Exhibit 99.1

ILG, INC.

EXPLANATORY NOTE

ILG, Inc. (“ILG”) is filing this Current Report on Form 8‑K to revise its historical “Selected Financial Data,” “Management Discussion and Analysis of Financial Condition and Results of Operations,” and “ILG’s Principles of Financial Reporting” comprising Items 6 and 7 of ILG’s 2017 Annual Report on Form 10‑K. These sections have been recast to reflect ILG’s adoption of the Financial Accounting Standard Board’s Accounting Standards Codification Topic 606 “Revenue from Contracts with Customers” (“ASC 606”) on a retrospective basis to facilitate ILG’s previously announced transaction with Marriott Vacations Worldwide Corporation.

The revised Items 6 and 7 have been updated in compliance with generally accepted accounting principles to reflect the retrospective adoption of ASC 606 for the respective periods noted, and should be read in conjunction with the recast consolidated financial statements for each of the three fiscal years in the period ended December 31, 2017 included in our Current Report on Form 8-K filed on June 5, 2018, our 2017 Annual Report and our first quarter 2018 Form 10-Q.

Except as described above, we have not modified or updated other disclosures contained in ILG’s Consolidated Financial Statements and Notes thereto included in the 2017 Form 10‑K, as amended by the Current Report on Form 8‑K filed June 5, 2018. Accordingly, this Form 8‑K, with the exception of the foregoing, does not reflect events occurring after the date of filing of the 2017 Form 10‑K or update disclosures to already disclosed subsequent events or that are affected by any further subsequent events. Consequently, all other information not affected by the additions described above is unchanged and reflects the disclosures and other information made at the dates of the filing of the 2017 Form 10‑K and should be read in conjunction with our filings with the SEC subsequent to such dates, including amendments to such filings, if any.

Item 6.    Selected Financial Data

The following Selected Financial Data should be read in conjunction with the consolidated financial statements and notes thereto in the Current Report on Form 8‑K filed June 5, 2018 and “Management’s Discussion and Analysis of Financial Condition and Results of Income” in Item 7 of this report.

Financial Information(16):

Operating Statistics(9):

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

GENERAL

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

MANAGEMENT OVERVIEW

General Description of our Business

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

Vacation Ownership engages in the sales, marketing, financing, and development of vacation ownership interests; the management of vacation ownership resorts; and related services to owners and associations. Exchange and Rental offers access to vacation accommodations and other travel‑related transactions and services to leisure travelers, by providing vacation exchange services and vacation rentals, working with resort developers and operating vacation rental properties.

Vacation Ownership Services

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

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

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

We have exclusive global master license agreements with Starwood for use of the Westin and Sheraton 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 North America. VRI Europe manages vacation ownership resorts in Spain and the Canary Islands, the United Kingdom, France and Portugal. Our management services are provided pursuant to agreements with terms generally ranging from one to ten years (with several indefinite lived contracts in Europe), many of which are automatically renewable. Management fees are negotiated amounts for management and other specified services, and at times (including for most of the Vistana and HVO properties) are based on a cost-plus arrangement.

Exchange & Rental Services

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

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

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

Interval typically enters into multi‑year contracts with developers of vacation ownership resorts, pursuant to which the resort developers agree to enroll all purchasers of vacation interests at the applicable resort as members of the Interval exchange program. Members may also enroll directly, for instance, when they purchase a VOI through resale or HOA affiliation at a resort that participates in the Interval Network. In return, Interval provides members with the ability to exchange their VOI occupancy rights (whether denominated in weeks or points) for comparable, alternative accommodations at another resort and/or occupancy period, or for another vacation experience.

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

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

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

International Revenue

International revenue increased 33% in 2017 compared to 2016, and increased 68% in 2016 compared to 2015. The increase in 2017 is principally due to the inclusion of Vistana and its Mexican and Caribbean operations for the full year period and the launch of our Westin Aventuras club product in June of 2017. As a percentage of our total revenue, international revenue remained consistent at 15% in 2017 and 2016, which was a decrease from 17% in 2015.

Basis of Presentation and Accounting Estimates

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

Significant estimates underlying the accompanying consolidated financial statements include:

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

Other Factors Affecting Results

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

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

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

Vacation Ownership 

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

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

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

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

Exchange & Rental 

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

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

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

U.S. Tax Reform

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Reform Act"). Changes in tax law are accounted for in the period of enactment. The Tax Reform Act significantly changes U.S. tax law by, among other things, lowering the statutory corporate tax rate from 35% to 21% effective in 2018, eliminating certain deductions, requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years, introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax. The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. SAB 118 allows registrants to record provisional amounts during a one year “measurement period” similar to that used when accounting for business combinations. We have not completed our determination of the accounting implications of the Tax Reform Act on our tax accruals. However, we have reasonably estimated the effects of the Tax Reform Act and recorded provisional amounts in our financial statements as of December 31, 2017. We recorded a provisional tax benefit for the impact of the Tax Reform Act of approximately $53 million. This amount is primarily comprised of the remeasurement of federal net deferred tax liabilities resulting from the permanent reduction in the U.S. statutory corporate tax rate from 35% to 21%, partially offset by the mandatory one-time tax on the accumulated earnings of our foreign subsidiaries. See Note 20 accompanying our consolidated financial statements.

Outlook

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

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

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

Hurricane related impact

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

U.S. Tax Reform

On December 22, 2017, the President of the United States signed into law the Tax Reform Act, which lowered the federal corporate tax rate from 35% to 21% effective in 2018 and made numerous other tax law changes. We have not completed our determination of the accounting implications of the Tax Reform Act on our tax accruals. However, we have reasonably estimated the effects of the Tax Reform Act and recorded provisional amounts in our financial statements as of December 31, 2017. The ultimate impact of the Tax Reform Act may differ, possibly materially, from these provisional amounts due to among other things, additional analysis, changes in interpretations and assumptions ILG has made, additional regulatory guidance that may be issued, and actions ILG may take as a result of the Tax Reform Act. Any such revisions will be treated in accordance with the measurement period guidance outlined in SAB 118.  As such, we expect to complete our analysis no later than December 22, 2018.

The Tax Reform Act is comprehensive tax legislation containing several other provisions that will affect 2018 and later years and which will need to be further analyzed by ILG. Such additional provisions, beginning in 2018, include two new U.S. tax base erosion provisions, the global intangible low-taxed income provisions and the base-erosion and anti-abuse tax provisions. See Note 20 accompanying our consolidated financial statements.

New revenue recognition accounting standard

We elected to apply ASC 606, and all related ASUs, using the retrospective adoption method as of January 1, 2018. Under this method, we revised our consolidated financial statements for the years ended December 31, 2017, 2016 and 2015, and applicable interim periods within those years, as if ASC 606 had been effective for those periods.

The core principle of the guidance in ASC 606 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 to in exchange for those goods or services. We recognize all revenue related to contracts with customers in accordance with ASC 606. Refer to Note 2 accompanying our consolidated financial statements in our 2017 Annual Report on Form 10-K, as revised by the Current Report on Form 8-K filed June 5, 2018, for additional discussion related to our accounting policies with regards to revenue recognition.

The major areas of impact in applying ASC 606 include the following:

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

Revenue Recognition

Vacation Ownership

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

Sales of VOIs

We enter into contracts for the purchase of VOIs which include (i) the sale of the VOI, (ii) membership in the Vistana Signature Network or Hyatt Residence Club, and (iii) potential incentives for purchasing the VOI. See the Membership fee revenue section below for the revenue recognition treatment of the club membership fees.

Consolidated VOI sales are recognized and included in revenues once control of the VOI has transferred and the purchaser secures the benefits of ownership, which occurs after a binding sales contract has been executed, collectability is reasonably assured, the rescission period has expired, and construction is complete. The agreement for sale generally provides for a down payment and a note secured by a mortgage payable in monthly installments, including interest, over a typical term ranging from 5 -15 years.

The provision for loan losses is recorded as an adjustment to sales of VOIs in the consolidated income statements rather than as an adjustment to bad debt expense, as the default on the VOI is deemed to be a right of return. We record an estimate of loan losses at the time of the VOI sale and recognize revenue net of amounts deemed uncollectible.

We at times offer several types of sales incentives, including SPG and World of Hyatt points, a bonus week, and down payment credits to buyers. Revenue from sales incentives is recognized when the incentive is delivered to the owner of the VOI. If the owner finances the VOI, the incentive may not be delivered until six payments have been made. For our primary incentives, SPG and World of Hyatt points, we act as an agent and therefore, recognize revenue for these incentives on a net basis. 

We routinely sell trial vacation packages where we provide our customers with a stay at a resort and offer a discount on a future VOI sale. The future discount is accounted for as a material right, which is recognized when the purchaser buys a VOI or the discount expires, both of which occur at the time of stay. Our customers have the option to pay upfront for these packages or finance these packages through us. In the case of unused trial vacation packages, we recognize revenue upon forfeiture as we do not expect a significant amount of breakage to occur.

Management fee and other revenue

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

Resort operations revenue

Our resort operations performance obligations are largely comprised of transient rental income at our vacation ownership and owned-hotel properties. We may receive payment for these services upfront or at the time of the stay. We record rental revenue when occupancy has occurred or, in the case of unused prepaid rental deposits, upon forfeiture. We do not expect a significant amount of breakage to occur related to prepaid rental deposits.

Other ancillary services revenue consists of goods and services that are sold or provided by us at restaurants, golf courses and other retail and service outlets located at developed resorts. We receive payment and recognize ancillary services revenue when goods have been provided and/or services have been rendered.

Exchange and Rental

Membership fee revenue

Revenue from membership fees from our Exchange and Rental segment is deferred and recognized over the terms of the applicable memberships, typically ranging from one to five years, on a straight‑line basis. When multiple member benefits and services are provided over the term of the membership, revenue is recognized for each separable deliverable ratably over the membership period, as applicable. Membership fees are paid up front at the beginning of the applicable membership period. Generally, memberships are cancelable and refundable on a pro‑rata basis, with the exception of Interval Network’s Platinum tier which is non‑refundable.

Transaction revenue

Revenue from exchanges, Getaway transactions and other fee-based services provided to members of our networks is recognized when confirmation of the transaction is provided and services have been rendered, as the

earnings process is complete. Reservation servicing fees are generally received on a monthly basis and revenue is recognized when the service is performed or on a straight‑line basis over the applicable service period.

Club rental revenue

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

Rental management revenue

Revenue from our vacation rental management businesses is comprised of base management fees which are typically either (i) fixed amounts, (ii) amounts based on a percentage of adjusted gross lodging revenue, or (iii) various revenue sharing arrangements with condominium owners based on stated formulas. We generally receive payment from the rental management services on a monthly basis as the services are performed. Base management fees are recognized when earned in accordance with the terms of the contract (i.e., over time as we perform the management services). Incentive management fees for certain hotels and condominium resorts are generally a percentage of either operating profits or improvement in operating profits. We recognize incentive management fees as earned throughout the incentive period based on actual results which are trued‑up at the culmination of the incentive period. Determining the amount of the transaction price related to the incentive management fees may require us to estimate the variable consideration related to the incentive fees based on generated budgets and forecasts until such time as the actual amounts are known (typically at end of calendar year). Such variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal of the related revenue will not occur. Service fee revenue is based on the services provided to owners including reservations, sales and marketing, property accounting and information technology services, either internally or through third party providers. Service fee revenue is recognized when the service is provided. If the service is provided through third-party provider, such as reservations using online travel agents, we are considered an agent for these services and will therefore recognize revenue from the service fees on a net basis per the terms of the respective agreement.

General

Cost reimbursement revenue

Represents the compensation and other employee-related costs directly associated with managing properties that are included in both revenue and cost of sales and that are passed on to the property owners or homeowner associations without mark-up. Cost reimbursement revenue of the Vacation Ownership segment also includes reimbursement of sales and marketing expenses, without mark-up, pursuant to contractual arrangements. Such cost reimbursements are recognized gross when the related services are performed, other than cost reimbursements pertaining to services associated with our unsold VOIs classified as inventory.

Deferred revenue in a business combination

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

Contracts with multiple performance obligations 

When we enter into an arrangement which contains multiple promises, we are required to determine whether the promises in these arrangements should be treated as separate performance obligations for revenue recognition purposes and, if so, how the transaction price should be allocated to each performance obligation. We analyze our contracts upon execution to determine the appropriate revenue recognition accounting treatment. Our determination of whether to recognize revenue for separate performance obligations will depend on the terms and specifics of our

products and arrangements as well as the nature of changes to our existing products and services, if any. The transaction price is allocated to such distinct performance obligations in accordance with their standalone selling price. As we have observable standalone sales of each of our performance obligations, we utilize the observable standalone selling price for purposes of allocation and we do not exercise significant judgement in determining these standalone selling prices. The allocation of the total transaction price to the various performance obligations does not change the total revenue recognized from a transaction or arrangement, but may impact the timing of revenue recognition. 

Sales type taxes

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

Costs to Obtain or Fulfill a Contract

We capitalize the incremental costs of obtaining a contract when those costs would not have been incurred if the contract had not been obtained, in accordance with ASC Subtopic 340-40, Other Assets and Deferred Costs – Revenue from Contracts with Customers (“ASC 340-40”). Direct costs of acquiring members (primarily commissions) are deferred and amortized on a straight‑line basis over the terms of the applicable membership period. We also capitalize commissions related to the sale of prepaid vacation packages. These commissions are expensed when the purchaser stays at the property. If a contract is cancelled, we charge the unrecoverable direct selling costs to expense at cancellation.

Vacation Ownership Mortgages Receivable and Allowance for Loan Losses

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

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

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

The collection activity associated with our securitized vacation ownership notes receivable determines the amount of our monthly repayments against our securitized debt. Collection activity includes contractual payments due and prepayments. In addition, defaulted loans are generally removed from the securitized pool and are substituted or repurchased, while upgraded loans are repurchased, for debt repayment purposes. The securitized debt is non-recourse without a specific repayment schedule. As the amount of each principal payment is contingent on the cash flows from underlying vacation ownership mortgages receivable in a given period, we have not disclosed future contractual debt repayments. Additionally, our vacation ownership mortgages receivable securitization agreements allow us to receive the net excess cash flows (spread between the collections on the notes and payments for third party obligations as defined in the securitization agreements) from the VIEs provided we do not exceed certain triggers related to default levels and collateralization of the securitized pool, as discussed in Note 14 accompanying our consolidated financial statements.

Allowance for Loan Losses

For originated loans, we record an estimate of uncollectability as a reduction of sales of VOIs in the accompanying consolidated statements of income at the time revenue is recognized on a VOI sale. We evaluate our originated loan portfolio collectively as they are largely homogeneous, smaller‑balance, vacation ownership mortgages receivable. We use a technique referred to as static pool analysis, which tracks uncollectibles over the entire life of those

mortgages receivable, as the basis for determining our general reserve requirements on our vacation ownership mortgages receivable. The adequacy of the related allowance is determined by management through analysis of several factors, such as current economic conditions and industry trends, as well as the specific risk characteristics of the portfolio, including defaults, aging, and historical write‑offs of these receivables. The allowance is maintained at a level deemed adequate by management based on a periodic analysis of the mortgage portfolio.

We had $55 million and $22 million of allowance for loan losses as of December 31, 2017 and 2016, respectively, pertaining entirely to our originated loan portfolio. Changes in the estimates used in developing our default rates could result in a material change to our allowance. A 10% increase to our default rates used in the allowance calculation would increase our allowance for loan losses by approximately $6 million.

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

Loans acquired in connection with a business combination are recorded at their estimated fair value on their purchase date with no carryover of the related allowance for loan losses. Performing acquired loans are subsequently evaluated for any required allowance at each reporting date. Refer to Note 6 accompanying our consolidated financial statements for additional information on our acquired loans.

Accounting for Business Combinations

In accordance with ASC Topic 805, “Business Combinations,” when accounting for business combinations we are required to recognize the assets acquired, liabilities assumed, contractual contingencies, noncontrolling interests and contingent consideration at their fair value as of the acquisition date. These items are recorded on our consolidated balance sheets based upon their estimated fair values at such acquisition date. The results of operations of acquired businesses are included in the consolidated statements of income since their respective acquisition dates.

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

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

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

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

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

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

Recoverability of Goodwill and Indefinite-Lived Intangible Assets

Our Policy

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

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

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

Qualitative Assessment

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

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

Two‑step Impairment Test

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

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

Indefinite‑Lived Intangible Assets

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

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

2017 Annual Impairment Test

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

Key Estimates and Assumptions

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

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

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

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

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

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

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

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

General

VO Sales and Financing

VO Management

Exchange

Rental

Recoverability of Long‑Lived Assets

Our Policy

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

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

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

Recoverability Test

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

Vacation Ownership Inventory and Cost of Sales

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

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

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

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

Stock‑Based Compensation

Stock‑based compensation is accounted for under ASC Topic 718, “Compensation—Stock Compensation” (“ASC 718”). On May 21, 2013, we adopted the Interval Leisure Group, Inc. 2013 Stock and Incentive Plan (2013 Stock and Incentive Plan) which provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units (RSUs), and other stock‑based awards. RSUs are awards in the form of phantom shares or units, denominated in a hypothetical equivalent number of shares of ILG common stock, whereby the value of each award is equal to the fair value of ILG common stock at the date of grant. The exception being for RSUs subject to relative total shareholder return performance criteria, for which the fair value is based on a Monte Carlo simulation analysis as further discussed in Note 19 accompanying our consolidated financial statements. Each RSU and share of restricted stock is subject to service‑based vesting, where a specific period of continued employment must pass before an award vests. We grant awards subject to graded vesting (i.e., portions of the award vest at different times during the vesting period) or to cliff vesting (i.e. all awards vest at the end of the vesting period). In addition, certain RSUs are subject to attaining specific performance criteria.

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

Stock‑based compensation is recorded within the same line item in our consolidated statements of income as the employee‑related compensation of the award recipient, as disclosed in tabular format in Note 19 accompanying our consolidated financial statements.

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

forfeitures when they occur. For any vesting tranche of an award, the cumulative amount of compensation cost recognized is at least equal to the portion of the grant‑date value of the award tranche that is actually vested at that date.

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

Income Taxes

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

Although we believe we have adequately reserved for our uncertain tax positions, the ultimate outcome of these tax matters may differ from our expectations. We adjust our reserves in light of changing facts and circumstances, such as the completion of a tax audit, expiration of the applicable statute of limitations, the refinement of an estimate, and interest accruals associated with uncertain tax positions until they are resolved. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. See Note 20 accompanying our consolidated financial statements.

We are subject to taxation at the federal, state and local levels in the United States and various other countries and jurisdictions. Our future effective tax rates could be affected by changes in the composition of earnings in jurisdictions with differing tax rates, changes in our deferred tax assets or liabilities, changes in our ability to realize our deferred tax assets, changes in the valuation of our uncertain tax positions, or by changes in tax laws, including the recently enacted U.S. tax reform, rates, regulations, accounting principles, or interpretations thereof. See Note 20 accompanying our consolidated financial statements.

RESULTS OF OPERATIONS

Revenue

2017 compared to 2016

Revenue for the year ended December 31, 2017 of $1.77 billion increased $414 million, or 31%, compared to revenue of $1.36 billion in 2016. Vacation Ownership segment revenue of $1.15 billion increased $363 million, or 46%, while Exchange and Rental segment revenue of $622 million increased $51 million, or 9%, compared to the prior year.

Vacation Ownership   

Vacation Ownership segment revenue, excluding cost reimbursements, increased $305 million, or 50%, in the year compared to 2016. This increase over the prior year resulted predominantly from the inclusion of a full year of Vistana, partly offset by $39 million of revenue recognized in 2016 that pertained to pre-acquisition sales of vacation ownership products deferred as of the acquisition date pursuant to the percentage of completion accounting method. Excluding Vistana and cost reimbursements, segment revenue increased by $13 million, or 9%, largely driven by the consolidation of Great Destinations joint-venture and the resulting inclusion of their financials in our results as of April 1, 2017, as discussed in Note 4 to our consolidated financial statements.

Exchange and Rental   

Exchange and Rental segment revenue, excluding cost reimbursements, increased $48 million, or 10%, over 2016. This increase is due to the inclusion of Vistana in our results for a full year. Excluding Vistana and cost reimbursements, segment revenue in the year was lower by $6 million when compared to the prior year. The drop in revenue can be, in part, attributed to the effect of Hurricanes Irma and Maria in the third and fourth quarter of 2017 as approximately 50 Interval Network affiliated resorts remained closed at December 31, 2017. This has resulted in a loss of inventory, for an extended period of time in some cases, which would otherwise be available for exchanges and Getaways.

Additionally, 2017’s activity was unfavorably impacted, largely in the first half of the year, by the continued shift for most of the year in the percentage mix of our membership base from traditional to corporate members. This was offset in part by a combined increase of $1 million in rental management and club rental revenue, when excluding Vistana.

2016 compared to 2015

Revenue for the year ended December 31, 2016 of $1.4 billion increased $658 million, or 94%, compared to revenue of $699 million in 2015. Vacation Ownership segment revenue of $786 million increased $592 million, or 305%, while Exchange and Rental segment revenue of $571 million increased $66 million, or 13%, in the year compared to the prior year.

Vacation Ownership   

The increase of $479 million in segment revenue, excluding cost reimbursement, over the prior year principally resulted from the Vistana acquisition which includes $39 million of revenue recognized in the period pertaining to pre-acquisition sales of vacation ownership products deferred as of the acquisition date pursuant to the percentage of completion accounting method. Excluding Vistana and cost reimbursements, segment revenue increased by $7 million, or 5%, primarily driven by stronger sales of consolidated vacation ownership products which rose by $1 million, or 5%, higher resort operations revenue of $4 million, or 25%, and an increase of $1 million in management fee revenue in 2016 over the prior year. The increase in resort operations revenue is attributable to higher reported rental revenue from owned VOIs in the current period compared to last year.

Exchange and Rental   

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

Cost of Sales