		December 31,
	2017		2016
Computer equipment	$	38	$	37
Capitalized software (including internally developed software)		154		150
Land, buildings and leasehold improvements		372		368
Land held for development		55		56
Furniture, fixtures and other equipment		54		52
Construction projects in progress		65		47
Other projects in progress		49		37
Less: accumulated depreciation and amortization		(183)		(167)
Total property and equipment, net	$	604	$	580

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.

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, as of March 31, 2017 and December 31, 2016 (in millions):


							Foreign
	Balance as of						Currency		Goodwill		Balance as of
	January 1, 2017		Additions		Deductions		Translation		Impairment		March 31, 2017
VO management	$	35	$	—	$	—	$	1	$	—	$	36
VO sales and financing		7		—		—		—		—		7
Exchange		496		—		—		—		—		496
Rental		20		—		—		—		—		20
Total	$	558	$	—	$	—	$	1	$	—	$	559


							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

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Other Intangible Assets

The balance of other intangible assets, net as of March 31, 2017 and December 31, 2016 is as follows (in millions):


	March 31,		December 31,
	2017		2016
Intangible assets with indefinite lives	$	114	$	114
Intangible assets with definite lives, net		335		339
Total intangible assets, net	$	449	$	453

The $4 million decrease in our indefinite‑lived intangible assets during the three months ended March 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 March 31, 2017 and December 31, 2016, intangible assets with indefinite lives relate to the following (in millions):


		March 31,		December 31,
		2017		2016
Resort management contracts	$	70	$	70
Trade names and trademarks		44		44
Total	$	114	$	114

At March 31, 2017, intangible assets with definite lives relate to the following (in millions):


	Cost		Accumulated Amortization		Net
Customer relationships	$	287	$	(138)	$	149
Purchase agreements		76		(76)		—
Resort management contracts		245		(61)		184
Technology		25		(25)		—
Other		23		(21)		2
	$	656	$	(321)	$	335

At December 31, 2016, intangible assets with definite lives relate to the following (in millions):



			Accumulated
	Cost		Amortization		Net
Customer relationships	$	287	$	(137)	$	150
Purchase agreements		76		(76)		—
Resort management contracts		245		(58)		187
Technology		25		(25)		—
Other		23		(21)		2
Total	$	656	$	(317)	$	339

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 three months ended March 31, 2017 and the year ended December 31, 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.

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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 $5 million and $3 million for the three months ended March 31, 2017 and 2016, respectively. Based on the March 31, 2017 balances, amortization expense for the next five years and thereafter is estimated to be as follows (in millions):


Twelve month period ending March 31,
2018	$	20
2019		20
2020		19
2021		19
2022		16
2023 and thereafter		241
	$	335

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 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 Vistana’s 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 condensed consolidated balance sheets (in millions):


	Vacation Ownership Notes Receivable Securitization (1)
	March 31,		December 31,
	2017		2016
Assets
Restricted cash	$	16	$	34
Interest receivable		3		3
Vacation ownership mortgages receivable, net		412		429
Total	$	431	$	466

Liabilities
Interest payable	$	1	$	1
Securitized debt		398		430
Total	$	399	$	431

(1)

The creditors of these entities do not have general recourse to us.

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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 $11 million from December 31, 2016 through March 31, 2017. The net cash flows generated by 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 combined statements of cash flows. The repayment of our securitized debt from VIEs is reflected in the financing activities section of our combined statements of cash flows. Refer to Note 13 of these condensed consolidated financial statements for additional discussion on our securitized debt from VIEs.

NOTE 11—ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

The following table summarizes the general components of accrued expenses and other current liabilities (in millions):


	March 31,		December 31,
	2017		2016
General accrued expenses	$	72	$	62
Accrued other taxes		21		13
Customer deposits		80		71
Accrued membership related costs		23		18
Accrued construction costs		19		16
Member deposits		7		7
Accrued expenses and other current liabilities	$	222	$	187

NOTE 12—DEFERRED REVENUE

The following table summarized the general components of deferred revenue (in millions):


	March 31,		December 31,
	2017		2016
Deferred membership-related revenue	$	203	$	157
Other		9		9
Total	$	212	$	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. The increase in deferred membership-related revenue in the first quarter of 2017 pertains to the timing of annual membership renewals. Other deferred revenue pertains primarily to revenue deferred related to percentage of completion accounting, incentives given in connection with a VOI sale, annual maintenance fees collected that are not yet earned, and other items.

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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):


	March 31,		December 31,
	2017		2016
2011 securitization, interest rates ranging from 3.67% to 4.82%, maturing 2025	$	40	$	44
2012 securitization, interest rates ranging from 2.00% to 2.76%, maturing 2023		42		46
2016 securitization, interest rates ranging from 2.54% to 2.74%, maturing 2024		320		345
Unamortized debt issuance costs (2016 securitization)		(4)		(5)
Total securitized vacation ownership debt, net of debt issuance costs	$	398	$	430

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 transaction expenses, fund required reserves, pay down a portion of the borrowings outstanding under our $600 million revolving credit facility 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 three months ended March 31, 2017, interest expense associated with securitized vacation ownership debt totaled $3 million, and is reflected within consumer financing expenses in our condensed 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—Vacation Ownership Mortgages Receivable 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 the three months ended March 31, 2017, total unamortized debt issuance costs pertaining to the 2016 securitization were $4 million, which is presented as a reduction of securitized debt from VIEs in the accompanying condensed consolidated balance sheet. 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):


	March 31,		December 31,
	2017		2016
Revolving credit facility (interest rate of 2.74% at March 31, 2017 and interest rate of 2.27% at December 31, 2016)	$	260	$	240
5.625% senior notes		350		350
Unamortized debt issuance costs (revolving credit facility)		(4)		(4)
Unamortized debt issuance costs (senior notes)		(5)		(6)
Total long-term debt, net of debt issuance costs	$	601	$	580

Credit Facility

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

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in connection with the acquisition of Vistana in May of 2016. There were no other material changes under this amendment.

As of March 31, 2017, there was $260 million outstanding with $328 million available to be drawn, net of any 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 ranged from 1.25% to 2.5%, or the Base Rate as defined in the amended credit agreement plus a predetermined margin that ranged from 0.25% to 1.5%, in each case based on our consolidated total leverage ratio. At March 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 ranged from 0.25% to 0.40% per annum based on our leverage ratio and the commitment fee was 0.275% at quarter end.

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

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. As of March 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 and 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 meet the minimum fixed charge coverage ratio as of March 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, 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 March 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 0.80 and 16.35, respectively.

Interest Expense and Debt Issuance Costs

Interest expense for the three months ended March 31, 2017 and 2016 was $5 million and $6 million, respectively. Interest expense is net of $2 million of capitalized interest for the three months ended March 31, 2017,

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primarily relating to our vacation ownership projects under development and internally-developed software. Capitalized interest was a negligible amount for the three months ended March 31, 2016.

As of March 31, 2017, total unamortized debt issuance costs were $9 million, net of $5 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.

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 three months ended March 31, 2017. Our financial instruments are detailed in the following table.


	March 31, 2017				December 31, 2016
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	(In millions)
Cash and cash equivalents	$	171	$	171	$	126	$	126
Restricted cash and cash equivalents		70		70		118		118
Financing receivables		19		19		19		19
Vacation ownership mortgages receivable		711		735		719		737
Investments in marketable securities		15		15		14		14
Securitized debt		398		399		430		425
Revolving credit facility(1)		(256)		(260)		(236)		(240)
Senior notes(1)		(345)		(358)		(344)		(361)

(1)

The carrying value of our revolving credit facility and senior notes as of March 31, 2017 include $4 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 condensed 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).

The financing receivables as of March 31, 2017 are presented in our condensed 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 condensed consolidated statements of income for the three months ended March 31, 2017 and 2016.

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.

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Investments in marketable securities consist of marketable securities (mutual funds) related to deferred compensation plans which are funded in a Rabbi trust as of March 31, 2017 and December 31, 2016 and classified as other noncurrent assets in the accompanying condensed 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 $15 million and $14 million as of March 31, 2017 and December 31, 2016, respectively, based on quoted market prices in active markets for identical assets (Level 1). We recognized a $1 million unrealized trading gain each for the three months ended March 31, 2017 and March 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 condensed 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 March 31, 2017 and December 31, 2016 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 March 31, 2017 and December 31, 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 March 31, 2017, there were 133.8 million shares of ILG common stock issued, of which 124.8 million are outstanding with 9.0 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 March 31, 2017 and December 31, 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.

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 2017, our Board of Directors declared a quarterly dividend payment of $0.15 per share paid in March 2017 of $19 million.

In May 2017, our Board of Directors declared a $0.15 per share dividend payable June 20, 2017 to shareholders of record on June 6, 2017.

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. The rights attach to any additional shares of common stock issued after June 22, 2009. These rights, which trade with the shares of our common stock, currently are not exercisable. Under the rights plan, these rights will be exercisable if a person or group acquires or commences a tender or exchange offer for 15% or more of our common stock. The rights plan provides certain

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exceptions for acquisitions by Liberty Interactive Corporation in accordance with an agreement entered into with ILG in connection with its spin‑off from IAC/InterActiveCorp (IAC). If the rights become exercisable, each right will permit its holder, other than the “acquiring person,” to purchase from us shares of common stock at a 50% discount to the then prevailing market price. As a result, the rights will cause substantial dilution to a person or group that becomes an “acquiring person” on terms not approved by our Board of Directors.

Share Repurchase Program

In November 2016, the Board authorized repurchases of up to $50 million of ILG common stock, with $49 million available for repurchases as of December 31, 2016. During the three months ended March 31, 2017, we repurchased 159,000 shares of common stock for approximately $3 million, including commissions. The remaining availability for future repurchases of our common stock was $46 million as of March 31, 2017. Acquired shares of our common stock are held as treasury shares carried at cost on our condensed consolidated balance sheets.

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, restrictions under our Tax Matters Agreement with Starwood, 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 three months ended March 31, 2017, 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 condensed 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 March 31, 2017 and December 31, 2016, this noncontrolling interest amounts to $27 million and $26 million, respectively, and is presented on our condensed consolidated balance sheets as a component of equity. The change from December 31, 2016 to March 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 March 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.

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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 $3 million and $1 million for the three months ended March 31, 2017 and 2016, 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 63,654 share units were outstanding at March 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.

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 their 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 March 31, 2017, the fair value of the investments in the Rabbi trust was $15 million, which is recorded in other non-current assets with the corresponding deferred compensation liability recorded in other long-term liabilities in the condensed consolidated balance sheets. Unrealized gains or losses are offset by a corresponding adjustment to compensation expense, all within general and administrative expense in our condensed consolidated income statements.

NOTE 18—STOCK‑BASED COMPENSATION

On May 21, 2013, ILG adopted the Interval Leisure Group, Inc. 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 and with the value of each award equal to the fair value of ILG common stock at the date of grant. Each RSU 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. As of March 31, 2017, 3 million shares were available for future issuance under the 2013 Stock and Incentive Compensation Plan.

The Compensation Committee granted during the first quarter of 2017, 870,000 RSUs generally vesting over three years and during the first quarter of 2016, 750,000 RSUs generally vesting over four years, to certain officers, board of directors and employees of ILG and its subsidiaries. Of these RSUs granted in 2017 and 2016, approximately 229,000 and 140,000, respectively, cliff vest in three years and approximately 213,000 and 105,000, 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.

For the 2017 and 2016 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

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simulation analysis to estimate a per unit grant date fair value of $28.23 for 2017 and $13.13 for 2016, 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 three months ended March 31, 2017 and 2016 was $6 million and $3 million, respectively. At March 31, 2017, there was approximately $39 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 2.4 years.

The amount of stock‑based compensation expense recognized in the condensed 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. 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 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 condensed consolidated statements of income for the three months ended March 31, 2017 and 2016 (in millions):


	Three Months Ended March 31,
	2017		2016
Cost of sales	$	1	$	—
Selling and marketing expense		1		—
General and administrative expense		4		3
Non-cash compensation expense	$	6	$	3

The following table summarizes RSU activity during the three months ended March 31, 2017:


		Weighted-Average
		Grant Date
	Shares	Fair Value
	(In millions)
Non-vested RSUs at January 1, 2017	3	$	16.71
Granted	1		20.24
Vested	(1)		18.18
Forfeited	—		32.30
Non-vested RSUs at March 31, 2017	3	$	17.25

NOTE 19—INCOME TAXES

ILG calculates its interim income tax provision in accordance with ASC 740, “Income Taxes.” At the end of each interim period, ILG makes its best estimate of the annual expected effective tax rate and applies that rate to its ordinary year‑to‑date earnings or loss. The income tax provision or benefit related to significant, unusual, or extraordinary items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or the liabilities for uncertain tax positions is recognized in the interim period in which the change occurs.

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The computation of the annual expected effective tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of income (or loss) earned and taxed in foreign jurisdictions, permanent and temporary differences, and the likelihood of the realization of deferred tax assets generated in the current year. The accounting estimates used to compute the provision or benefit for income taxes may change as new events occur, more experience is acquired, additional information is obtained or ILG’s tax environment changes. To the extent that the estimated annual effective tax rate changes during a quarter, the effect of the change on prior quarters is included in income tax expense in the quarter in which the change occurs.

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.

For the three months ended March 31, 2017 and 2016, ILG recorded income tax provisions for continuing operations of $25 million and $13 million, respectively, which represent effective tax rates of 35.9% and 35.7% for the respective periods. These tax rates are higher than the federal statutory rate of 35% due principally to state and local income taxes and other tax items partially offset by foreign income taxed at lower rates.

As of March 31, 2017, there were no material changes to ILG’s unrecognized tax benefits and related interest. 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 for Vistana related to the pre-close period that are the obligation of its former parent have not been recorded. ILG recognizes interest and, if applicable, penalties related to unrecognized tax benefits in income tax expense.

ILG files income tax returns in the U.S. federal jurisdiction and various state, local, and foreign jurisdictions. As of March 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 2012 has closed. ILG’s consolidated state tax return for the open tax years, 2013 through 2015, is currently under examination by the State of Florida. 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 audit in Mexico for the tax year ended December 31, 2012. Under the Tax Matters Agreement, Starwood indemnifies ILG for all income tax liabilities and related interest and penalties for the pre-close period.

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,

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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 condensed consolidated statements of income are not impacted by this cross‑segment allocation.

Information on reportable segments and reconciliation to consolidated operating income is as follows (in millions):


	Three Months Ended
	March 31,
	2017		2016
Vacation Ownership:
Resort operations revenue	$	58	$	5
Management fee revenue		30		21
Sales of vacation ownership products, net		110		9
Consumer financing revenue		21		2
Cost reimbursement revenue		62		15
Total revenue		281		52
Cost of service and membership related		13		8
Cost of sales of vacation ownership products		27		6
Cost of rental and ancillary services		52		2
Cost of consumer financing		6		—
Cost reimbursements		62		15
Total cost of sales		160		31
Royalty fee expense		10		1
Selling and marketing expense		59		3
General and administrative expense		24		14
Amortization expense of intangibles		2		1
Depreciation expense		10		—
Segment operating income	$	16	$	2


	Three Months Ended
	March 31,
	2017		2016
Exchange and Rental:
Transaction revenue	$	59	$	58
Membership fee revenue		35		30
Ancillary member revenue		2		2
Total member revenue		96		90
Club rental revenue		30		3
Other revenue		5		6
Rental management revenue		14		13
Cost reimbursement revenue		26		22
Total Exchange and Rental revenue		171		134
Cost of service and membership related sales		19		16
Cost of sales of rental and ancillary services		26		12
Cost reimbursements		26		22
Total cost of sales		71		50
Royalty fee expense		—		1
Selling and marketing expense		14		14
General and administrative expense		30		24
Amortization expense of intangibles		3		2
Depreciation expense		5		5
Segment operating income	$	48	$	38

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	Three Months Ended
	March 31,
	2017		2016
Consolidated:
Revenue	$	452	$	186
Cost of sales		231		81
Operating expenses		157		65
Operating income	$	64	$	40

Selected financial information by reporting segment is presented below (in millions).


	March 31,		December 31,
	2017		2016
Total Assets:
Vacation Ownership	$	2,286	$	2,220
Exchange and Rental		1,118		1,084
Total	$	3,404	$	3,304

Geographic Information

We conduct operations through offices in the U.S. and 14 other countries. For the three months ended March 31, 2017 and 2016 revenue is sourced from over 100 countries worldwide. Other than the United States and Europe (for 2016 period), revenue sourced from any individual country or geographic region did not exceed 10% of consolidated revenue for the three months ended March 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).


	Three Months Ended
	March 31,
	2017		2016
Revenue:
United States	$	380	$	156
Europe		16		17
All other countries(1)		56		13
Total	$	452	$	186

(1)

Includes countries within the following continents: Africa, Asia, Australia, North America and South America.


	March 31,		December 31,
	2017		2016
Long-lived assets (excluding goodwill and intangible assets):
United States	$	479	$	469
Mexico		122		107
Europe		3		4
Total	$	604	$	580

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

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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. 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.

Purchase Obligations and Other Commitments

Other items, such as certain purchase commitments and guarantees are not recognized as liabilities in our condensed 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 March 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.


	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)	$	610	$	—	$	—	$	260	$	350
Debt interest(a)		153		23		55		49		26
Purchase obligations and other commitments(b)		82		34		30		18		—
Vacation ownership development commitments(c)		11		11		—		—		—
Operating leases		161		21		34		23		83
Total contractual obligations	$	1,017	$	89	$	119	$	350	$	459

(a)Debt principal and projected debt interest represent principal and interest to be paid on our senior notes and revolving credit facility based on the balance outstanding as of March 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 March 31, 2017. Interest on the revolving credit facility is calculated using the prevailing rates as of March 31, 2017.

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

(c)Vacation ownership development commitments represents our estimate of remaining costs associated with completing the phases of our vacation ownership projects currently in presales and accounted for under the percentage of completion method.

At March 31, 2017, guarantees, surety bonds and letters of credit totaled $115 million, with the highest annual amount of $78 million occurring in year one. The total includes a guarantee by us of up to $37 million of the construction loan for the Maui project; however, as of March 31, 2017 only a negligible amount of this loan remained outstanding. The total also includes maximum exposure under guarantees of $35 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 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 March 31, 2017 future amounts are not expected to be material either individually or in the aggregate.

Our operating and 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 we are subsequently reimbursed. As such, we are the primary obligor and may be liable for unreimbursed costs. As of March 31, 2017, amounts pending reimbursements are not material.

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Vacation Ownership Development Commitments

With respect to vacation ownership projects under development, we estimate the cost associated with completing the phases of our vacation ownership projects currently in presales and accounted for under the percentage of completion method is approximately $11 million at March 31, 2017. This estimate is based on our current development plans, which remain subject to change, and we expect the phases currently under development will be completed in 2017. Only certain of our vacation ownership projects under development are currently in presales.

Letters of Credit

Additionally, as of March 31, 2017, our letters of credit totaled $12 million and were principally related to our Vacation Ownership sales and financing activities. More specifically, these letters of credit provide alternate assurance on amounts required to be 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.

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 Hotels & Resorts Worldwide LLC (“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. 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. The amended complaint 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 breach of the original purchase agreements with certain owners, alleged breach of an unspecified duty of good faith and fair dealing, and seeks certain declaratory relief in connection with the Starpoints conversion program and the exchange program at the Club. 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 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.

NOTE 22— 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.

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The following tables present consolidating financial information as of March 31, 2017 and December 31, 2016 and for the three months ended March 31, 2017 and 2016 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).


Balance Sheet as of March 31, 2017	ILG		Interval Acquisition Corp.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Total Eliminations		ILG Consolidated
Current assets	$	1	$	3	$	615	$	266	$		$	885
Property and equipment, net		1		-		430		173				604
Goodwill and intangible assets, net		-		267		643		98				1,008
Investments in subsidiaries		672		1,356		780				(2,808)		-
Other assets		-		-		447		460				907
Total assets	$	674	$	1,626	$	2,915	$	997	$	(2,808)	$	3,404

Current liabilities	$	2	$	9	$	387	$	180	$		$	578
Other long-term liabilities						275		326				601
Long term debt				601		-		-				601
Intercompany liabilities (receivables) / equity		(924)		344		896		(316)				-
Redeemable noncontrolling interest						1						1
ILG stockholders' equity		1,596		672		1,356		780		(2,808)		1,596
Noncontrolling interests								27				27
Total liabilities and equity	$	674	$	1,626	$	2,915	$	997	$	(2,808)	$	3,404


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		648		96				1,011
Investments in subsidiaries		619		1,289		390		-		(2,298)		-
Other assets		-		-		461		506				967
Total assets	$	621	$	1,558	$	2,410	$	1,013	$	(2,298)	$	3,304

Current liabilities	$	1	$	5	$	345	$	168	$		$	519
Other long-term liabilities						266		345				611
Long term debt				580								580
Intercompany liabilities (receivables) / equity		(947)		354		509		84				-
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

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Statement of Income for the Three Months Ended March 31, 2017	ILG		Interval Acquisition Corp.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Total Eliminations		ILG Consolidated
Revenue	$	-	$	-	$	379	$	73	$		$	452
Operating expenses		(2)		-		(333)		(53)				(388)
Interest (expense) income, net		-		(6)		2		(1)				(5)
Other income (expense), net (1)		45		49		17		10		(111)		10
Income tax (provision) benefit		1		2		(17)		(11)				(25)
Equity in earnings from unconsolidated entities		-				1						1
Net income		44		45		49		18		(111)		45
Net loss (income) attributable to noncontrolling interests		-		-		-		(1)		-		(1)
Net income attributable to common stockholders	$	44	$	45	$	49	$	17	$	(111)	$	44


Statement of Income for the Three Months Ended March 31, 2016	ILG		Interval Acquisition Corp.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Total Eliminations		ILG Consolidated
Revenue	$	-	$	-	$	160	$	26	$	-	$	186
Operating expenses		(1)		-		(124)		(21)		-		(146)
Interest (expense) income, net		-		(7)		1		-		-		(6)
Other income (expense), net (1)		23		27		3		1		(53)		1
Income tax (provision) benefit		-		3		(14)		(2)		-		(13)
Equity in earnings from unconsolidated entities		-		-		1		-		-		1
Net income		22		23		27		4		(53)		23
Net loss (income) attributable to noncontrolling interests		-		-		-		(1)		-		(1)
Net income attributable to common stockholders	$	22	$	23	$	27	$	3	$	(53)	$	22


Statement of Cash Flows for the Three Months Ended March 31, 2017	ILG		Interval Acquisition Corp.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		ILG Consolidated
Cash flows provided by operating activities	$	-	$	1	$	10	$	77	$	88
Cash flows used in investing activities		-		-		(17)		(5)		(22)
Cash flows provided by (used in) financing activities		-		(1)		24		(43)		(20)
Effect of exchange rate changes on cash and cash equivalents		-		-		-		(1)		(1)
Cash and cash equivalents at beginning of period		-		-		38		88		126
Cash and cash equivalents at end of period	$	-	$	-	$	55	$	116	$	171


Statement of Cash Flows for the Three Months Ended March 31, 2016	ILG		ILG		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		ILG Consolidated
Cash flows provided by operating activities	$	-	$	1	$	35	$	4	$	40
Cash flows used in investing activities		-		-		(13)		-		(13)
Cash flows used in financing activities		-		(1)		(15)		(5)		(21)
Effect of exchange rate changes on cash and cash equivalents		-		-		-		(2)		(2)
Cash and cash equivalents at beginning of period		-		-		14		79		93
Cash and cash equivalents at end of period	$	-	$	-	$	21	$	76	$	97

(1)

Includes equity in net income of wholly-owned subsidiaries.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward‑Looking Information

This quarterly report on Form 10‑Q contains “forward‑looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The use of words such as “anticipates,” “estimates,” “expects,” “intends,” “plans” and “believes,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” 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 report for a variety of reasons, including, among others: (1) adverse trends in economic conditions generally or in the vacation ownership, vacation rental and travel industries, or adverse events or trends in key vacation destinations, (2) adverse changes to, or interruptions in, relationships with third parties, (3) lack of available financing for, or insolvency or consolidation of developers, (4) decreased demand from prospective purchasers of vacation interests, (5) travel related health concerns, (6) regulatory changes, (7) our ability to compete effectively and successfully and to add new products and services, (8) our ability to successfully manage and integrate acquisitions, including Vistana, (9) the occurrence of a termination event under the master license agreement with Starwood or Hyatt, (10) our ability to market VOIs successfully and efficiently, (11) impairment of ILG’s assets, (12) the restrictive covenants in our revolving credit facility and indenture; (13) business interruptions in connection with technology systems, (14) the ability of managed homeowners associations to collect sufficient maintenance fees, (15) third parties not repaying advances or extensions of credit, (16) fluctuations in currency exchange rates, (17) actions of Starwood or any successor of Starwood that affect the reputation of the licensed marks, the offerings of or access to Starwood's brands and programs, and (18) our ability to expand successfully in international markets and manage risks specific to international operations. Certain of these and other risks and uncertainties are discussed in our filings with the SEC, including 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.

GENERAL

The following Management Discussion and Analysis provides a narrative of the results of operations and financial condition of ILG for the three months ended March 31, 2017. This section should be read in conjunction with the condensed consolidated financial statements and accompanying notes included in this report as well as our 2016 Annual Report on Form 10‑K, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). This discussion includes the following sections:

Management Overview

Results of Operations

Financial Position, Liquidity and Capital Resources

Critical Accounting Policies and Estimates

ILG’s Principles of Financial Reporting

Reconciliations of Non‑GAAP Measures

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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, VRI Europe. The Exchange and Rental operating segment consists of Interval, the Vistana Signature Network, the Hyatt Residence Club, the TPI 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 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.

Vacation Ownership Services

Revenue from the Vacation Ownership segment is derived principally from sales of VOIs by Vistana and HVO, interest income earned for financing these sales, fees for vacation ownership resort and homeowners’ association 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 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 three months ended March 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, was 4.3% as of March 31, 2017 and 4.4% as of December 31, 2016.

We have exclusive global master license agreements with Starwood Hotels & Resorts Worldwide, LLC (Starwood) for use of the Sheraton® and Westin® brands in vacation ownership and with Hyatt Hotels Corporation for the use of the Hyatt® brand 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 the United States, Canada and Mexico. 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 (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 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 International network

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(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 March 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 approximately 3,000 resorts located in over 80 countries and approximately 1.8 million members.

Interval typically enters into exclusive 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 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 enrolled purchasers with the ability to exchange their VOI occupancy rights (whether denominated in weeks or points) for comparable, alternative accomodations 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 20 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. 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. In these cases, the operating expenses for the rental operation 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 retains the balance (if any) as its fee or makes up the deficit. In other instances, fees for rental services generally consist of commissions earned on rentals. 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

International revenue increased by 138% to $72 million in the three months ended March 31, 2017 compared to the same period in 2016, principally due to including Vistana and its Mexican and Caribbean operations. As a percentage of our total revenue, international revenue remained consistent in the three months ended March 31, 2017, at 16%, when compared to the same period in 2016.

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Other Factors Affecting Results

On May 11, 2016, we acquired the vacation ownership business of Starwood Hotels & Resorts Worldwide, or Starwood, 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 will affect the year-over-year comparability of our results of operations for the year ended December 31, 2017 with respect to comparisons against the pre-acquisition interim periods of the prior year. In September 2016, Starwood was acquired by Marriott International, Inc.

Vacation Ownership

The Vistana acquisition has increased our focus on sales and financing of VOIs, which drives a number of recurring fee-for-service revenues such as management fees and the club exchange revenues discussed further below. Effective 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.

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 provides 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.

Over the past year, we have been investing in our sales platform, including sales and marketing talent, and have been developing new sales centers in Key West, Los Cabos and Maui, as well as reopening our sales center in Bonita Springs.

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 than historically, on existing owners instead of new buyers. During this period, ILG has broadened its exchange platform to include both external exchange networks and proprietary developer networks.

Our 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

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programs. Membership mix as of March 31, 2017 included 55% traditional and 45% corporate members, compared to 57% and 43%, respectively, as of March 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 Hyatt Gold Passport® programs, as applicable. These rentals and our Aqua-Aston business are sensitive to general economic conditions, inventory supply and pricing in the applicable markets

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, 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. In April 2017, we opened The Westin Los Cabos Resort Villas & Spa and The Westin Nanea Ocean Villas. For the remainder of 2017, we expect to open additional phases at the following resorts:

The Westin Nanea Ocean Villas

The Westin Desert Willow Villas, Palm Desert

The Westin St. John Resort Villas

Hyatt Wild Oak Ranch

Additionally, we opened sales centers in April 2017 in Maui and Los Cabos, and expect sales centers in Key West and Bonita Springs to be completed in 2017. As we expand our sales distribution, we have faced competition for talent.

RESULTS OF OPERATIONS

Operating Statistics


		Three Months Ended March 31,
		2017	% Change		2016

Vacation Ownership
Total timeshare contract sales (in millions)(1)	$	137	NM	$	26
Consolidated timeshare contract sales (in millions)(2)	$	117	NM	$	7
Average transaction price(3)	$	18,481	1%	$	18,362
Volume per guest(4)	$	3,179	40%	$	2,270
Tour flow(5)		36,776	NM		3,049

Exchange and Rental
Total active members at end of period (000's) (6)		1,829	0%		1,824
Average revenue per member (7)	$	52.12	6%	$	49.36

Including Vistana as if acquired January 1, 2016:

Vacation Ownership
Total timeshare contract sales (in millions)(1)	$	137	3%	$	133
Consolidated timeshare contract sales (in millions)(2)	$	117	4%	$	112
Average transaction price(3)	$	18,481	2%	$	18,151
Volume per guest(4)	$	3,179	(5)%	$	3,330
Tour flow(5)		36,776	9%		33,691

Exchange and Rental
Average revenue per member (7)	$	52.12	(2)%	$	53.28

(1)

Represents total timeshare interests sold at consolidated and unconsolidated projects pursuant to purchase agreements, 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.

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(2)

Represents total timeshare interests sold at consolidated projects pursuant to purchase agreements, 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.

(3)

Represents consolidated timeshare contract sales divided by the net number of transactions during the period.

(4)

Represents consolidated timeshare contract sales divided by tour flow during the period.

(5)

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

(6)

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.

(7)

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.

Revenue

For the three months ended March 31, 2017 compared to the three months ended March 31, 2016.


	Three Months Ended March 31,
	2017		% Change	2016
	(Dollars in millions)
Vacation Ownership
Resort operations revenue	$	58	NM	$	5
Management fee revenue		30	43%		21
Sales of vacation ownership products, net		110	NM		9
Consumer financing revenue		21	NM		2
Cost reimbursement revenue		62	NM		15
Total Vacation Ownership revenue		281	NM		52
Exchange and Rental
Transaction revenue		59	2%		58
Membership fee revenue		35	17%		30
Ancillary member revenue		2	0%		2
Total member revenue		96	7%		90
Club rental revenue		30	NM		3
Other revenue		5	(17)%		6
Rental management revenue		14	8%		13
Cost reimbursement revenue		26	18%		22
Total Exchange and Rental revenue		171	28%		134
Total ILG revenue	$	452	143%	$	186

Revenue for the three months ended March 31, 2017 of $452 million increased $266 million, or 143%, compared to revenue of $186 million in 2016 period. Vacation Ownership segment revenue of $281 million increased $229 million, or 440%, while Exchange and Rental segment revenue of $171 million increased $37 million, or 28%, in the quarter compared to prior year.

Vacation Ownership

Vacation Ownership segment revenue, excluding cost reimbursements, increased $182 million, or 492%, in the first quarter of 2017 compared to 2016. This increase over the prior period resulted from the Vistana acquisition. Excluding Vistana and cost reimbursements, segment revenue decreased by $1 million, or 3%, driven by lower GAAP recognition of sales of consolidated vacation ownership products. However, consolidated timeshare contract sales were up $1 million year-over-year.

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Exchange and Rental

Exchange and Rental segment revenue, excluding cost reimbursements, increased $33 million, or 29%, in the quarter compared to 2016. This increase is due to the inclusion of Vistana in our results subsequent to the acquisition. Excluding Vistana and cost reimbursements, segment revenue in the quarter was largely in-line with the prior year. The quarter’s activity was unfavorably impacted by the continued shift in the percentage mix of our membership base from traditional to corporate members. This was offset largely by an increase in rental management revenue of $1 million, or 8% primarily attributable to higher occupancy and average daily rates.

Cost of Sales and Royalty Fee Expense

For the three months ended March 31, 2017 compared to the three months ended March 31, 2016


	Three Months Ended
	March 31,
	2017		% Change	2016
	(Dollars in millions)
Vacation Ownership
Cost of service and membership related	$	13	63%	$	8
Cost of sales of vacation ownership products		27	NM		6
Cost of rental and ancillary services		52	NM		2
Cost of consumer financing		6	NM		—
Cost reimbursements		62	NM		15
Total Vacation Ownership cost of sales		160	NM		31
Exchange and Rental
Cost of service and membership related sales		19	19%		16
Cost of sales of rental and ancillary services		26	117%		12
Cost reimbursements		26	18%		22
Total Exchange and Rental cost of sales		71	42%		50
Total ILG cost of sales	$	231	185%	$	81

Royalty fee expense	$	10	NM	$	2

Margin metrics:
ILG:
Gross margin		49%	(13)%		56%
Gross margin without cost reimbursement revenue/expenses		61%	(14)%		70%
Vacation Ownership:
Gross margin		43%	7%		40%
Gross margin without cost reimbursement revenue/expenses		55%	(3)%		57%
Exchange and Rental:
Gross margin		58%	(7)%		63%
Gross margin without cost reimbursement revenue/expenses		69%	(8)%		75%

Cost of sales is organized on our condensed 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.

Inventory costs associated with vacation ownership sales;

Costs related to our resort operations activities, including maintenance fees on unsold inventory and subsidy payments to HOAs;

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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 VO managed properties and costs of rental inventory used primarily for Getaways included within the Exchange and Rental segment.

Cost of sales for the three months ended March 31, 2017 increased $150 million from 2016 due to the inclusion of Vistana’s results subsequent to our acquisition. This increase consists of $129 million from our Vacation Ownership segment and $21 million from our Exchange and Rental segment. Overall gross margin was 49% in the quarter.

Vacation Ownership

The increase of $82 million in cost of sales, excluding cost reimbursements, from the Vacation Ownership segment was attributable to the inclusion of Vistana in our results. Excluding cost reimbursements and Vistana, cost of sales in this segment was consistent with the prior year. Gross margin for this segment excluding Vistana and cost reimbursements decreased 198 basis points to 55% in the quarter compared to 57% last year.

Exchange and Rental

Gross margin for the Exchange and Rental segment in the period, excluding cost reimbursements, decreased 603 basis points to 69% when compared to the prior year. Excluding cost reimbursements and Vistana, cost of sales were lower by $2 million, or 6%, and gross margin improved by 126 basis points in quarter compared with the prior year. The decrease reflects lower costs of rental and ancillary services.

Royalty Fee Expense

Royalty fee expense for the quarter pertains to costs incurred pursuant to our exclusive global licenses for the Hyatt®, Sheraton® and Westin® brands in vacation ownership. The increase of $8 million in royalty fee expense in period compared to prior year pertains to the inclusion of Vistana in our results.

Selling and Marketing Expense

For the three months ended March 31, 2017 compared to the three months ended March 31, 2016


	Three Months Ended
	March 31,
	2017		% Change	2016
	(Dollars in millions)
Vacation Ownership	$	59	NM	$	3
Exchange and Rental		14	0%		14
Total ILG selling and marketing expense	$	73	NM	$	17
As a percentage of total revenue		16%	77%		9%
As a percentage of total revenue excluding cost reimbursement revenue		20%	76%		11%

Selling and marketing expense for our Vacation Ownership segment primarily relates to 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.

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Selling and marketing expense in the first quarter of 2017 increased $56 million compared to last year, principally due to the inclusion of Vistana’s results. As a percentage of total revenue excluding cost reimbursements, sales and marketing expense during the quarter was higher by 127 basis points from last year when excluding Vistana due to continued investments in our VOI sales and marketing platform in the quarter.

General and Administrative Expense

For the three months ended March 31, 2017 compared to the three months ended March 31, 2016


	Three Months Ended
	March 31,
	2017		% Change	2016
	(Dollars in millions)
General and administrative expense	$	54	42%	$	38
As a percentage of total revenue		12%	(42)%		20%
As a percentage of total revenue excluding cost reimbursement revenue		15%	(42)%		26%
As a percentage of total revenue excluding cost reimbursement revenue and acquisition related costs		14%	(40)%		23%

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.

The increase in general and administrative expense in the first quarter of 2017 is primarily attributable to the inclusion of Vistana. Excluding Vistana as well as acquisition related costs attributable to the transaction, general and administrative expense in the quarter was lower by $2 million compared to prior year. As a percentage of revenue excluding cost reimbursements, acquisition related expenses and Vistana, general and administrative expense was largely consistent with the prior year.

Amortization Expense of Intangibles

For the three months ended March 31, 2017 compared to the three months ended March 31, 2016


	Three Months Ended
	March 31,

	2017		% Change	2016
	(Dollars in millions)
Amortization expense of intangibles	$	5	67%	$	3
As a percentage of total revenue		1%	(31)%		2%
As a percentage of total revenue excluding cost reimbursement revenue		1%	(32)%		2%

Amortization expense of intangibles for the first quarter of 2017 increased $2 million over 2016 due to incremental amortization expense pertaining to the Vistana acquisition in May 2016.

Depreciation Expense

For the three months ended March 31, 2017 compared to the three months ended March 31, 2016



	2017		% Change	2016
	(Dollars in millions)
Depreciation expense	$	15	200%	$	5
As a percentage of total revenue		3%	23%		3%
As a percentage of total revenue excluding cost reimbursement revenue		4%	23%		3%

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Depreciation expense for the first quarter of 2017 increased $10 million over 2016 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 March 31, 2016. These other depreciable assets pertain primarily to software and related IT hardware.

Operating Income

For the three months ended March 31, 2017 compared to the three months ended March 31, 2016


	Three Months Ended
	March 31,
	2017		% Change	2016

	(Dollars in millions)
Vacation Ownership	$	16	NM	$	2
Exchange and Rental		48	26%		38
Total ILG operating income	$	64	60%	$	40
As a percentage of total revenue		14%	(34)%		22%
As a percentage of total revenue excluding cost reimbursement revenue		18%	(35)%		27%
As a percentage of total revenue excluding cost reimbursement revenue and acquisition related costs		18%	(36)%		29%

Operating income in the first quarter of 2017 increased $24 million from 2016, consisting of a $14 million increase from Vacation Ownership and a $10 million increase from Exchange and Rental.

Operating income for our Vacation Ownership segment of $16 million was higher by $14 million compared to prior year, reflecting the inclusion of Vistana in our results. 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 $48 million was higher by $10 million compared to the prior year, reflecting the favorable inclusion of Vistana in our results compared to prior year. Excluding Vistana and acquisition related expenses, this segment’s operating income would have been lower by $1 million compared to prior 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.” Prior period amounts have been recast to conform to the current period definition of Adjusted EBITDA.

For the three months ended March 31, 2017 compared to the three months ended March 31, 2016


	Three Months Ended
	March 31,
	2017		% Change	2016
	(Dollars in millions)
Vacation Ownership	$	34	NM	$	7
Exchange and Rental		59	26%		47
Total ILG adjusted EBITDA	$	93	72%	$	54
As a percentage of total revenue		21%	(29)%		29%
As a percentage of total revenue excluding cost reimbursement revenue		26%	(30)%		36%

Adjusted EBITDA for the three months ended March 31, 2017 increased by $39 million, or 72%, from 2016, consisting of increases of $27 million from our Vacation Ownership segment and $12 million from our Exchange and Rental segment.

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Adjusted EBITDA of $34 million from our Vacation Ownership segment rose by $27 million, or 386%, from the prior year due to the Vistana acquisition. Excluding Vistana, adjusted EBITDA in this segment would have been in-line with the prior year.

Adjusted EBITDA of $59 million from our Exchange and Rental segment rose by $12 million, or 26%, compared to the prior year due to the Vistana acquisition. Excluding Vistana, segment adjusted EBITDA was lower by $1 million from last year in part due to higher employee related costs.

Other Income (Expense), net

For the three months ended March 31, 2017 compared to the three months ended March 31, 2016


	Three Months Ended
	March 31,
	2017		% Change	2016
	(Dollars in millions)
Interest expense	$	(5)	(17)%	$	(6)
Equity in earnings from unconsolidated entities	$	1	0%	$	1
Other income (expense), net	$	10	NM	$	1

Interest expense in the quarter was consistent with the prior year and relates to interest and amortization of debt issuance costs on our amended and restated revolving credit facility and our $350 million senior notes.

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 7 to our condensed consolidated financial statements for related discussion.

Other income, net primarily relates to net gains and losses on foreign currency exchange related to certain foreign intercompany loans and excess cash held by foreign subsidiaries in currencies other than their functional currency. Non‑operating foreign exchange net gains were $10 million and $1 million in the first quarter of 2017 and 2016, respectively. The favorable fluctuations in in the quarter were primarily driven by U.S. dollar denominated intercompany loan positions held at March 31, 2017 which were affected by the weaker dollar compared to the Mexican peso, partly offset by the remeasurement of U.S. dollar denominated excess cash positions held by our Mexican subsidiary at year-end. The favorable fluctuations during the first quarter of 2016 were primarily driven by U.S. dollar positions held at March 31, 2016 affected primarily by the stronger dollar compared to the Egyptian Pound.

Income Tax Provision

For the three months ended March 31, 2017 compared to the three months ended March 31, 2016

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FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2017, we had $171 million of cash and cash equivalents, including $119 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, $81 million is held in foreign jurisdictions, principally the United Kingdom and Mexico. Earnings of foreign subsidiaries, except Venezuela, are permanently reinvested. Additional tax provisions would be required should such earnings be repatriated to the U.S. 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 Venezuela and Argentina, which limit our ability to immediately access cash through repatriations. These currency restrictions had no impact on our overall liquidity during the three months ended March 31, 2017 and, as of that date, the respective cash balances were immaterial to our overall cash on hand.

Cash generated by operations has been our primary source of liquidity. 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 the securitization market may be impacted by macroeconomic and other factors outside of our control.

Cash Flows Discussion

Operating Activities

Net cash provided by operating activities increased to $89 million in the three months ended March 31, 2017 from $40 million in the same period of 2016. The increase of $49 million from 2016 was principally due to higher net cash receipts largely attributable to the inclusion of Vistana, partly offset by inventory spend of $57 million at Vistana in the quarter in large part related to on-going development activities at The Westin Nanea Ocean Villas, and to higher income taxes paid of $3 million.

Investing Activities

Net cash used in investing activities of $22 million in the three months ended March 31, 2017 pertain to capital expenditures, primarily related to investments by Vistana in assets used mainly to support marketing and sales locations and resort operations (including sales centers), and IT initiatives. Net cash used in investing activities of $13 million in the three months ended March 31, 2016 primarily pertains to capital expenditures, mostly related to IT initiatives, and to an investment in an unconsolidated entity for $5 million, as well as an investment in financing receivables of $2 million.

Financing Activities

Net cash used in financing activities of $21 million in the three months ended March 31, 2017 relates to repayments of $32 million on securitized debt, cash dividend payments to ILG stockholders of $19 million, withholding taxes on the vesting of restricted stock units and restricted stock of $5 million, and repurchases of our common stock at market prices totaling $3 million, including commissions, which settled during the three months. These uses of cash were partially offset by net borrowings of $20 million on our revolving credit facility and a net decrease of $18 million in financing-related restricted cash. Net cash used in financing activities of $21 million in the three months ended March 31, 2016 related to net principal payments of $13 million on our revolving credit facility, cash dividend payments of $7 million, and withholding taxes on the vesting of restricted stock units of $1 million.

Revolving Credit Facility

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in connection with the acquisition of Vistana in May of 2016. There were no other material changes under this amendment.

As of March 31, 2017, borrowings outstanding under the revolving credit facility amounted to $260 million, with $328 million available to be drawn, net of outstanding 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 March 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 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

VOI Term Securitization

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 were backed by vacation ownership loans and had 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%.

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Free Cash Flow

Free cash flow is a non‑GAAP measure and is defined in “ILG’s Principles of Financial Reporting.” For the three months ended March 31, 2017 and 2016, free cash flow was $54 million and $34 million, respectively. The change is mainly a result of the variance in net cash provided by operating activities and capital expenditures as discussed above.

Dividends and Share Repurchases

In February 2017, our Board of Directors declared a quarterly dividend payment of $0.15 per share paid in March 2017 of $19 million. In May 2017, our Board of Directors declared a $0.15 per share dividend payable June 20, 2017 to shareholders of record on June 6, 2017. Based on the number of shares of common stock outstanding as of March 31, 2017, at a dividend of $0.15 per share, the anticipated cash outflow would be $19 million in the second quarter of 2017. We currently expect to declare and pay quarterly dividends of similar amounts per share.

In November 2016, the Board authorized repurchases of up to $50 million of ILG common stock, $49 million of which was remaining for future repurchases as of December 31, 2016. During the three months ended March 31, 2017, we repurchased 159,000 shares for approximately $3 million, including commissions, with $46 million available for future repurchases as of quarter-end.

Acquired shares of our common stock are held as treasury shares carried at cost on our condensed 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 March 31, 2017, guarantees, surety bonds and letters of credit totaled $115 million. The total includes a guarantee by us of up to $37 million of the construction loan for the Maui project. This amount represents the maximum exposure under the guarantee related to this construction loan from a legal perspective; however, our reasonable expectation of our exposure under this guarantee based on the agreements among guarantors is proportionally reduced by our ownership percentage in the Maui project to $0.2 million as of March 31, 2017. Additionally, the total also includes maximum exposure under guarantees of $35 million primarily relating 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 March 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 March 31, 2017, amounts pending reimbursements are not significant.

As of March 31, 2017, our letters of credit totaled $12 million and were principally related to our Vacation Ownership sales and financing activities. More specifically, these letters of credit 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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Contractual obligations and commercial commitments at March 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)	$	610	$	—	$	—	$	260	$	350
Debt interest(a)		153		23		55		49		26
Purchase obligations and other commitments(b)		82		34		30		18		—
Vacation ownership development commitments(c)		11		11		—		—		—
Operating leases		161		21		34		23		83
Total contractual obligations	$	1,017	$	89	$	119	$	350	$	459


	Amount of Commitment Expiration Per Period
	Total
	Amounts		Less than						More than
Other Commercial Commitments(d)	Committed		1 Year		1 ‑ 3 Years		3 ‑ 5 Years		5 Years
	(In millions)
Guarantees, surety bonds and letters of credit	$	115	$	78	$	33	$	4	$	—

(d)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 March 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 condensed consolidated financial statements for a description of recent accounting pronouncements.

Seasonality

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

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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 condensed 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. We have discussed those estimates that we believe are critical and required the use of significant judgment and use of estimates that could have a significant impact on our financial statements in our 2016 Annual Report on Form 10‑K and in Note 2 of the condensed consolidated financial statements herein. There have been no material changes to our critical accounting policies in the interim period other than the updates to our significant accounting policies described in Note 2 of the condensed consolidated financial statements herein.

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.

Adjusted EBITDA is defined as EBITDA excluding, if applicable: (1) non‑cash compensation expense, (2) goodwill and asset impairments, (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 (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.

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.

Contract sales represents total VOIs sold at consolidated and unconsolidated projects pursuant to purchase agreements, 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.

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

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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.

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 through the first full calendar year subsequent to an acquisition.

Other special items consists of other items that we believe are not related to our core business operations.

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RECONCILIATIONS OF NON‑GAAP MEASURES

The following tables reconcile EBITDA and adjusted EBITDA to operating income for our operating segments and to net income attributable to common stockholders in total for the three months ended March 31, 2017 and 2016 (in millions). The noncontrolling interest relates to the Vacation Ownership segment.


	Three Months Ended March 31, 2017
	Vacation		Exchange
	Ownership		and Rental		Consolidated
Adjusted EBITDA	$	34	$	59	$	93
Non-cash compensation expense		(3)		(3)		(6)
Other non-operating income (expense), net		11		(1)		10
Acquisition related and restructuring costs		(3)		—		(3)
Asset impairments		(2)		—		(2)
Impact of purchase accounting		2		—		2
EBITDA		39		55		94
Amortization expense of intangibles		(2)		(3)		(5)
Depreciation expense		(10)		(5)		(15)
Less: Net income attributable to noncontrolling interest		1		—		1
Equity in earnings from unconsolidated entities		(1)		—		(1)
Less: Other non-operating income (expense), net		(11)		1		(10)
Operating income	$	16	$	48		64
Interest income						—
Interest expense						(5)
Other non-operating income, net						10
Equity in earnings from unconsolidated entities						1
Income tax provision						(25)
Net income						45
Net income attributable to noncontrolling interest						(1)
Net income attributable to common stockholders					$	44


		Three Months Ended March 31, 2016
		Vacation		Exchange
		Ownership		and Rental		Consolidated
Adjusted EBITDA	$		7	$	47	$	54
Non-cash compensation expense			(1)		(2)		(3)
Other non-operating income, net			—		1		1
Acquisition related and restructuring costs			(3)		—		(3)
EBITDA			3		46		49
Amortization expense of intangibles			(1)		(2)		(3)
Depreciation expense			—		(5)		(5)
Less: Net income attributable to noncontrolling interest			1		—		1
Equity in earnings from unconsolidated entities			(1)		—		(1)
Less: Other non-operating income, net			—		(1)		(1)
Operating income	$		2	$	38		40
Interest income							—
Interest expense							(6)
Other non-operating income, net							1
Equity in earnings from unconsolidated entities							1
Income tax provision							(13)
Net income							23
Net income attributable to noncontrolling interest							(1)
Net income attributable to common stockholders						$	22

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


	Vacation Ownership
	Three Months Ended
	March 31,
	2017		2016
Revenue	$	281	$	52
Revenue excluding cost reimbursement revenue		219		37
Operating income		16		2
Adjusted EBITDA		34		7
Margin computations
Operating income margin		6%		4%
Operating income margin excluding cost reimbursement revenue		7%		5%
Adjusted EBITDA margin		12%		13%
Adjusted EBITDA margin excluding cost reimbursement revenue		16%		19%


	Exchange and Rental
	Three Months Ended
	March 31,
	2017		2016
Revenue	$	171	$	134
Revenue excluding cost reimbursement revenue		145		112
Operating income		48		38
Adjusted EBITDA		59		47
Margin computations
Operating income margin		28%		28%
Operating income margin excluding cost reimbursement revenue		33%		34%
Adjusted EBITDA margin		35%		35%
Adjusted EBITDA margin excluding cost reimbursement revenue		41%		42%

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


	Three Months Ended
	March 31,
	2017		2016
Operating activities before inventory spend	$	145	$	40
Inventory spend		(57)		-
Net cash provided by operating activities		88		40
Repayments on securitizations		(32)		-
Proceeds from securitizations, net of debt issuance costs		-		-
Net changes in financing-related restricted cash		18		-
Net securitization activities		(14)		-
Capital expenditures		(22)		(7)
Acquisition-related and restructuring payments		2		1
Free cash flow	$	54	$	34

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


	Three Months Ended
	March 31,
	2017		2016
Net income attributable to common stockholders	$	44	$	22
Acquisition related and restructuring costs		3		3
Other non-operating foreign currency remeasurements		(10)		—
Impact of purchase accounting		2		—
Asset impairments		2		—
Income tax impact on adjusting items(1)		1		(1)
Adjusted net income	$	42	$	24
Earnings per share attributable to common stockholders:
Basic	$	0.36	$	0.38
Diluted	$	0.35	$	0.38
Adjusted earnings per share:
Basic	$	0.33	$	0.41
Diluted	$	0.33	$	0.41
Weighted average number of common stock outstanding:
Basic		123,998		57,619
Diluted		125,582		57,954

(1)

All adjusting items were tax effected using the applicable projected annual effective tax rate since none of the adjustments were discrete to the periods.

The following table reconcile contract sales to sales of vacation ownership products, net, for the three months ended March 31, 2017 and 2016 (in millions).


	Three Months Ended
	March 31,
	2017		2016
Total timeshare contract sales	$	137	$	26
Provision for loan losses		(7)		—
Contract sales of unconsolidated projects		(20)		(19)
Percentage of completion		(3)		—
Other items and adjustments(1)		3		2
Sales of vacation ownership products, net	$	110	$	9
Provision for loan losses		7		—
Percentage of completion		3		—
Other items and adjustments(1)		(3)		(2)
Consolidated timeshare contract sales	$	117	$	7

(1)

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

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The following tables represent reconciliations of our revenues between our condensed consolidated income statement format and our segment presentation format for the three months ended March 31, 2017 and 2016 (in millions).


		For the Three Months Ended March 31, 2017												For the Three Months Ended March 31, 2016
		Service and membership related		Sales of vacation ownership products		Rental and ancillary services		Consumer financing		Cost reimbursements		Total		Service and membership related		Sales of vacation ownership products		Rental and ancillary services		Consumer financing		Cost reimbursements		Total
Vacation Ownership
Resort operations revenue	$	-	$	-	$	58	$	-	$	-	$	58	$	-	$	-	$	5	$	-	$	-	$	5
Management fee revenue		30		-		-		-		-		30		21		-		-		-		-		21
Sales of vacation ownership products, net		-		110		-		-		-		110		-		9		-		-		-		9
Consumer financing revenue		-		-		-		21		-		21		-		-		-		2		-		2
Cost reimbursement revenue		-		-		-		-		62		62		-		-		-		-		15		15
Total Vacation Ownership revenue		30		110		58		21		62		281		21		9		5		2		15		52
Exchange and Rental
Transaction revenue		42		-		17		-		-		59		40		-		18		-		-		58
Membership fee revenue		35		-		-		-		-		35		30		-		-		-		-		30
Ancillary member revenue		2		-		-		-		-		2		2		-		-		-		-		2
Total member revenue		79		-		17		-		-		96		72		-		18		-		-		90
Club rental revenue		-		-		30		-		-		30		-		-		3		-		-		3
Other revenue		4		-		1		-		-		5		6		-		-		-		-		6
Rental management revenue		13		-		1		-		-		14		13		-		-		-		-		13
Cost reimbursement revenue		-		-		-		-		26		26		-		-		-		-		22		22
Total Exchange and Rental revenue		96		-		49		-		26		171		91		-		21		-		22		134
Total ILG revenue	$	126	$	110	$	107	$	21	$	88	$	452	$	112	$	9	$	26	$	2	$	37	$	186

Definition of ILG’s Revenue Line Items

Club rental revenue – Represents rentals generated by the Vistana Signature Network and Hyatt Residence Club mainly to monetize inventory to provide exchanges through hotel loyalty programs.

Consumer financing revenue – Includes interest income on vacation ownership mortgages receivable, as well as loan servicing fees from unconsolidated entities.

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 fee revenue - Represents vacation ownership property management revenue earned by our Vacation Ownership segment exclusive of cost reimbursements.

Membership fee revenue - Represents fees paid for membership in the Interval Network, Vistana Signature Network and Hyatt Residence Club.

Other revenue - 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.

Rental and ancillary – Includes our rental activities such as Getaways, club rentals and owned hotel revenues, as well as associated resort ancillary revenues.

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

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Resort operations revenue - Pertains to our revenue generating activities from rentals of owned vacation ownership inventory (exclusive of lead-generation) along with ancillary resort services, in addition to rental and ancillary revenue generated by owned hotels.

Sales of vacation ownership products, net – Includes sales of vacation ownership products, net, for HVO and Vistana.

Service and membership revenue – Revenue associated with providing services including membership-related activities and exchange transactions, as well as vacation ownership and vacation rental management businesses.

Transaction revenue – Interval Network, Vistana Signature Network and Hyatt Residence Club transactional and service fees paid primarily for exchanges, Getaways, reservation servicing and related transactions.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Exchange Risk

We conduct business in certain foreign markets, primarily in the United Kingdom, Mexico and 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 three months ended March 31, 2017 resulted in a minimal net loss for both the three months ended March 31, 2017 and 2016. This activity is attributable to foreign currency remeasurements of operating assets and liabilities denominated in a currency other than their functional currency.

Non‑operating foreign exchange net gains were $10 million and $1 million in the first quarter of 2017 and 2016, respectively. The favorable fluctuations in in the quarter were primarily driven by U.S. dollar denominated intercompany loan positions held at March 31, 2017 which were affected by the weaker dollar compared to the Mexican peso, partly offset by the remeasurement of U.S. dollar denominated excess cash positions held by our Mexican subsidiary at year-end. The favorable fluctuations during the first quarter of 2016 was primarily driven by U.S. dollar positions held at March 31, 2016 affected primarily by the stronger dollar compared to the Egyptian Pound.

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 three months ended March 31, 2017 would result in an approximate change to revenue of $4 million. There have been no material quantitative changes in market risk exposures since December 31, 2016.

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 March 31, 2017, the applicable margin was 1.75% per annum for LIBOR revolving loans and 0.75% per annum for Base Rate loans. As of March 31, 2017, we had $260 million outstanding under our revolving credit facility; a

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hypothetical 100 basis point change in interest rates would result in an approximate change to interest expense of $1 million for the three months ended March 31, 2017. While we currently 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% as well as variable interest rates earned on our cash balances, as well as future securitizations are expected to be at fixed rates of interest.

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.

Item 4. 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.

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 report that have materially affected, or are reasonably likely to materially affect, such control. In connection with the May 2016 acquisition of Vistana, we have been reviewing and working to strengthen standards, systems, procedures and controls at Vistana. We are continuing to integrate Vistana into our overall control over financial reporting, as a result, there have been changes to internal controls over financial reporting during our most recent completed quarter that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

See description of legal proceedings under litigation in Note 21 to the condensed consolidated financial statements.

Item 1A. Risk Factors

See Part I, Item IA., “Risk Factors,” of ILG’s 2016 Annual Report on Form 10-K, for a detailed discussion

of the risk factors affecting ILG. There have been no material changes from the risk factors described in the Annual

Report, with the following clarifications.

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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Unregistered Sale of Securities. None

(b) Use of Proceeds. Not applicable

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(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers: The following table sets forth information with respect to purchases of shares of our common stock made during the quarter ended March 31, 2017 by or on behalf of ILG or any “affiliated purchaser,” as 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)
January 2017	159,138	$	17.90	159,138	$	45,928,910
February 2017	—	$	—	—	$	45,928,910
March 2017	—	$	—	—	$	45,928,910

(1)

In November 2016, the Board of Directors authorized the repurchase of up to $50 million of ILG common stock. There is no time restriction on this authorization and repurchases may be made in the open‑market or through privately negotiated transactions.

Items 3‑5. Not applicable

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Item 6. Exhibits


Exhibit Number	Description	Location
3.1	Amended and Restated Certificate of Incorporation of Interval Leisure Group, Inc.	Exhibit 3.1 to ILG’s Current Report on Form 8‑K, filed on August 25, 2008
3.2	Certificate of Designations, Preferences and Rights to Series A Junior Participating Preferred Stock	Exhibit 3.2 to ILG’s Quarterly Report on Form 10‑Q, filed on August 11, 2009
3.3	Fourth Amended and Restated By‑Laws of Interval Leisure Group, Inc.	Exhibit 3.2 to ILG’s Current Report on Form 8‑K, filed on December 12, 2014
10.1†	Amended and Restated Employment Agreement between ILG, Inc. and Craig M. Nash, dated as of March 24, 2017*
10.2†	Amended and Restated Employment Agreement between ILG, Inc. and Jeanette E. Marbert, dated as of March 24, 2017*
10.3†	Amended and Restated Employment Agreement between ILG, Inc. and William L. Harvey, dated as of March 24, 2017*
10.4†	Amended and Restated Employment Agreement between ILG, Inc. and Sergio D. Rivera, dated as of March 24, 2017*
10.5†	Amended and Restated Employment Agreement between ILG, Inc. and Stephen G. Williams, dated as of March 24, 2017, as amended*
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.

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SIGNATURES

Pursuant to the requirements 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.


Date: May 4, 2017	ILG, INC.

	By:	/s/ William L. Harvey
		William L. Harvey
		Chief Financial Officer

	By:	/s/ John A. Galea
		John A. Galea
		Chief Accounting Officer

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