MARRIOTT VACATIONS WORLDWIDE Corp - Quarter Report: 2019 September (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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 September 30, 2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-35219

_________________________

Marriott Vacations Worldwide Corporation

(Exact name of registrant as specified in its charter)

_________________________



Delaware				45-2598330
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)
	6649 Westwood Blvd.	Orlando	FL	32821
(Address of principal executive offices)				(Zip Code)

(407) 206-6000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 Par Value	VAC	New York Stock Exchange

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 every Interactive Data File required to be submitted 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 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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

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

The number of shares outstanding of the issuer’s common stock, par value $0.01 per share, as of November 8, 2019 was 42,041,736.

MARRIOTT VACATIONS WORLDWIDE CORPORATION

FORM 10-Q TABLE OF CONTENTS



		Page
Part I.	FINANCIAL INFORMATION (UNAUDITED)	1
Item 1.	Financial Statements	1
	Interim Consolidated Statements of Income	1
	Interim Consolidated Statements of Comprehensive Income	2
	Interim Consolidated Balance Sheets	3
	Interim Consolidated Statements of Cash Flows	4
	Interim Consolidated Statements of Shareholders’ Equity	6
	Notes to Interim Consolidated Financial Statements	8
	1. Basis of Presentation	8
	2. Significant Accounting Policies and Recent Accounting Standards	9
	3. Acquisitions and Dispositions	10
	4. Revenue	14
	5. Income Taxes	17
	6. Vacation Ownership Notes Receivable	18
	7. Financial Instruments	24
	8. Earnings Per Share	26
	9. Inventory	27
	10. Property and Equipment	27
	11. Contingencies and Commitments	28
	12. Leases	31
	13. Securitized Debt	33
	14. Debt	35
	15. Shareholders’ Equity	38
	16. Share-Based Compensation	39
	17. Variable Interest Entities	40
	18. Business Segments	43
	19. Supplemental Guarantor Information	45
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	55
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	85
Item 4.	Controls and Procedures	86
Part II.	OTHER INFORMATION	86
Item 1.	Legal Proceedings	86
Item 1A.	Risk Factors	86
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	87
Item 6.	Exhibits	87
	SIGNATURES	89

Throughout this report, we refer to brands that we own, as well as those brands that we license as our brands. All brand names, trademarks, service marks and trade names cited in this report are the property of their respective owners, including those of other companies and organizations. Solely for convenience, trademarks, trade names and service marks referred to in this report may appear without the ^®or ^TMsymbols, however such references are not intended to indicate in any way that MVW or the owner, as applicable, will not assert, to the fullest extent under applicable law, all rights to such trademarks, trade names and service marks. Capitalized terms used and not specifically defined herein have the same meaning given those terms in our Annual Report on Form 10-K for the year ended December 31, 2018. When discussing our properties or markets, we refer to the United States, Mexico, Central America and the Caribbean as “North America.”

On September 1, 2018, we completed the acquisition of ILG, LLC (formerly known as ILG, Inc. (“ILG”)). ILG’s businesses include Aqua-Aston Hospitality, Hyatt Vacation Ownership (“HVO”), Interval International, Trading Places International (“TPI”), Vacation Resorts International (“VRI”), VRI Europe and Vistana Signature Experiences (“Vistana”), the exclusive licensee for the Sheraton and Westin brands in vacation ownership.

Table of Contents

PART I. FINANCIAL INFORMATION (UNAUDITED)

Item 1. Financial Statements

MARRIOTT VACATIONS WORLDWIDE CORPORATION

INTERIM CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share amounts)

(Unaudited)



	Three Months Ended						Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
REVENUES
Sale of vacation ownership products	$	350		$	252		$	1,001		$	632
Management and exchange	231			126			709			274
Rental	149			90			472			239
Financing	72			48			209			119
Cost reimbursements	280			234			819			652
TOTAL REVENUES	1,082			750			3,210			1,916
EXPENSES
Cost of vacation ownership products	91			64			262			167
Marketing and sales	188			135			569			346
Management and exchange	115			65			349			140
Rental	111			74			323			191
Financing	23			19			70			40
General and administrative	68			53			225			114
Depreciation and amortization	33			18			106			29
Litigation charges	3			17			5			33
Royalty fee	27			19			79			50
Impairment	73			—			99			—
Cost reimbursements	280			234			819			652
TOTAL EXPENSES	1,012			698			2,906			1,762
(Losses) gains and other (expense) income, net	(5		)	2			5			(4		)
Interest expense	(31		)	(14		)	(100		)	(23		)
ILG acquisition-related costs	(32		)	(78		)	(94		)	(98		)
Other	1			—			1			(3		)
INCOME (LOSS) BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS	3			(38		)	116			26
(Provision) benefit for income taxes	(10		)	2			(50		)	(15		)
NET (LOSS) INCOME	(7		)	(36		)	66			11
Net income attributable to noncontrolling interests	(2		)	—			(2		)	—
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(9	)	$	(36	)	$	64		$	11

(LOSSES) EARNINGS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS
Basic	$	(0.21	)	$	(1.08	)	$	1.44		$	0.39
Diluted	$	(0.21	)	$	(1.08	)	$	1.43		$	0.38

CASH DIVIDENDS DECLARED PER SHARE	$	0.45		$	0.40		$	1.35		$	1.20

See Notes to Interim Consolidated Financial Statements

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MARRIOTT VACATIONS WORLDWIDE CORPORATION

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)



	Three Months Ended						Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
NET (LOSS) INCOME	$	(7	)	$	(36	)	$	66		$	11

Foreign currency translation adjustments	(4		)	1			(5		)	—
Derivative instrument adjustment, net of tax	(4		)	(1		)	(20		)	(1		)
OTHER COMPREHENSIVE LOSS, NET OF TAX	(8		)	—			(25		)	(1		)

Net income attributable to noncontrolling interests	(2		)	—			(2		)	—
Other comprehensive income attributable to noncontrolling interests	—			—			—			—
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS	(2		)	—			(2		)	—

COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(17	)	$	(36	)	$	39		$	10

See Notes to the Interim Consolidated Financial Statements

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MARRIOTT VACATIONS WORLDWIDE CORPORATION

INTERIM CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share data)



	Unaudited September 30, 2019			December 31, 2018
ASSETS
Cash and cash equivalents	$	183		$	231
Restricted cash (including $55 and $69 from VIEs, respectively)	322			383
Accounts receivable, net (including $12 and $11 from VIEs, respectively)	372			324
Vacation ownership notes receivable, net (including $1,586 and $1,627 from VIEs, respectively)	2,168			2,039
Inventory	910			863
Property and equipment	770			951
Goodwill	2,890			2,828
Intangibles, net	1,044			1,107
Other (including $36 and $26 from VIEs, respectively)	400			292
TOTAL ASSETS	$	9,059		$	9,018

LIABILITIES AND EQUITY
Accounts payable	$	248		$	301
Advance deposits	185			171
Accrued liabilities (including $2 and $2 from VIEs, respectively)	293			250
Deferred revenue	436			383
Payroll and benefits liability	185			206
Deferred compensation liability	104			93
Securitized debt, net (including $1,680 and $1,706 from VIEs, respectively)	1,686			1,714
Debt, net	2,294			2,104
Other	199			12
Deferred taxes	307			318
TOTAL LIABILITIES	5,937			5,552
Contingencies and Commitments (Note 11)
Preferred stock — $0.01 par value; 2,000,000 shares authorized; none issued or outstanding	—			—
Common stock — $0.01 par value; 100,000,000 shares authorized; 57,874,390 and 57,626,462 shares issued, respectively	1			1
Treasury stock — at cost; 15,281,979 and 11,633,731 shares, respectively	(1,130		)	(790		)
Additional paid-in capital	3,740			3,721
Accumulated other comprehensive (loss) income	(19		)	6
Retained earnings	520			523
TOTAL MVW SHAREHOLDERS' EQUITY	3,112			3,461
Noncontrolling interests	10			5
TOTAL EQUITY	3,122			3,466
TOTAL LIABILITIES AND EQUITY	$	9,059		$	9,018

The abbreviation VIEs above means Variable Interest Entities.

See Notes to Interim Consolidated Financial Statements

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MARRIOTT VACATIONS WORLDWIDE CORPORATION

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



	Nine Months Ended
	September 30, 2019			September 30, 2018
OPERATING ACTIVITIES
Net income	$	66		$	11
Adjustments to reconcile net income to net cash, cash equivalents and restricted cash provided by operating activities:
Depreciation and amortization of intangibles	106			29
Amortization of debt discount and issuance costs	14			12
Accretion of acquired vacation ownership notes receivable	—			(1		)
Vacation ownership notes receivable reserve	81			42
Share-based compensation	25			19
Impairment charges	99			—
Deferred income taxes	24			10
Net change in assets and liabilities, net of the effects of acquisition:
Accounts receivable	16			(9		)
Vacation ownership notes receivable originations	(681		)	(395		)
Vacation ownership notes receivable collections	462			244
Inventory	10			68
Other assets	13			53
Accounts payable, advance deposits and accrued liabilities	(122		)	(42		)
Deferred revenue	41			37
Payroll and benefit liabilities	(21		)	(29		)
Deferred compensation liability	13			11
Other liabilities	26			1
Other, net	8			6
Net cash, cash equivalents and restricted cash provided by operating activities	180			67
INVESTING ACTIVITIES
Acquisition of a business, net of cash and restricted cash acquired	—			(1,393		)
Capital expenditures for property and equipment (excluding inventory)	(32		)	(17		)
Proceeds from collection of notes receivable	38			—
Purchase of company owned life insurance	(5		)	(13		)
Net cash, cash equivalents and restricted cash provided by (used in) investing activities	1			(1,423		)

Continued

See Notes to Interim Consolidated Financial Statements

Table of Contents

MARRIOTT VACATIONS WORLDWIDE CORPORATION

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In millions)

(Unaudited)



	Nine Months Ended
	September 30, 2019			September 30, 2018
FINANCING ACTIVITIES
Borrowings from securitization transactions	631			423
Repayment of debt related to securitization transactions	(673		)	(264		)
Proceeds from debt	495			1,650
Repayments of debt	(308		)	(53		)
Finance lease payment	(11		)	—
Debt issuance costs	(11		)	(34		)
Repurchase of common stock	(342		)	(2		)
Payment of dividends	(61		)	(32		)
Payment of withholding taxes on vesting of restricted stock units	(11		)	(17		)
Other, net	1			—
Net cash, cash equivalents and restricted cash (used in) provided by financing activities	(290		)	1,671
Effect of changes in exchange rates on cash, cash equivalents and restricted cash	—			—
Change in cash, cash equivalents and restricted cash	(109		)	315
Cash, cash equivalents and restricted cash, beginning of period	614			491
Cash, cash equivalents and restricted cash, end of period	$	505		$	806

SUPPLEMENTAL DISCLOSURES
Non-cash issuance of stock in connection with ILG Acquisition	$	—		$	2,505
Non-cash transfer from property and equipment to inventory	71			—
Non-cash issuance of treasury stock for employee stock purchase plan	2			1
Dividends payable	19			19
Interest paid, net of amounts capitalized	135			28
Income taxes paid, net of refunds	47			18

See Notes to Interim Consolidated Financial Statements

MARRIOTT VACATIONS WORLDWIDE CORPORATION

INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In millions)

(Unaudited)



Common Stock Issued		Common Stock		Treasury Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total MVW Shareholders' Equity			Noncontrolling Interests		Total Equity


57.6	BALANCE AT DECEMBER 31, 2018	$	1	$	(790	)	$	3,721		$	6		$	523		$	3,461		$	5	$	3,466
—	Impact of adoption of ASU 2016-02	—		—			—			—			(8		)	(8		)	—		(8		)
57.6	OPENING BALANCE 2019	1		(790		)	3,721			6			515			3,453			5		3,458
—	Net income	—		—			—			—			24			24			—		24
—	Foreign currency translation adjustments	—		—			—			1			—			1			—		1
—	Derivative instrument adjustment	—		—			—			(3		)	—			(3		)	—		(3		)
0.2	Share-based compensation plans	—		—			(4		)	—			—			(4		)	—		(4		)
—	Repurchase of common stock	—		(106		)	—			—			—			(106		)	—		(106		)
—	Dividends	—		—			—			—			(20		)	(20		)	—		(20		)
—	Employee stock plan issuance	—		1			—			—			—			1			—		1
57.8	BALANCE AT MARCH 31, 2019	1		(895		)	3,717			4			519			3,346			5		3,351
—	Net income	—		—			—			—			49			49			—		49
—	ILG Acquisition purchase accounting adjustment	—		—			—			—			—			—			1		1
—	Foreign currency translation adjustments	—		—			—			(2		)	—			(2		)	—		(2		)
—	Derivative instrument adjustment	—		—			—			(13		)	—			(13		)	—		(13		)
—	Share-based compensation plans	—		—			13			—			—			13			—		13
—	Repurchase of common stock	—		(109		)	—			—			—			(109		)	—		(109		)
—	Dividends	—		—			—			—			(20		)	(20		)	—		(20		)
0.1	Employee stock plan issuance	—		—			—			—			—			—			—		—
57.9	BALANCE AT JUNE 30, 2019	1		(1,004		)	3,730			(11		)	548			3,264			6		3,270
—	Net (loss) income	—		—			—			—			(9		)	(9		)	2		(7		)
—	ILG Acquisition purchase accounting adjustment	—		—			—			—			—			—			2		2
—	Foreign currency translation adjustments	—		—			—			(4		)	—			(4		)	—		(4		)
—	Derivative instrument adjustment	—		—			—			(4		)	—			(4		)	—		(4		)
—	Share-based compensation plans	—		—			10			—			—			10			—		10
—	Repurchase of common stock	—		(127		)	—			—			—			(127		)	—		(127		)
—	Dividends	—		—			—			—			(19		)	(19		)	—		(19		)
—	Employee stock plan issuance	—		1			—			—			—			1			—		1
57.9	BALANCE AT SEPTEMBER 30, 2019	$	1	$	(1,130	)	$	3,740		$	(19	)	$	520		$	3,112		$	10	$	3,122

Continued

See Notes to Interim Consolidated Financial Statements

MARRIOTT VACATIONS WORLDWIDE CORPORATION

INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (CONTINUED)

(In millions)

(Unaudited)



Common Stock Issued		Common Stock		Treasury Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Income			Retained Earnings			Total MVW Shareholders' Equity			Noncontrolling Interests		Total Equity


36.9	BALANCE AT DECEMBER 31, 2017	$	—	$	(694	)	$	1,189		$	17		$	529		$	1,041		$	—	$	1,041
—	Net income	—		—			—			—			36			36			—		36
—	Foreign currency translation adjustments	—		—			—			6			—			6			—		6
0.1	Share-based compensation plans	—		—			(5		)	—			—			(5		)	—		(5		)
—	Repurchase of common stock	—		(2		)	—			—			—			(2		)	—		(2		)
—	Dividends	—		—			—			—			(10		)	(10		)	—		(10		)
37.0	BALANCE AT MARCH 31, 2018	—		(696		)	1,184			23			555			1,066			—		1,066
—	Net income	—		—			—			—			11			11			—		11
—	Foreign currency translation adjustments	—		—			—			(7		)	—			(7		)	—		(7		)
—	Share-based compensation plans	—		—			7			—			—			7			—		7
—	Dividends	—		—			—			—			(11		)	(11		)	—		(11		)
37.0	BALANCE AT JUNE 30, 2018	—		(696		)	1,191			16			555			1,066			—		1,066
—	Net loss	—		—			—			—			(36		)	(36		)	—		(36		)
20.5	ILG Acquisition	1		—			2,440			—			—			2,441			25		2,466
—	Foreign currency translation adjustments	—		—			—			1			—			1			—		1
—	Derivative instrument adjustment	—		—			—			(1		)	—			(1		)	—		(1		)
0.1	Share-based compensation plans	—		—			66			—			—			66			—		66
—	Dividends	—		—			—			—			(19		)	(19		)	—		(19		)
57.6	BALANCE AT SEPTEMBER 30, 2018	$	1	$	(696	)	$	3,697		$	16		$	500		$	3,518		$	25	$	3,543

See Notes to Interim Consolidated Financial Statements

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MARRIOTT VACATIONS WORLDWIDE CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS



1.	BASIS OF PRESENTATION

The Interim Consolidated Financial Statements present the results of operations, financial position and cash flows of Marriott Vacations Worldwide Corporation (referred to in this report as (i) “we,” “us,” “Marriott Vacations Worldwide,” “MVW” or “the Company,” which includes our consolidated subsidiaries except where the context of the reference is to a single corporate entity, or (ii) “MVWC,” which shall refer only to Marriott Vacations Worldwide Corporation, without its consolidated subsidiaries). In order to make this report easier to read, we refer throughout to (i) our Interim Consolidated Financial Statements as our “Financial Statements,” (ii) our Interim Consolidated Statements of Income as our “Income Statements,” (iii) our Interim Consolidated Balance Sheets as our “Balance Sheets,” and (iv) our Interim Consolidated Statements of Cash Flows as our “Cash Flows.” In addition, references throughout to numbered “Footnotes” refer to the numbered Notes in these Notes to Interim Consolidated Financial Statements, unless otherwise noted. Capitalized terms used and not specifically defined herein have the same meaning given those terms in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the “2018 Annual Report”). We use certain other terms that are defined within these Financial Statements.

The Financial Statements presented herein and discussed below include 100 percent of the assets, liabilities, revenues, expenses and cash flows of Marriott Vacations Worldwide, all entities in which Marriott Vacations Worldwide has a controlling voting interest (“subsidiaries”), and those variable interest entities for which Marriott Vacations Worldwide is the primary beneficiary in accordance with consolidation accounting guidance. References in these Financial Statements to net income attributable to common shareholders and MVW shareholders’ equity do not include noncontrolling interests, which represent the outside ownership of our consolidated non-wholly owned entities and are reported separately. Intercompany accounts and transactions between consolidated companies have been eliminated in consolidation.

These Financial Statements reflect our financial position, results of operations and cash flows as prepared in conformity with United States Generally Accepted Accounting Principles (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates include, but are not limited to, revenue recognition, allocations of the purchase price paid in business combinations, cost of vacation ownership products, inventory valuation, goodwill and intangibles valuation, property and equipment valuation, accounting for acquired vacation ownership notes receivable, vacation ownership notes receivable reserves, income taxes and loss contingencies. Accordingly, actual amounts may differ from these estimated amounts.

In our opinion, our Financial Statements reflect all normal and recurring adjustments necessary to present fairly our financial position, the results of our operations and cash flows for the periods presented. Interim results may not be indicative of fiscal year performance because of, among other reasons, the ILG Acquisition (defined below) and seasonal and short-term variations. These Financial Statements have not been audited. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP. Although we believe our footnote disclosures are adequate to make the information presented not misleading, the Financial Statements in this report should be read in conjunction with the consolidated financial statements and notes thereto in our 2018 Annual Report.

The accompanying Financial Statements also reflect our adoption of new accounting standards. See Footnote 2 “Significant Accounting Policies and Recent Accounting Standards” for additional information.

Reclassifications

We have reclassified the following prior year amounts to conform to the current year presentation:


•	Reclassified Resort management and other services revenue to Management and exchange revenue;


•	Reclassified Resort management and other services expense to Management and exchange expense;


•	Consolidated Consumer financing interest expense into Financing expense;


•	Reclassified depreciation expense from Marketing and sales expense, Management and exchange expense, Rental expense, and General and administrative expense to Depreciation and amortization expense;


•	Reclassified $53 million from Accrued liabilities to Accounts payable;


•	Reclassified $58 million from Accrued liabilities to Advance deposits;


•	Reclassified $64 million from Accrued liabilities to Deferred revenue;


•	Reclassified $3 million from Payroll and benefits liability to Accounts payable;


•	Reclassified $2 million from Payroll and benefits liability to Accrued liabilities; and

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•	Reclassified $20 million of other debt from Debt, net to Securitized debt, net.

Acquisition of ILG

On September 1, 2018, we completed the acquisition of ILG, LLC, formerly known as ILG, Inc. (“ILG”) through a series of transactions (the “ILG Acquisition”), after which ILG became our indirect wholly-owned subsidiary. We refer to our business associated with brands that existed prior to the ILG Acquisition as “Legacy-MVW” and to ILG’s business and brands that we acquired as “Legacy-ILG.” See Footnote 3 “Acquisitions and Dispositions” for more information on the ILG Acquisition.



2.	SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING STANDARDS

New Accounting Standards

Accounting Standards Update 2017-12 – “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017-12”)

In August 2017, the FASB issued ASU 2017-12, which amends and simplifies existing guidance in order to allow companies to better portray the economic effects of risk management activities in the financial statements and enhance the transparency and understandability of the results of hedging activities. ASU 2017-12 eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also eases certain documentation and assessment requirements. This update was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The adoption of ASU 2017-12 in the first quarter of 2019 did not have a material impact on our Financial Statements or disclosures.

We record derivatives at fair value. The designation of a derivative instrument as a hedge and its ability to meet the hedge accounting criteria determine how we reflect the change in fair value of the derivative instrument in our Financial Statements. A derivative qualifies for hedge accounting if we expect it to be highly effective in offsetting the underlying hedged exposure and we fulfill the hedge documentation requirements. We may designate a hedge as a cash flow hedge, fair value hedge, or a net investment in non-U.S. operations hedge based on the exposure we are hedging. For the effective portion of qualifying hedges, we record changes in fair value in other comprehensive income.

We assess the effectiveness of our hedging instruments quarterly, recognize current period hedge ineffectiveness immediately in earnings, and discontinue hedge accounting for any hedge that we no longer consider to be highly effective. We recognize changes in fair value for derivatives not designated as hedges or those not qualifying for hedge accounting in current period earnings.

We are exposed to market risk from changes in interest rates, currency exchange rates and debt prices. We manage our exposure to these risks by monitoring available financing alternatives, through pricing policies that may take into account currency exchange rates, and by entering into derivative arrangements. As a matter of policy, we only enter into transactions that we believe will be highly effective at offsetting the underlying risk, and we do not use derivatives for trading or speculative purposes.

Accounting Standards Update 2016-02 – “Leases (Topic 842)” (“ASU 2016-02”)

In February 2016, the FASB issued ASU 2016-02 to increase transparency and comparability of information regarding an entity’s leasing activities by providing additional information to users of financial statements, which as amended, created Accounting Standards Codification 842, Leases (“ASC 842”). ASU 2016-02 requires a lessee to recognize most leases on its balance sheet by recording a liability for its lease obligation and an asset for its right to use the underlying asset as of the lease commencement date and recognizing expenses on the income statement in a similar manner to the superseded guidance in Accounting Standards Codification 840, Leases (“ASC 840”). Lessor accounting remains largely unchanged, other than certain targeted improvements intended to align lessor accounting with the lessee accounting model and with the updated revenue recognition guidance.

Upon adoption of ASU 2016-02, as amended, leases will be classified as either finance or operating, with classification affecting the geography of expense recognition in the income statement. Additionally, enhanced quantitative and qualitative disclosures regarding leases are required. ASU 2016-02 was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We adopted ASU 2016-02, as amended, during the first quarter of 2019 using the transition method, which allows the application of the standard at the adoption date, January 1, 2019.

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As permitted by the amended guidance, we elected to retain the original lease classification and historical accounting for existing or expired contracts of lessees and lessors so that we will not be required to reassess whether such contracts contain leases, the lease classification of any such leases or the initial direct costs of any such leases. We continue to report comparative periods presented in the financial statements in the period of adoption under GAAP in effect as of such comparative period, resulting in a balance sheet presentation that is not comparable to the prior period in the first year of adoption. Additionally, with respect to our real estate leases, we elected an accounting policy by class of underlying asset to combine lease and non-lease components. We also elected to apply an exemption for short-term leases whereby leases with an initial term of a year or less are not recorded on the balance sheet. We did not utilize the practical expedient which allows the use of hindsight by lessees and lessors in determining the lease term and in assessing impairment of their right-of-use assets.

Upon adoption, we recognized a lease obligation of $165 million and a right-of-use asset of $155 million, as well as, a cumulative-effect adjustment of $8 million to the opening balance of retained earnings for our operating and finance leases, primarily related to leases of real estate and other assets.

The adoption of ASU 2016-02 did not have a material effect on our Income Statement or Cash Flows for the nine months ended September 30, 2019. See Footnote 12 “Leases” for further discussion of the adoption and the impact on our Financial Statements.

Future Adoption of Accounting Standards

Accounting Standards Update 2017-04 – “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”)

In January 2017, the FASB issued ASU 2017-04, which simplifies the subsequent measurement of goodwill by eliminating the second step from the goodwill impairment test. ASU 2017-04 requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and to recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and is applied on a prospective basis, with early adoption permitted. We will adopt ASU 2017-04 during the fourth quarter of 2019, prior to our annual impairment testing. We do not expect the adoption of ASU 2017-04 to have a material effect on our financial statements or disclosures.

Accounting Standards Update 2016-13 – “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”)

In June 2016, the FASB issued ASU 2016-13, which replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses. The update is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2018. We expect to adopt ASU 2016-13 commencing in fiscal year 2020 and are continuing to evaluate the impact that adoption of this update will have on our financial statements or disclosures.



3.	ACQUISITIONS AND DISPOSITIONS

Acquisitions

ILG Acquisition

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

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



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

Fair Values of Assets Acquired and Liabilities Assumed

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



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

_________________________


⁽¹⁾	Goodwill is calculated as total consideration transferred, net of cash acquired, less identified net assets acquired and it represents the value that we expect to obtain from synergies and growth opportunities from our combined operations.

Vacation Ownership Notes Receivable

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

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Inventory

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

Property and Equipment

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

Goodwill

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



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

Intangible Assets

The following table presents the fair values of ILG’s identified intangible assets and their related estimated useful lives as of the Acquisition Date.



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

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⁽¹⁾

The indefinite-lived management contracts, by their terms, continue for the foreseeable horizon. There are no legal, regulatory, contractual, competitive, economic or other factors which limit the period of time over which these resort management contracts are expected to contribute future cash flows. These management contracts are entirely related to the VRI Europe business, which we disposed of in the fourth quarter of 2018.

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

Deferred Revenue

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

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Deferred Income Taxes

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

Debt

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

Securitized Debt from VIEs

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

Pro Forma Results of Operations

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



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

The unaudited pro forma results above include $41 million of ILG acquisition-related costs for the nine months ended September 30, 2018.

ILG Results of Operations

The following table presents the results of Legacy-ILG operations included in our Income Statement for the three and nine months ended September 30, 2019.



($ in millions)	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Revenue	$	458	$	1,371
Net income attributable to common shareholders	$	42	$	108

Other Acquisitions

San Francisco, California

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

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Marco Island, Florida

During the first quarter of 2018, we acquired 20 completed vacation ownership units located at our resort in Marco Island, Florida for $24 million. We accounted for the transaction as an asset acquisition with all of the purchase price allocated to Inventory.



4.	REVENUE

Sources of Revenue by Segment

The following tables detail the sources of revenue by segment for the time periods presented.



	Three Months Ended September 30, 2019
($ in millions)	Vacation Ownership		Exchange & Third-Party Management		Corporate and Other			Total
Sale of vacation ownership products	$	350	$	—	$	—		$	350

Ancillary revenues	62		1		—			63
Management fee revenues	35		12		(3		)	44
Other services revenues	28		62		34			124
Management and exchange	125		75		31			231

Rental	135		14		—			149

Cost reimbursements	286		22		(28		)	280
Revenue from contracts with customers	896		111		3			1,010

Financing	71		1		—			72
Total Revenues	$	967	$	112	$	3		$	1,082



	Three Months Ended September 30, 2018
($ in millions)	Vacation Ownership		Exchange & Third-Party Management		Corporate and Other			Total
Sale of vacation ownership products	$	252	$	—	$	—		$	252

Ancillary revenues	42		—		—			42
Management fee revenues	28		8		(1		)	35
Other services revenues	21		20		8			49
Management and exchange	91		28		7			126

Rental	86		4		—			90

Cost reimbursements	232		8		(6		)	234
Revenue from contracts with customers	661		40		1			702

Financing	48		—		—			48
Total Revenues	$	709	$	40	$	1		$	750

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	Nine Months Ended September 30, 2019
($ in millions)	Vacation Ownership		Exchange & Third-Party Management		Corporate and Other			Total
Sale of vacation ownership products	$	1,001	$	—	$	—		$	1,001

Ancillary revenues	185		3		—			188
Management fee revenues	110		38		(10		)	138
Other services revenues	89		191		103			383
Management and exchange	384		232		93			709

Rental	423		48		1			472

Cost reimbursements	835		68		(84		)	819
Revenue from contracts with customers	2,643		348		10			3,001

Financing	206		3		—			209
Total Revenues	$	2,849	$	351	$	10		$	3,210



	Nine Months Ended September 30, 2018
($ in millions)	Vacation Ownership		Exchange & Third-Party Management		Corporate and Other			Total
Sale of vacation ownership products	$	632	$	—	$	—		$	632

Ancillary revenues	106		—		—			106
Management fee revenues	78		8		(1		)	85
Other services revenues	55		20		8			83
Management and exchange	239		28		7			274

Rental	235		4		—			239

Cost reimbursements	650		8		(6		)	652
Revenue from contracts with customers	1,756		40		1			1,797

Financing	119		—		—			119
Total Revenues	$	1,875	$	40	$	1		$	1,916

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Timing of Revenue from Contracts with Customers by Segment

The following tables detail the timing of revenue from contracts with customers by segment for the time periods presented.



	Three Months Ended September 30, 2019
($ in millions)	Vacation Ownership		Exchange & Third-Party Management		Corporate and Other		Total
Services transferred over time	$	481	$	56	$	3	$	540
Goods or services transferred at a point in time	415		55		—		470
	$	896	$	111	$	3	$	1,010



	Three Months Ended September 30, 2018
($ in millions)	Vacation Ownership		Exchange & Third-Party Management		Corporate and Other		Total
Services transferred over time	$	367	$	23	$	1	$	391
Goods or services transferred at a point in time	294		17		—		311
	$	661	$	40	$	1	$	702



	Nine Months Ended September 30, 2019
($ in millions)	Vacation Ownership		Exchange & Third-Party Management		Corporate and Other		Total
Services transferred over time	$	1,460	$	169	$	10	$	1,639
Goods or services transferred at a point in time	1,183		179		—		1,362
	$	2,643	$	348	$	10	$	3,001



	Nine Months Ended September 30, 2018
($ in millions)	Vacation Ownership		Exchange & Third-Party Management		Corporate and Other		Total
Services transferred over time	$	1,010	$	23	$	1	$	1,034
Goods or services transferred at a point in time	746		17		—		763
	$	1,756	$	40	$	1	$	1,797

Sale of Vacation Ownership Products

Revenues were reduced during the third quarter and first three quarters of 2019 by $6 million and $9 million, respectively, due to changes in our estimate of variable consideration for performance obligations that were satisfied in prior periods.

Receivables, Contract Assets & Contract Liabilities

The following table shows the composition of our receivables and contract liabilities. We had no contract assets at either September 30, 2019 or December 31, 2018.



($ in millions)	At September 30, 2019		At December 31, 2018
Receivables
Accounts receivable	$	126	$	164
Vacation ownership notes receivable, net	2,168		2,039
	$	2,294	$	2,203
Contract Liabilities
Advance deposits	$	185	$	171
Deferred revenue	436		383
	$	621	$	554

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Revenue recognized during the third quarter and first three quarters of 2019 that was included in our contract liabilities balance at December 31, 2018 was $55 million and $258 million, respectively.

Remaining Performance Obligations

Our remaining performance obligations represent the expected transaction price allocated to our contracts that we expect to recognize as revenue in future periods when we perform under the contracts. At September 30, 2019, approximately 90 percent of this amount is expected to be recognized as revenue over the next two years.



5.	INCOME TAXES

Our provision for income taxes is calculated using an estimated annual effective tax rate, based upon expected annual income, less losses in certain jurisdictions, permanent items, statutory rates and planned tax strategies in the various jurisdictions in which we operate. However, discrete items related to prior year tax items are treated separately.

Our interim effective tax rate was 404.42 percent and 5.19 percent for the three months ended September 30, 2019 and September 30, 2018, respectively. The increase in effective tax rate is predominately attributable to a change in our projected mix of earnings in international jurisdictions with differing tax rates and jurisdictions where valuation allowances are recorded, primarily as a result of the ILG Acquisition.

Our interim effective tax rate was 43.20 percent and 58.16 percent for the nine months ended September 30, 2019 and September 30, 2018, respectively. The decrease in the effective tax rate is predominately attributable to the change in the mix of expected annual income, partially offset by unfavorable one-time adjustments primarily as a result of the ILG Acquisition.

We file income tax returns with U.S. federal and state and non-U.S. jurisdictions and are subject to audits in these jurisdictions. Certain of our returns are being audited in various jurisdictions for years 2012 through 2018. Our unrecognized tax benefit balance could change significantly during the next fiscal year as a result of audits in various jurisdictions. During the nine months ended September 30, 2019, our unrecognized tax benefit balance had increases of $57 million and no material decreases, resulting in a total unrecognized tax benefit balance of $59 million at September 30, 2019. Our total unrecognized tax benefit balance that, if recognized, would impact our effective tax rate, was $19 million at September 30, 2019 and $2 million at December 31, 2018.

Other

During 2019, we finalized our purchase price allocation for the ILG Acquisition and recorded a $87 million reserve for Legacy-ILG tax matters prior to the ILG Acquisition. We expect that we will be indemnified for liabilities of $54 million in connection with Legacy-ILG tax matters pursuant to a Tax Matters Agreement dated May 11, 2016 by and among Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”), Vistana Signature Experiences, Inc., and Interval Leisure Group, Inc., and consequently have recorded a corresponding indemnification asset.

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6.	VACATION OWNERSHIP NOTES RECEIVABLE

The following table shows the composition of our vacation ownership notes receivable balances, net of reserves.



	September 30, 2019						December 31, 2018
($ in millions)	Originated		Acquired		Total		Originated		Acquired		Total
Securitized	$	1,169	$	417	$	1,586	$	1,070	$	557	$	1,627
Non-securitized
Eligible for securitization⁽¹⁾	214		11		225		85		22		107
Not eligible for securitization⁽¹⁾	298		59		357		233		72		305
Subtotal	512		70		582		318		94		412
	$	1,681	$	487	$	2,168	$	1,388	$	651	$	2,039

_________________________


⁽¹⁾	Refer to Footnote 7 “Financial Instruments” for a discussion of eligibility of our vacation ownership notes receivable for securitization.

We reflect interest income associated with vacation ownership notes receivable in our Income Statements in the Financing revenues caption. The following table summarizes interest income associated with vacation ownership notes receivable.



	Three Months Ended				Nine Months Ended
($ in millions)	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
Interest income associated with vacation ownership notes receivable — securitized	$	58	$	42	$	176	$	95
Interest income associated with vacation ownership notes receivable — non-securitized	11		3		25		18
Total interest income associated with vacation ownership notes receivable	$	69	$	45	$	201	$	113

Acquired Vacation Ownership Notes Receivable

As part of the ILG Acquisition, we acquired existing portfolios of vacation ownership notes receivable. These notes receivable are accounted for using the expected cash flow method of recognizing discount accretion based on the expected cash flows from the acquired vacation ownership notes receivable pursuant to ASC 310-30, “Loans acquired with deteriorated credit quality” (“ASC 310-30”). At acquisition, we recorded these vacation ownership notes receivable at fair value, which included a credit discount that is accreted as an adjustment to yield over the estimated life of the vacation ownership notes receivable.

The fair value of our acquired vacation ownership notes receivable as of the Acquisition Date was determined using a discounted cash flow method, which calculated a present value of expected future cash flows based on scheduled principal and interest payments over the term of the respective vacation ownership notes receivable, while considering anticipated defaults and early repayments based on historical experience. Consequently, the fair value of the acquired vacation ownership notes receivable recorded on our balance sheet as of the Acquisition Date included an estimate for future uncollectible amounts, which became the historical cost basis for that portfolio going forward.

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The table below presents a rollforward from December 31, 2018 of the accretable yield (interest income) expected to be earned related to our acquired vacation ownership notes receivable, as well as the amount of non-accretable difference at the end of the period. The non-accretable 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 vacation ownership notes receivable.



($ in millions)	Nine Months Ended September 30, 2019
Accretable yield balance at December 31, 2018	$	199
Accretion	(61		)
Reclassification from non-accretable difference	43
Accretable yield balance at September 30, 2019	$	181

Non-accretable difference at September 30, 2019	$	52

The accretable yield is recognized into interest income over the estimated life of the acquired vacation ownership notes receivable using the level yield method. The accretable yield may change in future periods due to changes in the anticipated remaining life of the acquired vacation ownership notes receivable, 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 non-accretable difference.

The cash flow from our acquired vacation ownership notes receivable are remeasured at period end based on expected future cash flows, which takes into consideration an estimated measure of anticipated defaults and early repayments. We consider historical Legacy-ILG vacation ownership notes receivable performance and the current economic environment in developing the expected future cash flows used in the re-measurement of our acquired vacation ownership notes receivable.

The following table shows future contractual principal payments, as well as interest rates for our non-securitized and securitized acquired vacation ownership notes receivable, at September 30, 2019.



	Acquired Vacation Ownership Notes Receivable
($ in millions)	Non-Securitized		Securitized		Total
2019, remaining	$	2	$	12	$	14
2020	6		49		55
2021	7		49		56
2022	7		50		57
2023	7		49		56
Thereafter	41		208		249
Balance at September 30, 2019	$	70	$	417	$	487
Weighted average stated interest rate	13.2%		13.4%		13.4%
Range of stated interest rates	3.5% to 17.9%		6.0% to 16.9%		3.5% to 17.9%

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Originated Vacation Ownership Notes Receivable

Originated vacation ownership notes receivable represent vacation ownership notes receivable originated by Legacy-ILG subsequent to the Acquisition Date and all Legacy-MVW vacation ownership notes receivable. The following table shows future principal payments, net of reserves, as well as interest rates, for our originated non-securitized and securitized originated vacation ownership notes receivable at September 30, 2019.



	Originated Vacation Ownership Notes Receivable
($ in millions)	Non-Securitized		Securitized		Total
2019, remaining	$	18	$	26	$	44
2020	66		104		170
2021	53		113		166
2022	45		121		166
2023	41		125		166
Thereafter	289		680		969
Balance at September 30, 2019	$	512	$	1,169	$	1,681
Weighted average stated interest rate	12.1%		12.7%		12.5%
Range of stated interest rates	0.0% to 18.0%		5.2% to 17.5%		0.0% to 18.0%

For originated vacation ownership notes receivable, we record the difference between the vacation ownership note receivable and the variable consideration included in the transaction price for the sale of the related vacation ownership product as a reserve on our vacation ownership notes receivable.

The following table summarizes the activity related to our originated vacation ownership notes receivable reserve.



	Originated Vacation Ownership Notes Receivable Reserve
($ in millions)	Non-Securitized			Securitized			Total
Balance at December 31, 2018	$	61		$	79		$	140
Increase in vacation ownership notes receivable reserve	62			14			76
Securitizations	(47		)	47			—
Clean-up call⁽¹⁾	19			(19		)	—
Write-offs	(35		)	—			(35		)
Defaulted vacation ownership notes receivable repurchase activity⁽²⁾	28			(28		)	—
Balance at September 30, 2019	$	88		$	93		$	181

_________________________


⁽¹⁾	Refers to our voluntary repurchase of previously securitized non-defaulted vacation ownership notes receivable to retire outstanding vacation ownership notes receivable from our Warehouse Credit Facility.


⁽²⁾	Decrease in securitized vacation ownership notes receivable reserve and increase in non-securitized vacation ownership notes receivable reserve was attributable to the transfer of the reserve when we voluntarily repurchased defaulted securitized vacation ownership notes receivable.

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Credit Quality of Vacation Ownership Notes Receivable

Legacy-MVW Vacation Ownership Notes Receivable

Although we consider loans to owners to be past due if we do not receive payment within 30 days of the due date, we suspend accrual of interest only on those loans that are over 90 days past due. We consider loans over 150 days past due to be in default and fully reserve such amounts. We apply payments we receive for vacation ownership notes receivable on non-accrual status first to interest, then to principal and any remainder to fees. We resume accruing interest when vacation ownership notes receivable are less than 90 days past due. We do not accept payments for vacation ownership notes receivable during the foreclosure process unless the amount is sufficient to pay all past due principal, interest, fees and penalties owed and fully reinstate the note. We write off vacation ownership notes receivable against the reserve once we receive title to the vacation ownership products through the foreclosure or deed-in-lieu process or, in Asia Pacific or Europe, when revocation is complete. For both Legacy-MVW non-securitized and securitized vacation ownership notes receivable, we estimated average remaining default rates of 7.00 percent and 7.01 percent as of September 30, 2019 and December 31, 2018, respectively. A 0.5 percentage point increase in the estimated default rate would have resulted in an increase in our vacation ownership notes receivable reserve of $7 million as of both September 30, 2019 and December 31, 2018.

The following table shows our recorded investment in non-accrual Legacy-MVW vacation ownership notes receivable, which are vacation ownership notes receivable that are 90 days or more past due.



	Legacy-MVW Vacation Ownership Notes Receivable
($ in millions)	Non-Securitized		Securitized		Total
Investment in vacation ownership notes receivable on non-accrual status at September 30, 2019	$	41	$	9	$	50
Investment in vacation ownership notes receivable on non-accrual status at December 31, 2018	$	36	$	9	$	45
Average investment in vacation ownership notes receivable on non-accrual status during the third quarter of 2019	$	41	$	9	$	50
Average investment in vacation ownership notes receivable on non-accrual status during the third quarter of 2018	$	40	$	6	$	46
Average investment in vacation ownership notes receivable on non-accrual status during the first three quarters of 2019	$	39	$	9	$	48
Average investment in vacation ownership notes receivable on non-accrual status during the first three quarters of 2018	$	39	$	7	$	46

The following table shows the aging of the recorded investment in principal, before reserves, in Legacy-MVW vacation ownership notes receivable as of September 30, 2019.



	Legacy-MVW Vacation Ownership Notes Receivable
($ in millions)	Non-Securitized		Securitized		Total
31 – 90 days past due	$	8	$	21	$	29
91 – 150 days past due	3		9		12
Greater than 150 days past due	38		—		38
Total past due	49		30		79
Current	314		1,118		1,432
Total vacation ownership notes receivable	$	363	$	1,148	$	1,511

The following table shows the aging of the recorded investment in principal, before reserves, in Legacy-MVW vacation ownership notes receivable as of December 31, 2018.



	Legacy-MVW Vacation Ownership Notes Receivable
($ in millions)	Non-Securitized		Securitized		Total
31 – 90 days past due	$	7	$	26	$	33
91 – 150 days past due	3		9		12
Greater than 150 days past due	33		—		33
Total past due	43		35		78
Current	235		1,090		1,325
Total vacation ownership notes receivable	$	278	$	1,125	$	1,403

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Legacy-ILG Vacation Ownership Notes Receivable

On an ongoing basis, we monitor credit quality of our Legacy-ILG vacation ownership notes receivable portfolio based on payment activity as follows:


•	Current — The vacation ownership note receivable is in good standing as payments and reporting are current per the terms contractually stipulated in the agreement.


•	Delinquent — We consider a vacation ownership note receivable to be delinquent based on the contractual terms of each individual financing agreement.

•

Non-performing — Our vacation ownership notes receivable are generally considered non-performing if interest or principal is more than 30 days past due. All non-performing vacation ownership notes receivable are placed on non-accrual status when they are over 90 days past due. We resume accruing interest when vacation ownership notes receivable are less than 90 days past due. 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.

We consider vacation ownership notes receivable to be in default upon reaching 120 days outstanding. We use the origination of the vacation ownership notes receivable by brand (Hyatt, Sheraton or Westin) and the FICO scores of the customer as the primary credit quality indicators for our Legacy-ILG vacation ownership notes receivable, as historical performance indicates that 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 customers.

At September 30, 2019 and December 31, 2018, the weighted average FICO score within our consolidated Legacy-ILG vacation ownership notes receivable pools was 711 and 710, respectively, based upon the outstanding vacation ownership notes receivable balance at time of origination. The average estimated rate for all future defaults for our Legacy-ILG consolidated outstanding pool of vacation ownership notes receivable as of September 30, 2019 and December 31, 2018 was 12.47 percent and 12.37 percent, respectively. A 0.5 percentage point increase in the estimated default rate on the Legacy-ILG originated vacation ownership notes receivable would have resulted in an increase in the related vacation ownership notes receivable reserve of $2 million and $1 million as of September 30, 2019 and December 31, 2018, respectively.

The following table shows the Legacy-ILG acquired vacation ownership notes receivable by brand and FICO score as of September 30, 2019.



	Acquired Vacation Ownership Notes Receivable
($ in millions)	700 +		600 - 699		< 600		No Score⁽¹⁾		Total
Westin	$	113	$	63	$	5	$	15	$	196
Sheraton	105		92		17		40		254
Hyatt	17		11		1		1		30
Other	4		1		—		2		7
	$	239	$	167	$	23	$	58	$	487

_________________________


⁽¹⁾	Vacation ownership notes receivable with no FICO score primarily relate to non-U.S. resident borrowers.

The following table shows the Legacy-ILG acquired vacation ownership notes receivable by brand and FICO score as of December 31, 2018.



	Acquired Vacation Ownership Notes Receivable
($ in millions)	700 +		600 - 699		< 600		No Score⁽¹⁾		Total
Westin	$	154	$	82	$	6	$	21	$	263
Sheraton	145		124		21		55		345
Hyatt	20		13		2		—		35
Other	4		1		—		3		8
	$	323	$	220	$	29	$	79	$	651

_________________________


⁽¹⁾	Vacation ownership notes receivable with no FICO score primarily relate to non-U.S. resident borrowers.

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The following table shows the Legacy-ILG originated vacation ownership notes receivable by brand and FICO score as of September 30, 2019.



	Originated Vacation Ownership Notes Receivable
($ in millions)	700 +		600 - 699		< 600		No Score⁽¹⁾		Total
Westin	$	101	$	39	$	4	$	18	$	162
Sheraton	79		51		10		29		169
Hyatt	13		6		—		—		19
	$	193	$	96	$	14	$	47	$	350

_________________________


⁽¹⁾	Vacation ownership notes receivable with no FICO score primarily relate to non-U.S. resident borrowers.

The following table shows the Legacy-ILG originated vacation ownership notes receivable by brand and FICO score as of December 31, 2018.



	Originated Vacation Ownership Notes Receivable
($ in millions)	700 +		600 - 699		< 600		No Score⁽¹⁾		Total
Westin	$	43	$	11	$	1	$	7	$	62
Sheraton	28		17		3		9		57
Hyatt	5		2		—		—		7
	$	76	$	30	$	4	$	16	$	126

_________________________


⁽¹⁾	Vacation ownership notes receivable with no FICO score primarily relate to non-U.S. resident borrowers.

The following table shows the aging of the recorded investment in principal, before reserves, in Legacy-ILG originated vacation ownership notes receivable as of September 30, 2019 and December 31, 2018.



	Originated Vacation Ownership Notes Receivable
					Delinquent						Defaulted⁽¹⁾		Total Delinquent & Defaulted
($ in millions)	Receivables		Current		30 - 59 Days		60 - 89 Days		90 - 119 Days		> 120 Days		Total Delinquent & Defaulted
As of September 30, 2019	$	350	$	340	$	5	$	3	$	2	$	—	$	10

As of December 31, 2018	$	126	$	124	$	2	$	—	$	—	$	—	$	2

_________________________


⁽¹⁾	Vacation ownership notes receivable equal to or greater than 120 days are considered in default.

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7.	FINANCIAL INSTRUMENTS

The following table shows the carrying values and the estimated fair values of financial assets and liabilities that qualify as financial instruments, determined in accordance with the authoritative guidance for disclosures regarding the fair value of financial instruments. Considerable judgment is required in interpreting market data to develop estimates of fair value. The use of different market assumptions and/or estimation methodologies could have a material effect on the estimated fair value amounts. The table excludes Cash and cash equivalents, Restricted cash, Accounts receivable, Accounts payable, Advance deposits and Accrued liabilities, all of which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments. The table also excludes acquired vacation ownership notes receivable which are remeasured at each period end based on expected future cash flows. See Footnote 6 “Vacation Ownership Notes Receivable” for additional information on our acquired vacation ownership notes receivable.



	At September 30, 2019						At December 31, 2018
($ in millions)	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Originated vacation ownership notes receivable	$	1,681		$	1,717		$	1,388		$	1,413
Other assets	42			42			66			66
Total financial assets	$	1,723		$	1,759		$	1,454		$	1,479

Securitized debt, net	$	(1,686	)	$	(1,717	)	$	(1,714	)	$	(1,718	)
Exchange Notes, net	(88		)	(91		)	(88		)	(87		)
Senior Unsecured Notes, net	(742		)	(814		)	(741		)	(726		)
IAC Notes	(142		)	(144		)	(141		)	(140		)
Term Loan, net	(882		)	(899		)	(888		)	(887		)
Revolving Corporate Credit Facility, net	(221		)	(221		)	—			—
Convertible Notes, net	(205		)	(231		)	(199		)	(198		)
Non-interest bearing note payable, net	—			—			(30		)	(30		)
Total financial liabilities	$	(3,966	)	$	(4,117	)	$	(3,801	)	$	(3,786	)

Originated Vacation Ownership Notes Receivable



	At September 30, 2019				At December 31, 2018
($ in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Originated vacation ownership notes receivable
Securitized	$	1,169	$	1,199	$	1,070	$	1,093

Eligible for securitization	214		220		85		87
Not eligible for securitization	298		298		233		233
Non-securitized	512		518		318		320
	$	1,681	$	1,717	$	1,388	$	1,413

We estimate the fair value of our originated vacation ownership notes receivable that have been securitized 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 uses default rates, prepayment rates, coupon rates and loan terms for our securitized vacation ownership notes receivable portfolio as key drivers of risk and relative value to determine the fair value of the underlying vacation ownership notes receivable. We concluded that this fair value measurement should be categorized within Level 3.

Due to factors that impact the general marketability of our originated vacation ownership notes receivable that have not been securitized, as well as current market conditions, we bifurcate our non-securitized vacation ownership notes receivable at each balance sheet date into those eligible and not eligible for securitization using criteria applicable to current securitization transactions in the ABS market. Generally, vacation ownership notes receivable are considered not eligible for securitization if any of the following attributes are present: (1) payments are greater than 30 days past due; (2) the first payment has not been received; or (3) the collateral is located in Asia or Europe. In some cases, eligibility may also be determined based on the credit score of the borrower, the remaining term of the loans and other similar factors that may reflect investor demand in a securitization transaction or the cost to effectively securitize the vacation ownership notes receivable.

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The table above shows the bifurcation of our originated vacation ownership notes receivable that have not been securitized into those eligible and not eligible for securitization based upon the aforementioned eligibility criteria.

We estimate the fair value of the portion of our originated vacation ownership notes receivable that have not been securitized that we believe will ultimately be securitized in the same manner as originated vacation ownership notes receivable that have been securitized. We value the remaining originated vacation ownership notes receivable that have not been securitized at their carrying value, rather than using our pricing model. We believe that the carrying value of these particular vacation ownership notes receivable approximates fair value because the stated, or otherwise imputed, interest rates of these loans are consistent with current market rates and the reserve for these vacation ownership notes receivable appropriately accounts for risks in default rates, prepayment rates, discount rates and loan terms. We concluded that this fair value measurement should be categorized within Level 3.

Other Assets

Other assets include $36 million of company owned insurance policies (the “COLI policies”), acquired on the lives of certain participants in the Marriott Vacations Worldwide Deferred Compensation Plan, that are held in a rabbi trust. The carrying value of the COLI policies is equal to their cash surrender value (Level 2 inputs). In addition, we have investments in marketable securities of $6 million that are marked to market as trading securities using quoted market prices (Level 1 inputs).

Securitized Debt

We generate cash flow estimates by modeling all bond tranches for our active vacation ownership notes receivable securitization transactions, with consideration for the collateral specific to each tranche. The key drivers in our analysis include default rates, prepayment rates, bond interest rates and other structural factors, which we use to estimate the projected cash flows. In order to estimate market credit spreads by rating, we obtain indicative credit spreads from investment banks that actively issue and facilitate the market for vacation ownership securities and determine an average credit spread by rating level of the different tranches. We then apply those estimated market spreads to swap rates in order to estimate an underlying discount rate for calculating the fair value of the active bonds payable. We concluded that this fair value measurement should be categorized within Level 3.

Exchange Notes and IAC Notes

We estimate the fair values of our Exchange Notes and our IAC Notes (as defined in Footnote 14 “Debt”) using the redemption prices set forth in the redemption notices provided to holders of the Exchange Notes and the IAC Notes during the third quarter of 2019. We concluded that these fair value measurements should be categorized within Level 1. See Footnote 14 “Debt” for a discussion of the 2028 Notes (as defined in Footnote 14 “Debt”) that were issued subsequent to the third quarter of 2019.

Senior Unsecured Notes

We estimate the fair value of our Senior Unsecured Notes (as defined in Footnote 14 “Debt”) using quoted market prices as of the last trading day for the quarter; however these notes have only a limited trading history and volume and as such this fair value estimate is not necessarily indicative of the value at which the Senior Unsecured Notes could be retired or transferred. We concluded that this fair value measurement should be categorized within Level 2.

Term Loan

We estimate the fair value of our Term Loan (as defined in Footnote 14 “Debt”) using quotes from securities dealers as of the last trading day for the quarter; however these notes have only a limited trading history and volume and as such this fair value estimate is not necessarily indicative of the value at which the Term Loan could be retired or transferred. We concluded that this fair value measurement should be categorized within Level 3.

Revolving Corporate Credit Facility

We estimate that the fair value of our Revolving Corporate Credit Facility (as defined in Footnote 11 “Contingencies and Commitments”) approximates its gross carrying value as the contractual interest rate is variable plus an applicable margin. We concluded that this fair value measurement should be categorized within Level 3.

Convertible Notes

We estimate the fair value of our Convertible Notes (as defined in Footnote 14 “Debt”) using quoted market prices as of the last trading day for the quarter; however these notes have only a limited trading history and volume and as such this fair value estimate is not necessarily indicative of the value at which the Convertible Notes could be retired or transferred. We concluded that this fair value measurement should be categorized within Level 2. The difference between the carrying value and the fair value is primarily attributed to the underlying conversion feature and the spread between the conversion price and the market value of the shares underlying the Convertible Notes.



8.	EARNINGS PER SHARE

Basic earnings per common share attributable to common shareholders is calculated by dividing net income or loss attributable to common shareholders by the weighted average number of shares of common stock outstanding during the reporting period. Treasury stock is excluded from the weighted average number of shares of common stock outstanding. Diluted earnings per common share attributable to common shareholders is calculated to give effect to all potentially dilutive common shares that were outstanding during the reporting period, except in periods when there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect. The dilutive effect of outstanding equity-based compensation awards is reflected in diluted earnings per common share applicable to common shareholders by application of the treasury stock method using average market prices during the period.

Our calculation of diluted earnings per share attributable to common shareholders reflects our intent to settle conversions of the Convertible Notes through a combination settlement, which contemplates repayment in cash of the principal amount and repayment in shares of our common stock of any excess of the conversion value over the principal amount (the “conversion premium”). Therefore, we include only the shares that may be issued with respect to any conversion premium in total dilutive weighted average shares outstanding, which we calculate using the treasury stock method. As no conversion premium existed as of either September 30, 2019 or September 30, 2018, there was no dilutive impact from the Convertible Notes for either the third quarter or first three quarters of 2019 or 2018.

The shares issuable on exercise of the Warrants (as defined in Footnote 14 “Debt”) sold in connection with the issuance of the Convertible Notes will not impact the total dilutive weighted average shares outstanding unless and until the price of our common stock exceeds the strike price, which was subject to adjustment during the third quarter of 2019 to $175.63, as described in Footnote 14 “Debt.” If and when the price of our common stock exceeds the strike price of the Warrants, we will include the dilutive effect of the additional shares that may be issued upon exercise of the Warrants in total dilutive weighted average shares outstanding, which we calculate using the treasury stock method. The Convertible Note Hedges (as defined in Footnote 14 “Debt”) purchased in connection with the issuance of the Convertible Notes are considered to be anti-dilutive and will not impact our calculation of diluted earnings per share attributable to common shareholders.

The table below illustrates the reconciliation of the earnings and number of shares used in our calculation of basic and diluted earnings per share attributable to common shareholders.



	Three Months Ended						Nine Months Ended
(in millions, except per share amounts)	September 30, 2019			September 30, 2018			September 30, 2019⁽¹⁾		September 30, 2018⁽¹⁾
Computation of Basic Earnings Per Share Attributable to Common Shareholders
Net (loss) income attributable to common shareholders	$	(9	)	$	(36	)	$	64	$	11
Shares for basic earnings per share	43.4			32.8			44.5		28.8
Basic (loss) earnings per share	$	(0.21	)	$	(1.08	)	$	1.44	$	0.39
Computation of Diluted Earnings Per Share Attributable to Common Shareholders
Net (loss) income attributable to common shareholders	$	(9	)	$	(36	)	$	64	$	11
Shares for basic earnings per share	43.4			32.8			44.5		28.8
Effect of dilutive shares outstanding
Employee stock options and SARs	—			—			0.3		0.4
Restricted stock units	—			—			0.3		0.2
Shares for diluted earnings per share	43.4			32.8			45.1		29.4
Diluted (loss) earnings per share	$	(0.21	)	$	(1.08	)	$	1.43	$	0.38

_______________________________

⁽¹⁾

The computations of diluted earnings per share attributable to common shareholders exclude approximately 401,000 and 269,000 shares of common stock, the maximum number of shares issuable as of September 30, 2019 and September 30, 2018, respectively, upon the vesting of certain performance-based awards, because the performance conditions required to be met for the shares subject to such awards to vest were not achieved by the end of the reporting period.

In accordance with the applicable accounting guidance for calculating earnings per share, for the first three quarters of 2019, we excluded from our calculation of diluted earnings per share 249,737 shares underlying stock appreciation rights (“SARs”) that may settle in shares of common stock because the exercise prices of such SARs, which ranged from $97.53 to $143.38, were greater than the average market price for the applicable period.

For the first three quarters of 2018, we excluded from our calculation of diluted earnings per share 56,649 shares underlying SARs that may settle in shares of common stock because the exercise price of $143.38 of such SARs was greater than the average market price for the applicable period.



9.	INVENTORY

The following table shows the composition of our inventory balances:



($ in millions)	At September 30, 2019		At December 31, 2018
Finished goods⁽¹⁾	$	840	$	843
Work-in-progress	59		9
Real estate inventory	899		852
Other	11		11
	$	910	$	863

_________________________


⁽¹⁾	Represents completed inventory that is either registered for sale as vacation ownership interests, or unregistered and available for sale in its current form, as well as inventory expected to be acquired pursuant to estimated future foreclosures.

We value vacation ownership products at the lower of cost or fair market value less costs to sell, in accordance with applicable accounting guidance, and we record operating supplies at the lower of cost (using the first-in, first-out method) or net realizable value. Product cost true-up activity relating to vacation ownership products increased carrying values of inventory by $2 million during each of the first three quarters of 2019 and 2018.

In addition to the above, at September 30, 2019, we had $58 million of completed vacation ownership units which have been classified as a component of Property and equipment until the time at which they are legally registered for sale as vacation ownership products.



10.	PROPERTY AND EQUIPMENT

The following table details the composition of our property and equipment balances:



($ in millions)	At September 30, 2019			At December 31, 2018
Land and land improvements	$	305		$	466
Buildings and leasehold improvements	402			404
Furniture, fixtures and other equipment	88			88
Information technology	320			297
Construction in progress	51			32
	1,166			1,287
Accumulated depreciation	(396		)	(336		)
	$	770		$	951

As a result of the ILG Acquisition, we performed a comprehensive review to evaluate the strategic fit of the land holdings and operating hotels in our Vacation Ownership segment. A key focus of our comprehensive review was to evaluate opportunities to reduce holdings in markets where we have excess supply so that future inventory spend can be focused on markets that create incremental cost-effective sales locations in areas of high customer demand. We evaluated each asset in the context of its current and anticipated product form, our inventory needs and our operating strategy. During the third quarter of 2019, we completed our evaluation and identified several assets for disposition which we believe will generate cash proceeds equivalent to their estimated fair value of $160 million to $220 million over the next several years.

As a result of the change in our development strategy, in the third quarter of 2019, we recorded a non-cash impairment charge of $72 million, of which $61 million related to land and land improvements associated with future phases of three existing resorts, primarily attributable to the fact that the book values of these assets include the historical allocations of common costs incurred when we built the infrastructure of these resorts, $9 million related to a land parcel held for future development and $2 million related to an ancillary business, as the book values of these assets were in excess of the estimated fair values of these assets. We also reviewed the remainder of the assets identified for disposition and determined that no other impairment charges were necessary.

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We used a combination of the market and income approaches to estimate the fair value of these assets. Under the market approach, a Level 2 input, fair value is measured through an analysis of sales and offerings of comparable property which are adjusted to reflect differences between the asset being valued and the comparable assets, such as location, time and terms of sales, utility and physical characteristics. Under the income approach, a Level 3 input, fair value is measured through a discounted cash flow. Under the income approach, we contemplated alternative uses to comply with the highest and best use provisions of ASC 820.

In addition, during the third quarter of 2019, we recorded a non-cash impairment charge of $1 million related to an ancillary asset located at a Vacation Ownership segment property in Europe.

During the second quarter of 2019, we entered into a contract to sell land and land improvements associated with a future phase of an existing resort located in Orlando, Florida for $10 million, which was less than the carrying value of the land and land improvements. As a result, we recorded a non-cash impairment of $26 million in the first three quarters of 2019. The impairment is primarily attributable to the fact that the book value of the assets to be sold exceeds the sales price because the book value includes allocations of common costs incurred when we built the infrastructure for the resort, including future phases.



11.	CONTINGENCIES AND COMMITMENTS

Commitments and Letters of Credit

As of September 30, 2019, we had the following commitments outstanding:


•	We have various contracts for the use of information technology hardware and software that we use in the normal course of business. Our aggregate commitments under these contracts were $67 million, of which we expect $13 million, $26 million, $15 million, $8 million and $5 million will be paid in the remainder of 2019, 2020, 2021, 2022 and 2023, respectively.


•	We have commitments of $2 million to subsidize operating costs of vacation ownership property owners’ associations, which we expect to pay in the remainder of 2019.

•

We have a commitment to purchase an operating property located in New York, New York for $182 million, of which $7 million is attributable to a related finance lease arrangement and recorded in Debt. We expect to acquire the units in the property in their current form, over time, and we expect to make payments for these units of $120 million and $62 million in 2020 and 2021, respectively. We currently manage this property, which was rebranded as Marriott Vacation Club Pulse, New York City. See Footnote 17 “Variable Interest Entities” for additional information on this transaction and our activities relating to the variable interest entity involved in this transaction.

•

We have a commitment to purchase 88 vacation ownership units located in Bali, Indonesia for use in our Vacation Ownership segment, contingent upon completion of construction to agreed-upon standards within specified timeframes. We expect to complete the acquisition in 2020 and to make the remaining payments with respect to these units when specific construction milestones are completed, as follows: $3 million in 2019, $23 million in 2020 and $2 million in 2021.

•

We have a remaining commitment to purchase an operating property located in San Francisco, California for $101 million. We expect to acquire the operating property over time and expect to make payments for the operating property as follows: $55 million in 2020 and $46 million in 2021. We currently manage this property, which was rebranded as Marriott Vacation Club Pulse, San Francisco, during 2019. See Footnote 17 “Variable Interest Entities” for additional information on this transaction and our activities relating to the variable interest entity involved in this transaction and Footnote 3 “Acquisitions and Dispositions” for information on the purchase that occurred during the third quarter of 2019.

Surety bonds issued as of September 30, 2019 totaled $104 million, the majority of which were requested by federal, state or local governments in connection with our operations.

As of September 30, 2019, we had $3 million of letters of credit outstanding under our $600 million revolving credit facility (the “Revolving Corporate Credit Facility”). In addition, as of September 30, 2019, we had $4 million in letters of credit outstanding related to and in lieu of reserves required for several vacation ownership notes receivable securitization transactions outstanding. These letters of credit are not issued pursuant to, nor do they impact our borrowing capacity under, the Revolving Credit Facility.

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We estimate the cash outflow associated with completing the phases of our existing portfolio of vacation ownership projects currently under development will be approximately $9 million, of which $4 million is included within liabilities on our Balance Sheet at September 30, 2019. 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 by the end of 2020.

Guarantees

Certain of our rental management agreements in our Exchange & Third-Party Management segment provide for owners of properties we manage to receive specified percentages or guaranteed amounts of the rental revenue generated under our 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 retains the balance (if any) as its fee or makes up the deficit. At September 30, 2019, our maximum exposure under these guarantees is $33 million, of which $4 million, $10 million, $9 million, $4 million, $2 million and $4 million relate to the remainder of 2019, 2020, 2021, 2022, 2023 and thereafter. In addition, our maximum exposure under other guarantees is $3 million.

Loss Contingencies

In March 2017, RCHFU, L.L.C. and other owners at The Ritz-Carlton Club, Aspen Highlands (“RCC Aspen Highlands”) filed a complaint in an action pending in the U.S. District Court for the District of Colorado against us and certain third parties, alleging that their fractional interests were devalued by the affiliation of the RCC Aspen Highlands and other Ritz-Carlton Clubs with our points-based Marriott Vacation Club Destinations (“MVCD”) program. The plaintiffs are seeking compensatory damages, disgorgement, fees and costs.

In May 2016, a purported class-action lawsuit was filed in the U.S. District Court for the Middle District of Florida by Anthony and Beth Lennen against us and certain third parties. The complaint challenged the characterization of the beneficial interests in the MVCD trust that are sold to customers as real estate interests under Florida law, the structure of the trust, and associated operational aspects of the trust. The plaintiffs sought declaratory relief, an unwinding of the MVCD product, and punitive damages. In August 2019, the District Court granted our motion for judgment on the pleadings and dismissed the case. The plaintiffs have appealed the ruling.

In December 2016, Flora and Bruce Gillespie and other owners and former owners of fractional interests at the Fifth and Fifty-Fifth Residence Club located within The St. Regis, New York (the “St. Regis NY Club”) filed an action in the U.S. District Court for the Southern District of New York against ILG, certain of its subsidiaries, and certain third parties alleging that 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 breached the relevant agreements and harmed the value of plaintiffs’ fractional interests. The plaintiffs are seeking compensatory damages, rescission, disgorgement, fees and costs.

In February 2017, the owners’ association for the St. Regis NY Club filed a separate suit against ILG and certain of its subsidiaries in the U.S. District Court for the Southern District of New York, which was amended to add Marriott International and Starwood as additional defendants in March 2017. The lawsuit was subsequently transferred to the U.S. District Court for the Middle District of Florida. The operative complaint alleges that the sponsor of the St. Regis NY Club (St. Regis Residence Club, New York, Inc.), the St. Regis NY Club manager (St. Regis New York Management, Inc.), and certain affiliated entities, as well as Marriott International and Starwood, breached their fiduciary duties related to sale and rental practices, and further alleges tortious interference with the management agreement, unjust enrichment, and anticompetitive conduct. The amended complaint also alleges anticompetitive conduct in connection with the renewal of the St. Regis NY Club management agreement. The plaintiff is seeking declaratory relief in connection with the Starpoint conversion program and the exchange program at the St. Regis NY Club, unspecified damages, and disgorgement of payments under the management and purchase agreements.

In April 2019, a purported class-action lawsuit was filed by Alan and Marjorie Helman and others against us in the Superior Court of the Virgin Islands, Division of St. Thomas alleging that their fractional interests were devalued by the affiliation of The Ritz-Carlton Club, St. Thomas and other Ritz-Carlton Clubs with our MVCD program. The lawsuit was subsequently removed to the U.S. District Court for the District of the Virgin Islands. The plaintiffs are seeking unspecified damages, disgorgement of profits, fees and costs.

In May 2019, the G.A. Resort Condominium Association Inc., the owners’ association for the fractional owners at the Hyatt Residence Club Grand Aspen resort (“HRC Grand Aspen”) filed a lawsuit against us in the District Court for the County of Pitkin, Colorado relating to the transfer of ownership of developer-owned fractional interests at HRC Grand Aspen to the HPC Trust Club for sale and use as a part of the Hyatt Residence Club Portfolio Program. The lawsuit was subsequently removed to the U.S. District Court for the District of Colorado. The plaintiff is seeking termination of the management agreement with the owners’ association, the annulment of certain amendments to governing documents at HRC Grand Aspen,

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the removal of fractional interests at HRC Grand Aspen from the HPC Trust Club, unspecified damages, disgorgement of profits, fees and costs.

We believe we have meritorious defenses to the claims in each of the above matters and intend to vigorously defend each matter.

In the ordinary course of our business, various claims and lawsuits have been filed or are pending against us. A number of these lawsuits and claims may exist at any given time. We record and accrue for legal contingencies when we determine that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In making such determinations, we evaluate, among other things, the degree of probability of an unfavorable outcome and, when it is probable that a liability has been incurred, our ability to make a reasonable estimate of loss. We review these accruals each reporting period and make revisions based on changes in facts and circumstances.

We have not accrued for any of the pending matters described above and we cannot estimate a range of the potential liability associated with these pending matters, if any, at this time. We have accrued for other claims and lawsuits, but the amount accrued is not material in the aggregate. For matters not requiring accrual, we do not believe that the ultimate outcome of such matters, individually and in the aggregate, will materially harm our financial position, cash flows, or overall trends in results of operations based on information currently available. However, legal proceedings are inherently uncertain, and while we believe that our accruals are adequate and/or we have valid defenses to the claims asserted, unfavorable rulings could occur that could, individually or in the aggregate, have a material adverse effect on our business, financial condition, or operating results.

Other

During June 2018, we identified forged and fraudulently induced electronic payment disbursements we made to third parties in an aggregate amount of $10 million resulting from unauthorized third-party access to our email system. Upon detection, we immediately notified law enforcement authorities and relevant financial institutions and commenced a forensic investigation. During 2018, we recovered $6 million. During the second quarter of 2019, we received $3 million from our insurance company as final settlement of our claim, and the insurance company waived the requirement for us to reimburse the insurance company for any monies subsequently recovered. We recorded a gain of $3 million in the (Losses) gains and other (expense) income, net line of our Income Statement for the first three quarters of 2019. Any additional recoveries will be recorded in our results in the future. We have concluded that this event did not involve access to any of our other systems. No other misappropriation of assets was identified during our investigation.

Insurance Recoveries

In September 2017, over 20 of our Legacy-MVW properties were impacted by Hurricane Irma and Hurricane Maria and, as a result, as of December 31, 2017, we accrued $1 million for the estimated property damage insurance deductibles and impairment of property and equipment, which was recorded in the Gains and other income, net line on our Income Statement for the year ended December 31, 2017. In 2018, we received $32 million of insurance proceeds related to the settlement of Legacy-MVW business interruption insurance claims arising from Hurricane Irma. These proceeds, and the related deductible of $3 million, were recorded net in the Gains and other income, net line on our Income Statement for the year ended December 31, 2018. During the first quarter of 2019, we recorded an additional $9 million of other income relating to the final settlement of these business interruption insurance claims, which was recorded in the (Losses) gains and other (expense) income, net line on our Income Statement for the nine months ended September 30, 2019.

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12.	LEASES

We account for leases in accordance with ASC 842, which we adopted using the optional transition method in the period of adoption as of January 1, 2019, without retrospective application to comparative periods. See Footnote 2 “Significant Accounting Policies and Recent Accounting Standards” for additional information.

Operating leases include lease arrangements for various land, corporate facilities, real estate and equipment. We also have a long-term land lease for land underlying an operating hotel (term of 50 years). Corporate facilities leases are for office space, including our corporate headquarters in Orlando, Florida, and have lease terms that range from nine to 14 years. Other operating leases are primarily for office and retail space, as well as various equipment supporting our operations, with varying terms and renewal option periods.

Finance leases (analogous to capital leases under ASC 840) include lease arrangements for ancillary and operations space for which it is reasonably certain we will exercise the option to purchase the underlying assets in connection with the commitment to purchase the associated operating property. See Footnote 11 “Contingencies and Commitments” for additional information regarding these transactions. In addition, we also lease various equipment supporting our operations and classify these leases as finance leases in accordance with ASC 842. The depreciable life of these assets is limited to the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Right-of-use assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. For purposes of calculating lease liabilities, lease terms may be deemed to include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Macro-economic conditions are the primary factor used to estimate whether an option to extend a lease term will be exercised or not. For existing leases that commenced prior to the adoption of ASC 842, we made an accounting policy election to use our incremental borrowing rate, considering the remaining lease term and remaining minimum rental payments during transition, in establishing our lease liabilities. For new leases entered into after the adoption of ASC 842, we will use an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Certain of our lease agreements include variable rental payments that are based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation.

The following table presents the carrying values of our leases and the classification on our Balance Sheet as of September 30, 2019.



($ in millions)	Balance Sheet Classification	At September 30, 2019
Operating lease assets	Other assets	$	116
Finance lease assets	Property and equipment	13
		$	129

Operating lease liabilities	Accrued liabilities	$	121
Finance lease liabilities	Debt	14
		$	135

The following table presents the lease costs and the classification on our Income Statement for the three and nine months ended September 30, 2019.



($ in millions)	Income Statement Classification	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease cost	Marketing and sales expense General and administrative expense	$	7	$	24
Finance lease cost
Amortization of right-of-use assets	Depreciation and amortization	1		3
Interest on lease liabilities	Interest expense	—		1
Variable lease cost	Marketing and sales expense	2		4
		$	10	$	32

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The following table presents the maturity of our operating and financing lease liabilities as of September 30, 2019.



($ in millions)	Operating Leases			Finance Leases⁽¹⁾		Total
2019, remaining	$	8		$	1	$	9
2020	29			11		40
2021	22			2		24
2022	18			—		18
2023	16			—		16
Thereafter	101			—		101
Total lease payments	194			14		208
Less: Imputed interest	(73		)	—		(73		)
	$	121		$	14	$	135

_________________________


⁽¹⁾	Finance lease payments include $7 million related to a residual value guarantee associated with a purchase commitment for an operating property in New York, New York. See Footnote 11 “Contingencies and Commitments” for additional information regarding this transaction.

Lease Term and Discount Rate



	At September 30, 2019
Weighted-average remaining lease term (in years)
Operating leases	11.4 years
Finance leases	1.2 years
Weighted-average discount rate
Operating leases	6.1%
Finance leases	5.0%

Other Information



($ in millions)	Nine Months Ended September 30, 2019
Cash paid for amounts included in measurement of lease liabilities
Operating cash flows for finance leases	$	1
Operating cash flows for operating leases	33
Financing cash flows for finance leases	11
	$	45

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13.	SECURITIZED DEBT

The following table provides detail on our securitized debt, net of unamortized debt issuance costs.



($ in millions)	At September 30, 2019			At December 31, 2018
Vacation ownership notes receivable securitizations, gross⁽¹⁾	$	1,624		$	1,590
Unamortized debt discount and issuance costs	(14		)	(11		)
	1,610			1,579

Warehouse Credit Facility, gross⁽²⁾	56			116
Unamortized debt issuance costs	—			(1		)
	56			115

Other⁽³⁾	20			20
	$	1,686		$	1,714

_________________________


⁽¹⁾	Interest rates as of September 30, 2019 range from 2.2% to 6.3%, with a weighted average interest rate of 2.9%


⁽²⁾	Effective interest rate as of September 30, 2019 was 3.3%


⁽³⁾	Non-recourse

See Footnote 17 “Variable Interest Entities” for a discussion of the collateral for the non-recourse debt associated with the securitized vacation ownership notes receivable and our non-recourse warehouse credit facility (the “Warehouse Credit Facility”). The debt associated with our vacation ownership notes receivable securitizations and our Warehouse Credit Facility is non-recourse to us.

Vacation Ownership Notes Receivable Securitizations

On May 23, 2019, we completed the securitization of a pool of $459 million of vacation ownership notes receivable. In connection with the securitization, investors purchased in a private placement $450 million in vacation ownership loan backed notes from MVW 2019-1 LLC (the “2019-1 LLC”). Three classes of vacation ownership loan backed notes were issued by the 2019-1 LLC: $350 million of Class A Notes, $67 million of Class B Notes and $33 million of Class C Notes. The Class A Notes have an interest rate of 2.89 percent, the Class B Notes have an interest rate of 3.00 percent and the Class C Notes have an interest rate of 3.33 percent, for an overall weighted average interest rate of 2.94 percent.

On October 10, 2019, subsequent to the third quarter of 2019, we completed the securitization of a pool of $315 million of vacation ownership notes receivable. Approximately $236 million of the vacation ownership notes receivable were purchased on October 10, 2019 by MVW 2019-2 LLC (the “2019-2 LLC”), and we expect the remaining vacation ownership notes receivable to be purchased by the 2019-2 LLC prior to March 31, 2020. The 2019-2 LLC holds the remaining proceeds, which will be released as the remaining vacation ownership notes receivable are purchased. On November 7, 2019, an additional $44 million of the remaining vacation ownership notes receivable were purchased and $42 million was released from restricted cash. Any funds not used to purchase vacation ownership notes receivable will be returned to the investors. Three classes of vacation ownership loan backed notes were issued by the 2019-2 LLC: $232 million of Class A Notes, $54 million of Class B Notes and $23 million of Class C Notes. The Class A Notes have an interest rate of 2.22 percent, the Class B Notes have an interest rate of 2.44 percent and the Class C Notes have an interest rate of 2.68 percent, for an overall weighted average interest rate of 2.29 percent.

Each of the securitized vacation ownership notes receivable transactions contains various triggers relating to the performance of the underlying vacation ownership notes receivable. If a pool of securitized vacation ownership notes receivable fails to perform within the pool’s established parameters (default or delinquency thresholds vary by transaction), transaction provisions effectively redirect the monthly excess spread we would otherwise receive from that pool (attributable to the interests we retained) to accelerate the principal payments to investors (taking into account the subordination of the different tranches to the extent there are multiple tranches) until the performance trigger is cured. During the third quarter of 2019, and as of September 30, 2019, no securitized vacation ownership notes receivable pools were out of compliance with their respective established parameters. As of September 30, 2019, we had 11 securitized vacation ownership notes receivable pools outstanding.

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As the contractual terms of the underlying securitized vacation ownership notes receivable determine the maturities of the non-recourse debt associated with them, actual maturities may occur earlier than shown below due to prepayments by the vacation ownership notes receivable obligors.

The following table shows scheduled future principal payments for our securitized debt as of September 30, 2019.



	Vacation Ownership Notes Receivable Securitizations		Warehouse Credit Facility		Other		Total
($ in millions)	Vacation Ownership Notes Receivable Securitizations		Warehouse Credit Facility		Other		Total
Payments Year
2019, remaining	$	60	$	1	$	—	$	61
2020	208		3		2		213
2021	190		52		3		245
2022	183		—		2		185
2023	176		—		3		179
Thereafter	807		—		10		817
	$	1,624	$	56	$	20	$	1,700

Warehouse Credit Facility

The Warehouse Credit Facility, which has a borrowing capacity of $250 million, allows for the securitization of Legacy-MVW vacation ownership notes receivable on a revolving non-recourse basis through March 13, 2020. During the first quarter of 2019, we securitized vacation ownership notes receivable under our Warehouse Credit Facility. The carrying amount of the vacation ownership notes receivable securitized was $146 million. The advance rate was 85 percent, which resulted in gross proceeds of $124 million. Net proceeds were $123 million due to the funding of reserve accounts of $1 million.

During the third quarter of 2019, we securitized vacation ownership notes receivable under our Warehouse Credit Facility. The carrying amount of the vacation ownership notes receivable securitized was $67 million. The advance rate was 85 percent, which resulted in gross proceeds of $57 million. Net proceeds were $57 million due to the funding of reserve accounts of less than $1 million.

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14.	DEBT

The following table provides detail on our debt balances, net of unamortized debt discount and issuance costs.



($ in millions)		At September 30, 2019			At December 31, 2018
Senior Notes
	Exchange Notes	$	89		$	89
	Unamortized debt issuance costs	(1		)	(1		)
		88			88

	Senior Unsecured Notes	750			750
	Unamortized debt issuance costs	(8		)	(9		)
		742			741

	IAC Notes	142			141

Corporate Credit Facility
	Term Loan	893			900
	Unamortized debt discount and issuance costs	(11		)	(12		)
		882			888

	Revolving Corporate Credit Facility	225			—
	Unamortized debt issuance costs⁽¹⁾	(4		)	—
		221			—

Convertible Notes		230			230
Unamortized debt discount and issuance costs		(25		)	(31		)
		205			199

Non-interest bearing note payable		—			31
Unamortized debt discount		—			(1		)
		—			30

Finance leases		14			17
		$	2,294		$	2,104

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⁽¹⁾	Excludes $4 million of unamortized debt issuance costs as of December 31, 2018, as no cash borrowings were outstanding on the Revolving Corporate Credit Facility at that time.

The following table shows scheduled future principal payments for our debt, excluding finance leases, as of September 30, 2019.



	Payments Year
($ in millions)	Remaining 2019		2020		2021		2022		2023		Thereafter		Total
Exchange Notes	$	—	$	—	$	—	$	—	$	89	$	—	$	89
Senior Unsecured Notes	—		—		—		—		—		750		750
IAC Notes	—		—		—		—		142		—		142
Term Loan	2		9		9		9		9		855		893
Revolving Corporate Credit Facility	—		—		—		—		225		—		225
Convertible Notes	—		—		—		230		—		—		230
	$	2	$	9	$	9	$	239	$	465	$	1,605	$	2,329

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Senior Notes

Our Senior Notes include the following: $750 million aggregate principal amount of 6.500% senior unsecured notes due 2026 issued in the third quarter of 2018 (the “Senior Unsecured Notes”); the 5.625% Senior Unsecured Notes due 2023 assumed in connection with the ILG Acquisition (the “IAC Notes”); and the 5.625% Senior Unsecured Notes due 2023 offered in exchange for the IAC Notes during the third quarter of 2018 (the “Exchange Notes”).

On September 17, 2019, we announced the offer and pricing of senior notes, and on October 1, 2019, subsequent to the third quarter of 2019, we issued $350 million aggregate principal amount of 4.750% Senior Notes due 2028 (the “2028 Notes”). We will pay interest on the 2028 Notes on March 15 and September 15 of each year, commencing on March 15, 2020. The net proceeds from the 2028 Notes were used (i) to redeem all of the outstanding IAC Notes, (ii) to redeem all of the outstanding Exchange Notes, (iii) to repay a portion of the outstanding borrowings under our Revolving Corporate Credit Facility, (iv) to pay transaction expenses and fees in connection with each of the foregoing and (v) for general corporate purposes.

Corporate Credit Facility

Our corporate credit facility (“Corporate Credit Facility”), which provides support for our business, including ongoing liquidity and letters of credit, includes a $900 million term loan facility (the “Term Loan”) which matures on August 31, 2025, and a Revolving Corporate Credit Facility with a borrowing capacity of $600 million that terminates on August 31, 2023. The Term Loan bears interest at LIBOR plus 2.25 percent. Borrowings under the Revolving Corporate Credit Facility generally bear interest at a floating rate plus an applicable margin that varies from 0.50 percent to 2.75 percent depending on the type of loan and our credit rating. In addition, we pay a commitment fee on the unused availability under the Revolving Corporate Credit Facility at a rate that varies from 20 to 40 basis points per annum, also depending on our credit rating. The Revolving Corporate Credit Facility also includes a letter of credit sub-facility of $75 million. As of September 30, 2019, we were in compliance with the applicable financial and operating covenants under the Corporate Credit Facility.

We entered into $250 million of interest rate swaps under which we pay a fixed rate of 2.9625 percent and receive a floating interest rate through September 2023 and $200 million of interest rate swaps under which we pay a fixed rate of 2.2480 percent and receive a floating interest rate through April 2024, in each case to hedge a portion of our interest rate risk on the Term Loan. We also entered into a $100 million interest rate collar with a cap strike rate of 2.5000% and a floor strike rate of 1.8810% through April 2024 to further hedge our interest rate risk on the Term Loan. Both the interest rate swaps and the interest rate collar have been designated and qualify as cash flow hedges of interest rate risk and recorded in Other liabilities on our Balance Sheet as of September 30, 2019. We characterize payments we make in connection with these derivative instruments as interest expense and a reclassification of accumulated other comprehensive income for presentation purposes.

The following table reflects the activity in accumulated other comprehensive loss related to our derivative instruments during the first three quarters of 2019:



($ in millions)	Derivative Instrument Adjustments
Balance at December 31, 2018	$	(6	)
Other comprehensive loss before reclassifications	(3		)
Reclassification to Income Statement	—
Net other comprehensive loss	(3		)
Balance at March 31, 2019	(9		)
Other comprehensive loss before reclassifications	(13		)
Reclassification to Income Statement	—
Net other comprehensive loss	(13		)
Balance at June 30, 2019	(22		)
Other comprehensive loss before reclassifications	(4		)
Reclassification to Income Statement	—
Net other comprehensive loss	(4		)
Balance at September 30, 2019	$	(26	)

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Convertible Notes

Our $230 million of 1.50% Convertible Senior Notes due 2022 (the “Convertible Notes”) were convertible at an initial rate of 6.7482 shares of common stock per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $148.19 per share of our common stock). The conversion rate is subject to adjustment for certain events as described in the indenture governing the notes and was subject to adjustment during the third quarter of 2019 to 6.7887 shares of common stock per $1,000 principal amount of Convertible Notes (equivalent to a conversion price of approximately $147.30 per share of our common stock) when we declared a quarterly dividend of $0.45 per share, which was greater than the quarterly dividend at the time of the issuance of the Convertible Notes. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. It is our intent to settle conversions of the Convertible Notes through combination settlement, which contemplates repayment in cash of the principal amount and repayment in shares of our common stock of any excess of the conversion value over the principal amount. As of September 30, 2019, the effective interest rate was 4.7% and the remaining discount amortization period was 3.0 years.

The following table shows the net carrying value of the Convertible Notes.



($ in millions)	At September 30, 2019			At December 31, 2018
Liability component
Principal amount	$	230		$	230
Unamortized debt discount	(21		)	(26		)
Unamortized debt issuance costs	(4		)	(5		)
Net carrying amount of the liability component	$	205		$	199

Carrying amount of equity component, net of issuance costs	$	33		$	33

The following table shows interest expense information related to the Convertible Notes.



	Three Months Ended				Nine Months Ended
($ in millions)	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
Contractual interest expense	$	1	$	1	$	2	$	3
Amortization of debt discount	2		1		5		4
Amortization of debt issuance costs	—		1		1		1
	$	3	$	3	$	8	$	8

Convertible Note Hedges and Warrants

In connection with the offering of the Convertible Notes, we concurrently entered into the following privately-negotiated separate transactions: convertible note hedge transactions with respect to our common stock (“Convertible Note Hedges”), covering a total of approximately 1.55 million shares of our common stock, and warrant transactions (“Warrants”), whereby we sold to the counterparties to the Convertible Note Hedges warrants to acquire approximately 1.55 million shares of our common stock at an initial strike price of $176.68 per share. The strike price was subject to adjustment during the third quarter of 2019 to $175.63 per share when we declared a quarterly dividend of $0.45 per share. As of September 30, 2019, no Convertible Note Hedges or Warrants have been exercised.

Finance Leases

See Footnote 12 “Leases” for information on our finance leases accounted for under ASC 842.

Restrictions

Amounts borrowed under the Corporate Credit Facility, as well as obligations with respect to letters of credit issued pursuant to that facility, are secured by a perfected first priority security interest in substantially all of the assets of the borrowers under, and guarantors of, that facility (which include MVWC and certain of our direct and indirect, existing and future, domestic subsidiaries, excluding certain bankruptcy remote special purpose subsidiaries), in each case including inventory, subject to certain exceptions. The IAC Notes are guaranteed by MVWC, ILG and certain other subsidiaries whose voting securities are wholly owned directly or indirectly by ILG. The Senior Unsecured Notes are guaranteed by MVWC and certain of its subsidiaries whose voting securities are wholly owned directly or indirectly by MVWC. The Exchange Notes are guaranteed by MVWC and its domestic subsidiaries that guarantee the Corporate Credit Facility. See Footnote 19 “Supplemental Guarantor Information” for additional information.

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15.	SHAREHOLDERS’ EQUITY

Marriott Vacations Worldwide has 100,000,000 authorized shares of common stock, par value of $0.01 per share. At September 30, 2019, there were 57,874,390 shares of Marriott Vacations Worldwide common stock issued, of which 42,592,411 shares were outstanding and 15,281,979 shares were held as treasury stock. At December 31, 2018, there were 57,626,462 shares of Marriott Vacations Worldwide common stock issued, of which 45,992,731 shares were outstanding and 11,633,731 shares were held as treasury stock. Marriott Vacations Worldwide has 2,000,000 authorized shares of preferred stock, par value of $0.01 per share, none of which were issued or outstanding as of September 30, 2019 or December 31, 2018.

Share Repurchase Program

The following table summarizes share repurchase activity under our current share repurchase program:



($ in millions, except per share amounts)	Number of Shares Repurchased	Cost of Shares Repurchased		Average Price Paid per Share
As of December 31, 2018	11,687,774	$	793	$	67.85
For the first three quarters of 2019	3,667,175	342		93.24
As of September 30, 2019	15,354,949	$	1,135	$	73.91

On July 30, 2019, our Board of Directors authorized the extension of the duration of our existing share repurchase program to December 31, 2020, as well as the repurchase of up to 4.5 million additional shares of our common stock. As of September 30, 2019, our Board of Directors had authorized the repurchase of an aggregate of up to 19.4 million shares of our common stock under the share repurchase program since the initiation of the program in October 2013. Share repurchases may be made through open market purchases, privately negotiated transactions, block transactions, tender offers, accelerated share repurchase agreements or otherwise. The specific timing, amount and other terms of the repurchases will depend on market conditions, corporate and regulatory requirements and other factors. Acquired shares of our common stock are held as treasury shares carried at cost in our Financial Statements. In connection with the repurchase program, we are authorized to adopt one or more trading plans pursuant to the provisions of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.

As of September 30, 2019, 3.8 million shares remained available for repurchase under the authorization approved by our Board of Directors. The authorization for the share repurchase program may be suspended, terminated, increased or decreased by our Board of Directors at any time without prior notice.

Dividends

We declared cash dividends to holders of common stock during the first three quarters of 2019 as follows:



Declaration Date	Shareholder Record Date	Distribution Date	Dividend per Share
February 15, 2019	February 28, 2019	March 14, 2019	$0.45
May 9, 2019	May 23, 2019	June 6, 2019	$0.45
September 5, 2019	September 19, 2019	October 3, 2019	$0.45

Any future dividend payments will be subject to Board approval, and there can be no assurance that we will pay dividends in the future.

Noncontrolling Interests

Property Owners’ Associations

As part of the ILG Acquisition we established a noncontrolling interest in property owners’ associations that Legacy-ILG consolidates under the voting interest model, which represents the portion of the property owners’ associations related to individual or third-party VOI owners. As of September 30, 2019, this noncontrolling interest amounts to $10 million and is included on our Balance Sheet as a component of equity.

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16.	SHARE-BASED COMPENSATION

We maintain the Marriott Vacations Worldwide Corporation Stock and Cash Incentive Plan (the “MVW Stock Plan”) for the benefit of our officers, directors and employees. Under the MVW Stock Plan, we are authorized to award: (1) restricted stock units (“RSUs”) of our common stock, (2) SARs relating to our common stock and (3) stock options to purchase our common stock. A total of 6 million shares are authorized for issuance pursuant to grants under the MVW Stock Plan. As of September 30, 2019, less than 1 million shares were available for grants under the MVW Stock Plan.

As part of the ILG Acquisition, we assumed the Interval Leisure Group, Inc. 2013 Stock and Incentive Plan (the “ILG Stock Plan”) and equity based awards outstanding under the ILG Stock Plan. As of September 30, 2019, 1 million shares were available for grants under the ILG Stock Plan to Legacy-ILG employees.

The following table details our share-based compensation expense related to award grants to our officers, directors and employees:



	Three Months Ended				Nine Months Ended
($ in millions)	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
Service-based RSUs	$	4	$	3	$	13	$	9
Performance-based RSUs	3		1		6		4
ILG Acquisition Converted RSUs	2		8		8		8
	9		12		27		21
SARs	—		1		2		2
Stock options	—		—		—		—
	$	9	$	13	$	29	$	23

The following table details our deferred compensation costs related to unvested awards:



($ in millions)	At September 30, 2019		At December 31, 2018
Service-based RSUs	$	21	$	16
Performance-based RSUs	14		7
ILG Acquisition Converted RSUs	5		15
	40		38
SARs	2		1
Stock options	—		—
	$	42	$	39

Restricted Stock Units

We granted 190,403 service-based RSUs, which are subject to time-based vesting conditions, with a weighted average grant-date fair value of $96.30, to our employees and non-employee directors during the first three quarters of 2019. During the first three quarters of 2019, we also granted performance-based RSUs, which are subject to performance-based vesting conditions, to members of management. A maximum of 287,876 RSUs may be earned under the performance-based RSU awards granted during the first three quarters of 2019.

Stock Appreciation Rights

We granted 111,111 SARs, with a weighted average grant-date fair value of $28.89 and a weighted average exercise price of $100.52, to members of management during the first three quarters of 2019. We use the Black-Scholes model to estimate the fair value of the SARs granted. The expected stock price volatility was calculated based on the average of the historical and implied volatility of our stock price. The average expected life was calculated using the simplified method, as we have insufficient historical information to provide a basis for estimating average expected life. The risk-free interest rate was calculated based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. The dividend yield assumption listed below is based on the expectation of future payouts.

Table of Contents

The following table outlines the assumptions used to estimate the fair value of grants during the first three quarters of 2019:



Expected volatility	31.10%
Dividend yield	1.76%
Risk-free rate	2.59%
Expected term (in years)	6.25

Legacy-ILG Deferred Compensation Plan

Certain deferred share units (“DSUs”) of ILG common stock were outstanding on the Acquisition Date under the Interval Leisure Group, Inc. Deferred Compensation Plan for Non-Employee Directors. On the Acquisition Date, these DSUs were converted to equity-based awards with respect to MVW’s common stock and cash-based awards, resulting in 12,265 DSUs (“ILG DSUs”) and $1 million of cash-based awards. The ILG DSUs had a weighted average fair value of $114.31 on the Acquisition Date. The services associated with the ILG DSUs were completed as of the Acquisition Date, resulting in no deferred compensation costs. The ILG DSUs and related cash-based awards were paid in full during the first quarter of 2019 and there is no remaining obligation as of September 30, 2019.



17.	VARIABLE INTEREST ENTITIES

Variable Interest Entities Related to Our Vacation Ownership Notes Receivable Securitizations

We periodically securitize, without recourse, through bankruptcy remote special purpose entities, notes receivable originated in connection with the sale of vacation ownership products. These vacation ownership notes receivable securitizations provide funding for us and transfer the economic risks and substantially all the benefits of the consumer loans we originate to third parties. In a vacation ownership notes receivable securitization, various classes of debt securities issued by a special purpose entity are generally collateralized by a single tranche of transferred assets, which consist of vacation ownership notes receivable. With each vacation ownership notes receivable securitization, we may retain a portion of the securities, subordinated tranches, interest-only strips, subordinated interests in accrued interest and fees on the securitized vacation ownership notes receivable or, in some cases, overcollateralization and cash reserve accounts.

We created these bankruptcy remote special purpose entities to serve as a mechanism for holding assets and related liabilities, and the entities have no equity investment at risk, making them variable interest entities. We continue to service the vacation ownership notes receivable, transfer all proceeds collected to these special purpose entities, and retain rights to receive benefits that are potentially significant to the entities. Accordingly, we concluded that we are the entities’ primary beneficiary and, therefore, consolidate them. There is no noncontrolling interest balance related to these entities and the creditors of these entities do not have general recourse to us.

As part of the ILG Acquisition, we acquired the variable interests in the entities associated with ILG’s outstanding vacation ownership notes receivable securitization transactions. As these vacation ownership notes receivable securitizations are similar in nature to the Legacy-MVW vacation ownership notes receivable securitizations they have been aggregated for disclosure purposes.

The following table shows consolidated assets, which are collateral for the obligations of these variable interest entities, and consolidated liabilities included on our Balance Sheet at September 30, 2019:



($ in millions)	Vacation Ownership Notes Receivable Securitizations		Warehouse Credit Facility		Total
Consolidated Assets
Vacation ownership notes receivable, net of reserves	$	1,525	$	61	$	1,586
Interest receivable	11		1		12
Restricted cash	54		1		55
Total	$	1,590	$	63	$	1,653
Consolidated Liabilities
Interest payable	$	2	$	—	$	2
Debt	1,624		56		1,680
Total	$	1,626	$	56	$	1,682

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The following table shows the interest income and expense recognized as a result of our involvement with these variable interest entities during the third quarter of 2019:



($ in millions)	Vacation Ownership Notes Receivable Securitizations		Warehouse Credit Facility		Total
Interest income	$	57	$	1	$	58
Interest expense to investors	$	11	$	1	$	12
Debt issuance cost amortization	$	2	$	—	$	2
Administrative expenses	$	—	$	—	$	—

The following table shows the interest income and expense recognized as a result of our involvement with these variable interest entities during the first three quarters of 2019:



($ in millions)	Vacation Ownership Notes Receivable Securitizations		Warehouse Credit Facility		Total
Interest income	$	164	$	12	$	176
Interest expense to investors	$	37	$	4	$	41
Debt issuance cost amortization	$	4	$	1	$	5
Administrative expenses	$	1	$	—	$	1

The following table shows cash flows between us and the vacation ownership notes receivable securitization variable interest entities:



	Nine Months Ended
($ in millions)	September 30, 2019			September 30, 2018
Cash Inflows
Net proceeds from vacation ownership notes receivable securitizations	$	445		$	419
Principal receipts	355			227
Interest receipts	156			92
Reserve release	107			109
Total	1,063			847
Cash Outflows
Principal to investors	(379		)	(208		)
Voluntary repurchases of defaulted vacation ownership notes receivable	(35		)	(34		)
Voluntary clean-up call	(19		)	(22		)
Interest to investors	(36		)	(19		)
Funding of restricted cash	(93		)	(117		)
Total	(562		)	(400		)
Net Cash Flows	$	501		$	447

Under the terms of our vacation ownership notes receivable securitizations, we have the right to substitute loans for, or repurchase, defaulted loans at our option, subject to certain limitations. Our maximum exposure to loss relating to the special purpose entities that purchase, sell and own these vacation ownership notes receivable is the overcollateralization amount (the difference between the loan collateral balance and the balance on the outstanding vacation ownership notes receivable), plus cash reserves and any residual interest in future cash flows from collateral.

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The following table shows cash flows between us and the Warehouse Credit Facility variable interest entity:



	Nine Months Ended
($ in millions)	September 30, 2019			September 30, 2018
Cash Inflows
Proceeds from vacation ownership notes receivable securitizations	$	181		$	—
Principal receipts	14			—
Interest receipts	13			—
Reserve release	1			—
Total	209			—
Cash Outflows
Principal to investors	(12		)	—
Repayment of Warehouse Credit Facility	(228		)	—
Interest to investors	(4		)	(1		)
Funding of restricted cash	(1		)	—
Total	(245		)	(1		)
Net Cash Flows	$	(36	)	$	(1	)

Other Variable Interest Entities

We have a commitment to purchase an operating property located in San Francisco, California, that we currently manage as Marriott Vacation Club Pulse, San Francisco. Refer to Footnote 11 “Contingencies and Commitments” for additional information on the commitment. We are required to purchase the operating property from the third party developer unless the developer has sold the property to another party. The operating property is held by a variable interest entity for which we are not the primary beneficiary as we cannot prevent the variable interest entity from selling the operating property at a higher price. Accordingly, we have not consolidated the variable interest entity. As of September 30, 2019, our Balance Sheet reflected $2 million in Accounts Receivable, including a note receivable of less than $1 million, and $1 million in Accrued liabilities, relating to our involvement with this variable interest entity. We believe that our maximum exposure to loss as a result of our involvement with this variable interest entity is $1 million as of September 30, 2019.

We have a commitment to purchase an operating property located in New York, New York, that we currently manage as Marriott Vacation Club Pulse, New York City. Refer to Footnote 11 “Contingencies and Commitments” for additional information on the commitment. We are required to purchase the completed property from the third party developer unless the developer has sold the property to another party. The property is held by a variable interest entity for which we are not the primary beneficiary as we cannot prevent the variable interest entity from selling the property at a higher price. Accordingly, we have not consolidated the variable interest entity. As of September 30, 2019, our Balance Sheet reflected $8 million in Property and equipment related to a finance lease and leasehold improvements, $1 million in Accrued liabilities and $7 million in Debt related to the finance lease liability for ancillary and operations space we lease from the variable interest entity. In addition, a note receivable of less than $1 million is included in the Accounts receivable line on the Balance Sheet as of September 30, 2019. We believe that our maximum exposure to loss as a result of our involvement with this variable interest entity is less than $1 million as of September 30, 2019.

Deferred Compensation Plan

We consolidate the liabilities of the Marriott Vacations Worldwide Deferred Compensation Plan and the related assets, which consist of the COLI policies held in the rabbi trust. The rabbi trust is considered a variable interest entity. We are considered the primary beneficiary of the rabbi trust because we direct the activities of the trust and are the beneficiary of the trust. At September 30, 2019, the value of the assets held in the rabbi trust was $36 million, which is included in the Other line within assets on our Balance Sheets.

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18.	BUSINESS SEGMENTS

We define our reportable segments based on the way in which the chief operating decision maker (“CODM”), currently our chief executive officer, manages the operations of the company for purposes of allocating resources and assessing performance. We operate in two operating and reportable business segments:

•

Vacation Ownership includes a diverse portfolio of resorts that includes seven vacation ownership brands licensed under exclusive, long-term relationships with Marriott International and Hyatt Hotels Corporation. We are the exclusive worldwide developer, marketer, seller and manager of vacation ownership and related products under the Marriott Vacation Club, Grand Residences by Marriott, Sheraton, Westin and Hyatt Residence Club brands, as well as under Marriott Vacation Club Pulse, an extension to the Marriott Vacation Club brand. We are also the exclusive worldwide developer, marketer and seller of vacation ownership and related products under The Ritz-Carlton Destination Club brand, we have the non-exclusive right to develop, market and sell whole ownership residential products under The Ritz-Carlton Residences brand and have a license to use the St. Regis brand for specified fractional ownership resorts.

Our Vacation Ownership segment generates most of its revenues from four primary sources: selling vacation ownership products; managing vacation ownership resorts, clubs and owners’ associations; financing consumer purchases of vacation ownership products; and renting vacation ownership inventory.

•

Exchange & Third-Party Management, includes exchange networks and membership programs, as well as management of resorts and lodging properties. We provide these services through a variety of brands including Interval International, Trading Places International, Vacation Resorts International, Aqua-Aston and Great Destinations. Exchange & Third-Party Management revenue generally is fee-based and derived from membership, exchange and rental transactions, property and association management, and other related products and services.

Our CODM evaluates the performance of our segments based primarily on the results of the segment without allocating corporate expenses or income taxes. We do not allocate corporate interest expense or indirect general and administrative expenses to our segments. We include interest income specific to segment activities within the appropriate segment. We allocate depreciation, other gains and losses, equity in earnings or losses from our joint ventures and noncontrolling interest to each of our segments as appropriate. Corporate and other represents that portion of our results that are not allocable to our segments, including those relating to property owners’ associations consolidated under the voting interest model, as our CODM does not use this information to make operating segment resource allocations. Prior year segment information has been reclassified to conform to the current reportable segment presentation.

Our CODM uses Adjusted EBITDA to evaluate the profitability of our operating segments, and the components of net income attributable to common shareholders excluded from Adjusted EBITDA are not separately evaluated. Adjusted EBITDA is defined as net income attributable to common shareholders, before interest expense (excluding consumer financing interest expense associated with term loan securitization transactions), income taxes, depreciation and amortization, excluding share-based compensation expense and adjusted for certain items that affect the comparability or our operating performance. Our reconciliation of the aggregate amount of Adjusted EBITDA for our reportable segments to consolidated net income attributable to common shareholders is presented below.

Revenues



	Three Months Ended				Nine Months Ended
($ in millions)	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
Vacation Ownership	$	967	$	709	$	2,849	$	1,875
Exchange & Third-Party Management	112		40		351		40
Total segment revenues	1,079		749		3,200		1,915
Corporate and other	3		1		10		1
	$	1,082	$	750	$	3,210	$	1,916

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Adjusted EBITDA and Reconciliation to Net Income (Loss) Attributable to Common Shareholders



	Three Months Ended						Nine Months Ended
($ in millions)	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Adjusted EBITDA Vacation Ownership	$	195		$	123		$	574		$	315
Adjusted EBITDA Exchange & Third-Party Management	56			19			180			19
Reconciling items:
Corporate and other	(61		)	(42		)	(203		)	(95		)
Interest expense	(31		)	(14		)	(100		)	(23		)
Tax (provision) benefit	(10		)	2			(50		)	(15		)
Depreciation and amortization	(33		)	(18		)	(106		)	(29		)
Share-based compensation expense	(9		)	(13		)	(29		)	(23		)
Certain items	(116		)	(93		)	(202		)	(138		)
Net (loss) income attributable to common shareholders	$	(9	)	$	(36	)	$	64		$	11

Assets



($ in millions)	At September 30, 2019		At December 31, 2018
Vacation Ownership	$	6,801	$	7,275
Exchange & Third-Party Management	1,161		1,182
Total segment assets	7,962		8,457
Corporate and other	1,097		561
	$	9,059	$	9,018

We conduct business globally, and our operations outside the United States represented approximately 13 percent and 14 percent of our revenues, excluding cost reimbursements, for the three months ended September 30, 2019 and September 30, 2018, respectively, and 13 percent of our revenues, excluding cost reimbursements, for each of the nine months ended September 30, 2019 and September 30, 2018.



19.	SUPPLEMENTAL GUARANTOR INFORMATION

IAC Notes

The IAC Notes are guaranteed by MVWC, ILG and certain other subsidiaries whose voting securities are wholly owned directly or indirectly by ILG (such subsidiaries collectively, the “IAC Notes Guarantors”). These guarantees are full and unconditional and joint and several. The guarantees of the IAC Notes Guarantors are subject to release in limited circumstances only upon the occurrence of certain customary conditions. The indenture governing the IAC Notes contains covenants that, among other things, limit the ability of Interval Acquisition Corp. (the “Issuer”) and the IAC Notes Guarantors to pay dividends to us or make distributions, loans or advances to us.

The following tables present consolidating financial information as of September 30, 2019 and December 31, 2018, and for the three and nine months ended September 30, 2019 and September 30, 2018 for MVWC and ILG on a stand-alone basis, the Issuer on a stand-alone basis, the IAC Notes Guarantors, the combined non-guarantor subsidiaries of MVW and MVW on a consolidated basis.

Condensed Consolidating Balance Sheet



	As of September 30, 2019
($ in millions)	MVWC		Interval Acquisition Corp.		IAC Notes Guarantors		Non-Guarantor Subsidiaries		Total Eliminations			MVW Consolidated
Cash and cash equivalents	$	—	$	—	$	47	$	136	$	—		$	183
Restricted cash	—		—		43		279		—			322
Accounts receivable, net	84		27		75		224		(38		)	372
Vacation ownership notes receivable, net	—		—		268		1,900		—			2,168
Inventory	—		—		435		475		—			910
Property and equipment	—		—		240		530		—			770
Goodwill	2,890		—		—		—		—			2,890
Intangibles, net	—		—		997		47		—			1,044
Due from parent	—		—		—		1,834		(1,834		)	—
Investments in subsidiaries	2,189		1,771		1,653		—		(5,613		)	—
Other	36		—		189		180		(5		)	400
Total assets	$	5,199	$	1,798	$	3,947	$	5,605	$	(7,490	)	$	9,059

Accounts payable	$	37	$	—	$	91	$	120	$	—		$	248
Advance deposits	—		—		80		105		—			185
Accrued liabilities	4		4		166		157		(38		)	293
Deferred revenue	—		—		130		309		(3		)	436
Payroll and benefits liability	5		—		70		110		—			185
Deferred compensation liability	—		—		6		98		—			104
Securitized debt, net	—		—		—		1,686		—			1,686
Debt, net	205		142		—		1,947		—			2,294
Due to subsidiary	1,834		—		—		—		(1,834		)	—
Other	2		—		150		47		—			199
Deferred taxes	—		—		145		162		—			307
MVW shareholders' equity	3,112		1,652		3,109		854		(5,615		)	3,112
Noncontrolling interests	—		—		—		10		—			10
Total liabilities and equity	$	5,199	$	1,798	$	3,947	$	5,605	$	(7,490	)	$	9,059



	As of December 31, 2018⁽¹⁾
($ in millions)	MVWC		Interval Acquisition Corp.		IAC Notes Guarantors			Non-Guarantor Subsidiaries		Total Eliminations			MVW Consolidated
Cash and cash equivalents	$	1	$	11	$	28		$	191	$	—		$	231
Restricted cash	—		—		83			300		—			383
Accounts receivable, net	31		2		107			184		—			324
Vacation ownership notes receivable, net	—		—		176			1,863		—			2,039
Inventory	—		—		440			423		—			863
Property and equipment	—		—		272			679		—			951
Goodwill	2,828		—		—			—		—			2,828
Intangibles, net	—		—		1,065			42		—			1,107
Due from parent	—		—		—			1,834		(1,834		)	—
Investments in subsidiaries	2,681		1,975		1,875			—		(6,531		)	—
Other	27		28		140			172		(75		)	292
Total assets	$	5,568	$	2,016	$	4,186		$	5,688	$	(8,440	)	$	9,018

Accounts payable	$	50	$	—	$	120		$	131	$	—		$	301
Advance deposits	—		—		81			90		—			171
Accrued liabilities	7		—		(28		)	295		(24		)	250
Deferred revenue	—		—		181			206		(4		)	383
Payroll and benefits liability	15		—		72			119		—			206
Deferred compensation liability	—		—		7			86		—			93
Securitized debt, net	—		—		—			1,714		—			1,714
Debt, net	199		141		1			1,763		—			2,104
Due to subsidiary	1,834		—		—			—		(1,834		)	—
Other	2		—		1			9		—			12
Deferred taxes	—		—		155			159		4			318
MVW shareholders' equity	3,461		1,875		3,599			1,108		(6,582		)	3,461
Noncontrolling interests	—		—		(3		)	8		—			5
Total liabilities and equity	$	5,568	$	2,016	$	4,186		$	5,688	$	(8,440	)	$	9,018

_________________________


⁽¹⁾	Amounts have been revised to correct certain immaterial prior period errors as reported in the 2018 Annual Report and have been reclassified to conform to the current year presentation.

Condensed Consolidating Statement of Income



	Three Months Ended September 30, 2019
($ in millions)	MVWC			Interval Acquisition Corp.			IAC Notes Guarantors			Non-Guarantor Subsidiaries			Total Eliminations			MVW Consolidated
Revenues	$	—		$	—		$	286		$	796		$	—		$	1,082
Expenses	(7		)	—			(255		)	(750		)	—			(1,012		)
Losses and other expense, net	—			—			—			(5		)	—			(5		)
Interest expense	(3		)	(1		)	—			(27		)	—			(31		)
ILG acquisition-related costs	—			—			(2		)	(30		)	—			(32		)
Other	—			—			—			1			—			1
Benefit (provision) for income taxes	3			1			(18		)	4			—			(10		)
Equity in net (loss) income of subsidiaries	(2		)	31			31			—			(60		)	—
Net (loss) income	(9		)	31			42			(11		)	(60		)	(7		)
Net income attributable to noncontrolling interests	—			—			(1		)	(1		)	—			(2		)
Net (loss) income attributable to common shareholders	$	(9	)	$	31		$	41		$	(12	)	$	(60	)	$	(9	)



	Three Months Ended September 30, 2018
($ in millions)	MVWC			Interval Acquisition Corp.			IAC Notes Guarantors			Non-Guarantor Subsidiaries			Total Eliminations		MVW Consolidated
Revenues	$	—		$	—		$	114		$	636		$	—	$	750
Expenses	(1		)	—			(125		)	(572		)	—		(698		)
Gains and other income, net	—			—			1			1			—		2
Interest expense	(3		)	(1		)	—			(10		)	—		(14		)
ILG acquisition-related costs	—			—			(18		)	(60		)	—		(78		)
Benefit (provision) for income taxes	—			—			5			(3		)	—		2
Equity in net (loss) income of subsidiaries	(32		)	(16		)	(17		)	—			65		—
Net (loss) income	(36		)	(17		)	(40		)	(8		)	65		(36		)
Net income attributable to noncontrolling interests	—			—			—			—			—		—
Net (loss) income attributable to common shareholders	$	(36	)	$	(17	)	$	(40	)	$	(8	)	$	65	$	(36	)



	Nine Months Ended September 30, 2019
($ in millions)	MVWC			Interval Acquisition Corp.			IAC Notes Guarantors			Non-Guarantor Subsidiaries			Total Eliminations			MVW Consolidated
Revenues	$	—		$	—		$	1,083		$	2,136		$	(9	)	$	3,210
Expenses	(16		)	—			(970		)	(1,929		)	9			(2,906		)
Gains and other income, net	—			—			—			5			—			5
Interest expense	(8		)	(4		)	(3		)	(85		)	—			(100		)
ILG acquisition-related costs	—			—			(16		)	(78		)	—			(94		)
Other	—			—			—			1			—			1
Benefit (provision) for income taxes	7			2			(40		)	(19		)	—			(50		)
Equity in net income (loss) of subsidiaries	81			95			93			—			(269		)	—
Net income (loss)	64			93			147			31			(269		)	66
Net income attributable to noncontrolling interests	—			—			(1		)	(1		)	—			(2		)
Net income (loss) attributable to common shareholders	$	64		$	93		$	146		$	30		$	(269	)	$	64



	Nine Months Ended September 30, 2018
($ in millions)	MVWC			Interval Acquisition Corp.			IAC Notes Guarantors			Non-Guarantor Subsidiaries			Total Eliminations		MVW Consolidated
Revenues	$	—		$	—		$	114		$	1,802		$	—	$	1,916
Expenses	(6		)	—			(125		)	(1,631		)	—		(1,762		)
Gains (losses) and other income (expense), net	—			—			1			(5		)	—		(4		)
Interest expense	(8		)	(1		)	—			(14		)	—		(23		)
ILG acquisition-related costs	—			—			(17		)	(81		)	—		(98		)
Other	—			—			—			(3		)	—		(3		)
Benefit (provision) for income taxes	4			—			8			(27		)	—		(15		)
Equity in net income (loss) of subsidiaries	21			(37		)	(38		)	—			54		—
Net income (loss)	11			(38		)	(57		)	41			54		11
Net income attributable to noncontrolling interests	—			—			—			—			—		—
Net income (loss) attributable to common shareholders	$	11		$	(38	)	$	(57	)	$	41		$	54	$	11

Condensed Consolidating Statement of Cash Flows



	Nine Months Ended September 30, 2019
($ in millions)	MVWC			Interval Acquisition Corp.			IAC Notes Guarantors			Non-Guarantor Subsidiaries			Total Eliminations			MVW Consolidated
Net cash, cash equivalents and restricted cash (used in) provided by operating activities	$	(79	)	$	(3	)	$	177		$	61		$	24		$	180
Net cash, cash equivalents and restricted cash (used in) provided by investing activities	(5		)	—			14			(8		)	—			1
Net cash, cash equivalents and restricted cash provided by (used in) financing activities	83			(8		)	(212		)	(129		)	(24		)	(290		)
Cash, cash equivalents and restricted cash, beginning of period	1			11			111			491			—			614
Cash, cash equivalents and restricted cash, end of period	$	—		$	—		$	90		$	415		$	—		$	505



	Nine Months Ended September 30, 2018
($ in millions)	MVWC			Interval Acquisition Corp.		IAC Notes Guarantors			Non-Guarantor Subsidiaries			Total Eliminations		MVW Consolidated
Net cash, cash equivalents and restricted cash (used in) provided by operating activities	$	(59	)	$	—	$	(31	)	$	157		$	—	$	67
Net cash, cash equivalents and restricted cash (used in) provided by investing activities	(1,846		)	2		126			295			—		(1,423		)
Net cash, cash equivalents and restricted cash provided by (used in) financing activities	1,905			—		(4		)	(230		)	—		1,671
Cash, cash equivalents and restricted cash, beginning of period	—			—		—			491			—		491
Cash, cash equivalents and restricted cash, end of period	$	—		$	2	$	91		$	713		$	—	$	806

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Senior Unsecured Notes and Exchange Notes

The Senior Unsecured Notes and Exchanges Notes (collectively referred to as the “Senior MVW Notes”) are guaranteed by MVWC, Marriott Ownership Resorts, Inc. (“MORI”), ILG and certain other subsidiaries whose voting securities are wholly owned directly or indirectly by MORI or ILG (such subsidiaries collectively, the “Senior Notes Guarantors”). These guarantees are full and unconditional and joint and several. The guarantees of the Senior Notes Guarantors are subject to release in limited circumstances only upon the occurrence of certain customary conditions.

The following tables present consolidating financial information as of September 30, 2019 and December 31, 2018, and for the three and nine months ended September 30, 2019 and September 30, 2018 for MVWC on a stand-alone basis, each of MORI and ILG on a stand-alone basis (collectively, the “Issuers” and each individually, an “Issuer”), the Senior Notes Guarantors, the combined non-guarantor subsidiaries of MVW and MVW on a consolidated basis.

Condensed Consolidating Balance Sheet



	As of September 30, 2019
	MVWC		Issuers				Senior Notes Guarantors		Non-Guarantor Subsidiaries		Total Eliminations			MVW Consolidated
($ in millions)	MVWC		MORI		ILG		Senior Notes Guarantors		Non-Guarantor Subsidiaries		Total Eliminations			MVW Consolidated
Cash and cash equivalents	$	—	$	33	$	—	$	50	$	100	$	—		$	183
Restricted cash	—		22		—		45		255		—			322
Accounts receivable, net	84		46		18		100		162		(38		)	372
Vacation ownership notes receivable, net	—		181		—		275		1,712		—			2,168
Inventory	—		328		—		475		107		—			910
Property and equipment	—		211		—		283		276		—			770
Goodwill	2,890		—		—		—		—		—			2,890
Intangibles, net	—		—		—		997		47		—			1,044
Due from parent	—		1,834		—		—		—		(1,834		)	—
Investments in subsidiaries	2,189		98		1,653		—		—		(3,940		)	—
Other	36		48		2		268		66		(20		)	400
Total assets	$	5,199	$	2,801	$	1,673	$	2,493	$	2,725	$	(5,832	)	$	9,059

Accounts payable	$	37	$	45	$	9	$	117	$	40	$	—		$	248
Advance deposits	—		79		—		91		15		—			185
Accrued liabilities	4		70		20		168		69		(38		)	293
Deferred revenue	—		4		—		205		230		(3		)	436
Payroll and benefits liability	5		83		—		79		18		—			185
Deferred compensation liability	—		88		—		15		1		—			104
Securitized debt, net	—		—		—		—		1,686		—			1,686
Debt, net	205		1,940		—		149		—		—			2,294
Due to subsidiary	1,834		—		—		—		—		(1,834		)	—
Other	2		36		55		94		12		—			199
Deferred taxes	—		139		2		180		—		(14		)	307
MVW shareholders' equity	3,112		317		1,587		1,395		644		(3,943		)	3,112
Noncontrolling interests	—		—		—		—		10		—			10
Total liabilities and equity	$	5,199	$	2,801	$	1,673	$	2,493	$	2,725	$	(5,832	)	$	9,059

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	As of December 31, 2018⁽¹⁾
	MVWC		Issuers				Senior Notes Guarantors			Non-Guarantor Subsidiaries		Total Eliminations			MVW Consolidated
($ in millions)	MVWC		MORI		ILG		Senior Notes Guarantors			Non-Guarantor Subsidiaries		Total Eliminations			MVW Consolidated
Cash and cash equivalents	$	1	$	62	$	2	$	39		$	127	$	—		$	231
Restricted cash	—		19		—		122			242		—			383
Accounts receivable, net	31		20		—		169			104		—			324
Vacation ownership notes receivable, net	—		121		—		183			1,735		—			2,039
Inventory	—		212		—		475			176		—			863
Property and equipment	—		439		1		308			203		—			951
Goodwill	2,828		—		—		—			—		—			2,828
Intangibles, net	—		—		—		1,065			42		—			1,107
Due from parent	—		1,834		—		—			—		(1,834		)	—
Investments in subsidiaries	2,681		93		1,875		—			—		(4,649		)	—
Other	27		53		—		251			36		(75		)	292
Total assets	$	5,568	$	2,853	$	1,878	$	2,612		$	2,665	$	(6,558	)	$	9,018

Accounts payable	$	50	$	13	$	—	$	213		$	25	$	—		$	301
Advance deposits	—		65		—		89			17		—			171
Accrued liabilities	7		96		7		14			150		(24		)	250
Deferred revenue	—		6		—		253			128		(4		)	383
Payroll and benefits liability	15		96		—		79			16		—			206
Deferred compensation liability	—		79		—		13			1		—			93
Securitized debt, net	—		—		—		—			1,714		—			1,714
Debt, net	199		1,726		—		179			—		—			2,104
Due to subsidiary	1,834		—		—		—			—		(1,834		)	—
Other	2		6		—		1			3		—			12
Deferred taxes	—		133		—		157			24		4			318
MVW shareholders' equity	3,461		633		1,871		1,617			579		(4,700		)	3,461
Noncontrolling interests	—		—		—		(3		)	8		—			5
Total liabilities and equity	$	5,568	$	2,853	$	1,878	$	2,612		$	2,665	$	(6,558	)	$	9,018

_________________________


⁽¹⁾	Amounts have been revised to correct certain immaterial prior period errors as reported in the 2018 Annual Report and have been reclassified to conform to the current year presentation.

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Condensed Consolidating Statement of Income



	Three Months Ended September 30, 2019
	MVWC			Issuers					Senior Notes Guarantors			Non-Guarantor Subsidiaries			Total Eliminations			MVW Consolidated
($ in millions)	MVWC			MORI			ILG		Senior Notes Guarantors			Non-Guarantor Subsidiaries			Total Eliminations			MVW Consolidated
Revenues	$	—		$	191		$	—	$	575		$	316		$	—		$	1,082
Expenses	(7		)	(230		)	—		(518		)	(257		)	—			(1,012		)
(Losses) gains and other (expense) income, net	—			(6		)	—		1			—			—			(5		)
Interest expense	(3		)	(34		)	—		2			4			—			(31		)
ILG acquisition-related costs	—			(29		)	—		(3		)	—			—			(32		)
Other	—			1			—		—			—			—			1
Benefit (provision) for income taxes	3			35			—		(4		)	(44		)	—			(10		)
Equity in net (loss) income of subsidiaries	(2		)	27			31		—			—			(56		)	—
Net (loss) income	(9		)	(45		)	31		53			19			(56		)	(7		)
Net income attributable to noncontrolling interests	—			—			—		(1		)	(1		)	—			(2		)
Net (loss) income attributable to common shareholders	$	(9	)	$	(45	)	$	31	$	52		$	18		$	(56	)	$	(9	)



	Three Months Ended September 30, 2018
	MVWC			Issuers						Senior Notes Guarantors			Non-Guarantor Subsidiaries			Total Eliminations			MVW Consolidated
($ in millions)	MVWC			MORI			ILG			Senior Notes Guarantors			Non-Guarantor Subsidiaries			Total Eliminations			MVW Consolidated
Revenues	$	—		$	194		$	—		$	408		$	148		$	—		$	750
Expenses	(1		)	(185		)	(4		)	(396		)	(112		)	—			(698		)
Gains and other income, net	—			1			—			1			—			—			2
Interest expense	(3		)	(10		)	—			(1		)	—			—			(14		)
ILG acquisition-related costs	—			(60		)	—			(18		)	—			—			(78		)
Benefit (provision) for income taxes	—			7			1			2			(8		)	—			2
Equity in net (loss) income of subsidiaries	(32		)	60			(17		)	—			—			(11		)	—
Net (loss) income	(36		)	7			(20		)	(4		)	28			(11		)	(36		)
Net income attributable to noncontrolling interests	—			—			—			—			—			—			—
Net (loss) income attributable to common shareholders	$	(36	)	$	7		$	(20	)	$	(4	)	$	28		$	(11	)	$	(36	)

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	Nine Months Ended September 30, 2019
	MVWC			Issuers					Senior Notes Guarantors			Non-Guarantor Subsidiaries			Total Eliminations			MVW Consolidated
($ in millions)	MVWC			MORI			ILG		Senior Notes Guarantors			Non-Guarantor Subsidiaries			Total Eliminations			MVW Consolidated
Revenues	$	—		$	541		$	—	$	1,981		$	697		$	(9	)	$	3,210
Expenses	(16		)	(622		)	—		(1,732		)	(545		)	9			(2,906		)
Gains and other income, net	—			5			—		—			—			—			5
Interest expense	(8		)	(88		)	—		(4		)	—			—			(100		)
ILG acquisition-related costs	—			(77		)	—		(17		)	—			—			(94		)
Other	—			1			—		—			—			—			1
Benefit (provision) for income taxes	7			75			—		(74		)	(58		)	—			(50		)
Equity in net income (loss) of subsidiaries	81			142			93		—			—			(316		)	—
Net income (loss)	64			(23		)	93		154			94			(316		)	66
Net income attributable to noncontrolling interests	—			—			—		(1		)	(1		)	—			(2		)
Net income (loss) attributable to common shareholders	$	64		$	(23	)	$	93	$	153		$	93		$	(316	)	$	64



	Nine Months Ended September 30, 2018
	MVWC			Issuers						Senior Notes Guarantors			Non-Guarantor Subsidiaries			Total Eliminations			MVW Consolidated
($ in millions)	MVWC			MORI			ILG			Senior Notes Guarantors			Non-Guarantor Subsidiaries			Total Eliminations			MVW Consolidated
Revenues	$	—		$	559		$	—		$	991		$	366		$	—		$	1,916
Expenses	(6		)	(551		)	(4		)	(901		)	(300		)	—			(1,762		)
(Losses) gains and other (expense) income, net	—			(5		)	—			1			—			—			(4		)
Interest expense	(8		)	(12		)	—			(3		)	—			—			(23		)
ILG acquisition-related costs	—			(81		)	—			(17		)	—			—			(98		)
Other	—			—			—			(3		)	—			—			(3		)
Benefit (provision) for income taxes	4			26			1			(19		)	(27		)	—			(15		)
Equity in net income (loss) of subsidiaries	21			170			(38		)	—			—			(153		)	—
Net income (loss)	11			106			(41		)	49			39			(153		)	11
Net income attributable to noncontrolling interests	—			—			—			—			—			—			—
Net income (loss) attributable to common shareholders	$	11		$	106		$	(41	)	$	49		$	39		$	(153	)	$	11

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Condensed Consolidating Statement of Cash Flows



	Nine Months Ended September 30, 2019
	MVWC			Issuers						Senior Notes Guarantors			Non-Guarantor Subsidiaries			Total Eliminations			MVW Consolidated
($ in millions)	MVWC			MORI			ILG			Senior Notes Guarantors			Non-Guarantor Subsidiaries			Total Eliminations			MVW Consolidated
Net cash, cash equivalents and restricted cash (used in) provided by operating activities	$	(79	)	$	(159	)	$	—		$	251		$	157		$	10		$	180
Net cash, cash equivalents and restricted cash (used in) provided by investing activities	(5		)	(9		)	—			24			(9		)	—			1
Net cash, cash equivalents and restricted cash provided by (used in) financing activities	83			142			(2		)	(341		)	(162		)	(10		)	(290		)
Cash, cash equivalents and restricted cash, beginning of period	1			81			2			161			369			—			614
Cash, cash equivalents and restricted cash, end of period	$	—		$	55		$	—		$	95		$	355		$	—		$	505



	Nine Months Ended September 30, 2018
	MVWC			Issuers					Senior Notes Guarantors			Non-Guarantor Subsidiaries			Total Eliminations		MVW Consolidated
($ in millions)	MVWC			MORI			ILG		Senior Notes Guarantors			Non-Guarantor Subsidiaries			Total Eliminations		MVW Consolidated
Net cash, cash equivalents and restricted cash (used in) provided by operating activities	$	(59	)	$	78		$	—	$	122		$	(74	)	$	—	$	67
Net cash, cash equivalents and restricted cash (used in) provided by investing activities	(1,846		)	(6		)	2		123			304			—		(1,423		)
Net cash, cash equivalents and restricted cash provided by (used in) financing activities	1,905			(152		)	—		(179		)	97			—		1,671
Cash, cash equivalents and restricted cash, beginning of period	—			377			—		63			51			—		491
Cash, cash equivalents and restricted cash, end of period	$	—		$	297		$	2	$	129		$	378		$	—	$	806

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

Forward-Looking Statements

We make forward-looking statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Quarterly Report on Form 10-Q based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include, among other things, the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance improvements, and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “continue,” “may,” “might,” “should,” “could” or the negative of these terms or similar expressions.

Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. You should not put undue reliance on any forward-looking statements in this Quarterly Report. We do not have any intention or obligation to update forward-looking statements after the date of this Quarterly Report on Form 10-Q, except as required by law.

The risk factors discussed in “Risk Factors” in our most recent Annual Report on Form 10-K, and which may be discussed in subsequent Quarterly Reports on Form 10-Q or other filings with the Securities and Exchange Commission (“SEC”), could cause our results to differ materially from those expressed in forward-looking statements. There may be other risks and uncertainties that we cannot predict at this time or that we currently do not expect will have a material adverse effect on our financial position, results of operations or cash flows. Any such risks could cause our results to differ materially from those we express in forward-looking statements.

Our Financial Statements (as defined below), which we discuss below, reflect our historical financial condition, results of operations and cash flows. The financial information discussed below and included in this Quarterly Report on Form 10-Q may not necessarily reflect what our financial condition, results of operations or cash flows may be in the future. In order to make this report easier to read, we refer to (i) our Interim Consolidated Financial Statements as our “Financial Statements,” (ii) our Interim Consolidated Statements of Income as our “Income Statements,” (iii) our Interim Consolidated Balance Sheets as our “Balance Sheets” and (iv) our Interim Consolidated Statements of Cash Flows as our “Cash Flows.” In addition, references throughout to numbered “Footnotes” refer to the numbered Notes to our Financial Statements that we include in the Financial Statements of this Quarterly Report on Form 10-Q.

Business Overview

We are a leading global vacation company that offers vacation ownership, exchange, rental, and resort and property management, along with related businesses, products and services. Our business operates in two reportable segments: Vacation Ownership and Exchange & Third-Party Management.

On September 1, 2018, we completed the ILG Acquisition for approximately $4.2 billion in aggregate consideration. In connection with the ILG Acquisition, we entered into multiple financing arrangements, which include the issuance of senior notes and the replacement of our previously existing corporate credit facility with a new senior secured corporate credit agreement, our Corporate Credit Facility, that provides for a term loan and revolving loans.

We refer to our business associated with the brands that existed prior to the ILG Acquisition as “Legacy-MVW” and to ILG’s business and brands that we acquired as “Legacy-ILG.”

Our Vacation Ownership segment includes seven vacation ownership brands licensed under exclusive, long-term relationships with Marriott International and Hyatt Hotels Corporation. We are the exclusive worldwide developer, marketer, seller and manager of vacation ownership and related products under the Marriott Vacation Club, Grand Residences by Marriott, Sheraton Vacation Club, Westin Vacation Club, and Hyatt Residence Club brands, as well as under Marriott Vacation Club Pulse, an extension to the Marriott Vacation Club brand. We are also the exclusive worldwide developer, marketer and seller of vacation ownership and related products under The Ritz-Carlton Destination Club brand, we have the non-exclusive right to develop, market and sell whole ownership residential products under The Ritz-Carlton Residences brand and have a license to use the St. Regis brand for specified fractional ownership resorts.

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Our Exchange & Third-Party Management segment includes exchange networks and membership programs, as well as management of resorts and lodging properties. We provide these services through a variety of brands including Interval International, Trading Places International, Vacation Resorts International, Aqua-Aston and Great Destinations. Exchange & Third-Party Management revenue generally is fee-based and derived from membership, exchange and rental transactions, property and association management, and other related products and services.

Corporate and other represents that portion of our results that are not allocable to our segments, including those relating to property owners’ associations consolidated under the voting interest model (“Consolidated Property Owners’ Associations”).

Hurricane Activity

In 2017, over 20 Legacy-MVW properties and two Legacy-ILG properties were negatively impacted by one or both of Hurricane Irma and Hurricane Maria (collectively, the “2017 Hurricanes”). All of the Legacy-MVW properties reopened prior to the end of 2018. The Legacy-ILG property in St. John partially reopened in the first quarter of 2019 and the Legacy-ILG resort in Puerto Rico is expected to open in 2020.

We received $29 million and $9 million of net insurance proceeds in 2018 and 2019, respectively, related to the settlement of Legacy-MVW business interruption insurance claims arising from the 2017 Hurricanes. We have submitted most of the insurance claims for our Legacy-ILG business interruption losses as well as Legacy-MVW and Legacy-ILG property damage experienced by both us and associated property owners’ associations from these 2017 Hurricanes. We received an initial $25 million advance of insurance proceeds related to the business interruption losses at the Legacy-ILG St. John property in 2018 and, subsequent to the end of the third quarter of 2019, we received a final payment of $38 million. We also received $7 million of insurance proceeds related to the business interruption losses at the other Legacy-ILG properties in 2019 and we received advances of $108 million of insurance proceeds related to the Legacy-ILG property damage experienced by the related property owners’ associations as of the second quarter of 2019. Repairs are underway at the Legacy-ILG resort in Puerto Rico and the related insurance claim is expected to be submitted in 2020 upon the completion of construction. However, we cannot quantify the extent of any additional payments under such claims at this time as the claims would not be higher than our deductible.

During the third quarter of 2018, our Legacy-MVW properties in South Carolina and Florida were negatively impacted by Hurricane Florence and Hurricane Michael, respectively (collectively, the “2018 Hurricanes”). We expect to submit insurance claims for our business interruption losses as well as property damage experienced by both us and associated property owners’ associations from these 2018 Hurricanes. However, we cannot quantify the extent of any payments under such claims at this time.

During the third quarter of 2019, several properties in our Vacation Ownership segment were negatively impacted by Hurricane Dorian. We estimate contract sales in the third quarter were adversely impacted by approximately $7 million as a result of mandatory evacuations, resort and sales center shutdowns, and cancellations of reservations and scheduled tours. Our assessment is that the physical damage resulting from the hurricane to the resorts and sales centers operated by the company was minimal. We do not expect to submit insurance claims for our business interruption losses, or for property damage experienced by us or associated property owners’ associations, from this hurricane.

Significant Accounting Policies Used in Describing Results of Operations

Sale of Vacation Ownership Products

We recognize revenues from the sale of vacation ownership products (“VOIs”) when control of the vacation ownership product is transferred to the customer and the transaction price is deemed collectible. Based upon the different terms of the contracts with the customer and business practices, control of the vacation ownership product is transferred to the customer at closing for Legacy-MVW transactions and upon expiration of the statutory rescission period for Legacy-ILG transactions. Sales of vacation ownership products may be made for cash or we may provide financing. In addition, we recognize settlement fees associated with the transfer of vacation ownership products and commission revenues from sales of vacation ownership products on behalf of third parties, which we refer to as “resales revenue.”

We also provide sales incentives to certain purchasers. These sales incentives typically include Marriott Bonvoy points, World of Hyatt points or an alternative sales incentive that we refer to as “plus points.” These plus points are redeemable for stays at our resorts or for use in other third-party offerings, generally up to two years from the date of issuance. Typically, sales incentives are only awarded if the sale is closed.

As a result of the revenue recognition requirements included in Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”), there may be timing differences between the date of the contract with the customer and when revenue is recognized. When comparing results year-over-year, this timing difference may generate significant variances, which we refer to as the impact of revenue reportability.

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Finally, as more fully described in “Financing” below, we record the difference between the vacation ownership note receivable and the consideration to which we expect to be entitled (also known as a vacation ownership notes receivable reserve or a sales reserve) as a reduction of revenues from the sale of vacation ownership products at the time we recognize revenues from a sale.

We report, on a supplemental basis, contract sales for our Vacation Ownership segment. Contract sales consist of the total amount of vacation ownership product sales under contract signed during the period where we have received a down payment of at least ten percent of the contract price, reduced by actual rescissions during the period, inclusive of contracts associated with sales of vacation ownership products on behalf of third-parties, which we refer to as “resales contract sales.” In circumstances where a customer applies any or all of their existing ownership interests as part of the purchase price for additional interests, we include only the incremental value purchased as contract sales. Contract sales differ from revenues from the sale of vacation ownership products that we report on our income statements due to the requirements for revenue recognition described above. We consider contract sales to be an important operating measure because it reflects the pace of sales in our business.

Cost of vacation ownership products includes costs to develop and construct our projects (also known as real estate inventory costs), other non-capitalizable costs associated with the overall project development process and settlement expenses associated with the closing process. For each project, we expense real estate inventory costs in the same proportion as the revenue recognized. Consistent with the applicable accounting guidance, to the extent there is a change in the estimated sales revenues or inventory costs for the project in a period, a non-cash adjustment is recorded on our income statements to true-up costs in that period to those that would have been recorded historically if the revised estimates had been used. These true-ups, which we refer to as product cost true-up activity, can have a positive or negative impact on our income statements.

We refer to revenues from the sale of vacation ownership products less the cost of vacation ownership products and marketing and sales costs as development margin. Development margin percentage is calculated by dividing development margin by revenues from the sale of vacation ownership products.

Management and Exchange

Our management and exchange revenues include revenues generated from fees we earn for managing each of our vacation ownership resorts, providing property management, property owners’ association management and related services to third-party vacation ownership resorts and fees we earn for providing rental services and related hotel, condominium resort, and property owners’ association management services to vacation property owners.

In addition, we earn revenue from ancillary offerings, including food and beverage outlets, golf courses and other retail and service outlets located at our Vacation Ownership resorts. We also receive annual membership fees, club dues and certain transaction-based fees from members, owners and other third parties.

Management and exchange expenses include costs to operate the food and beverage outlets and other ancillary operations and to provide overall customer support services, including reservations, and certain transaction-based expenses relating to external exchange service providers.

In our Vacation Ownership segment and Consolidated Property Owners’ Associations, we refer to these activities as “Resort Management and Other Services.”

Financing

We offer financing to qualified customers for the purchase of most types of our vacation ownership products. The average FICO score of customers who were U.S. citizens or residents who financed a vacation ownership purchase was as follows:



	Nine Months Ended
	September 30, 2019	September 30, 2018
Average FICO score	736	736

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, which is generally ten years. Included within our vacation ownership notes receivable are originated vacation ownership notes receivable and vacation ownership notes receivable acquired in connection with the ILG Acquisition.

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Acquired vacation ownership notes receivable are accounted for using the expected cash flow method of recognizing discount accretion based on the expected cash flows. At acquisition, we recorded these vacation ownership notes receivable at fair value, which included a credit discount that is accreted as an adjustment to yield over the estimated life of the vacation ownership notes receivable. Our acquired vacation ownership notes receivable are remeasured at each reporting date based on expected future cash flows which takes into consideration an estimated measure of anticipated defaults and early repayments. See Footnote 6 “Vacation Ownership Notes Receivable” for further information regarding the accounting for acquired vacation ownership notes receivable.

The interest income earned from the originated vacation ownership financing arrangements is earned on an accrual basis on the principal balance outstanding over the contractual life of the arrangement and is recorded as Financing revenues on our Income Statements. Financing revenues also include fees earned from servicing the existing vacation ownership notes receivable portfolio. Financing expenses include costs in support of the financing, servicing and securitization processes. The amount of interest income earned in a period depends on the amount of outstanding vacation ownership notes receivable, which, for originated vacation ownership notes receivable, is impacted positively by the origination of new vacation ownership notes receivable and negatively by principal collections. We calculate financing propensity as contract sales volume of finance contracts originated in the period divided by contract sales volume of all contracts originated in the period. We do not include resales contract sales in the financing propensity calculation. Financing propensity was 67 percent in the third quarter of 2018 and 66 percent in the third quarter of 2019. We expect to continue to offer financing incentive programs and that interest income will continue to increase as new originations of vacation ownership notes receivable outpace the decline in principal of existing vacation ownership notes receivable.

In the event of a default, we generally have the right to foreclose on or revoke the underlying VOI. We return VOIs that we reacquire through foreclosure or revocation back to inventory. As discussed above, for originated vacation ownership notes receivable, we record a reserve at the time of sale and classify the reserve as a reduction to revenues from the sale of vacation ownership products on our Income Statements. Historical default rates, which represent defaults as a percentage of each year’s beginning gross vacation ownership notes receivable balance, were as follows:



	Nine Months Ended
	September 30, 2019	September 30, 2018
Historical default rates	3.2%	2.8%

Financing expenses include consumer financing interest expense, which represents interest expense associated with the securitization of our vacation ownership notes receivable. We distinguish consumer financing interest expense from all other interest expense because the debt associated with the consumer financing interest expense is secured by vacation ownership notes receivable that have been sold to bankruptcy remote special purpose entities and is generally non-recourse to us.

Rental

In our Vacation Ownership segment, we operate a rental business to provide owner flexibility and to help mitigate carrying costs associated with our inventory. We generate revenue from rentals of inventory that we hold for sale as interests in our vacation ownership programs, inventory that we control because our owners have elected alternative usage options permitted under our vacation ownership programs and rentals of owned-hotel properties. We also recognize rental revenue from the utilization of plus points under the MVCD program when the points are redeemed for rental stays at one of our resorts or in other third-party offerings. We obtain rental inventory from unsold inventory and inventory we control because owners have elected alternative usage options offered through our vacation ownership programs. For rental revenues associated with vacation ownership products which we own and which are registered and held for sale, to the extent that the revenues from rental are less than costs, revenues are reported net in accordance with ASC Topic 978, “Real Estate - Time-Sharing Activities” (“ASC 978”). The rental activity associated with discounted vacation packages requiring a tour (“preview stays”) is not included in transient rental metrics, and because the majority of these preview stays are sourced directly or indirectly from unsold inventory, the associated revenues and expenses are reported net in Marketing and sales expense.

In our Exchange & Third-Party Management segment, we offer vacation rental opportunities to members of the Interval International Network and certain other membership programs. The offering of Getaways allows us to monetize excess availability of resort accommodations within the applicable exchange network. Resort accommodations available as Getaways typically result from seasonal oversupply or underutilized space, as well as resort accommodations we source specifically for Getaways.

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Rental expenses include:


•	Maintenance fees on unsold inventory;


•	Costs to provide alternative usage options, including Marriott Bonvoy points and offerings available as part of third-party offerings, for owners who elect to exchange their inventory;


•	Marketing costs and direct operating and related expenses in connection with the rental business (such as housekeeping, credit card expenses and reservation services); and


•	Costs to secure resort accommodations for use in Getaways.

Rental metrics, including the average daily transient rate or the number of transient keys rented, may not be comparable between periods given fluctuation in available occupancy by location, unit size (such as two bedroom, one bedroom or studio unit), owner use and exchange behavior. In addition, rental metrics may not correlate with rental revenues due to the requirement to report certain rental revenues net of rental expenses in accordance with ASC 978 (as discussed above). Further, as our ability to rent certain luxury and other inventory is often limited on a site-by-site basis, rental operations may not generate adequate rental revenues to cover associated costs. Our Vacation Ownership segment units are either “full villas” or “lock-off” villas. Lock-off villas are units that can be separated into a master unit and a guest room. Full villas are “non-lock-off” villas because they cannot be separated. A “key” is the lowest increment for reporting occupancy statistics based upon the mix of non-lock-off and lock-off villas. Lock-off villas represent two keys and non-lock-off villas represent one key. The “transient keys” metric represents the blended mix of inventory available for rent and includes all of the combined inventory configurations available in our resort system.

Cost Reimbursements

Cost reimbursements include direct and indirect costs that are reimbursed to us by customers under management contracts. All costs, with the exception of taxes assessed by a governmental authority, reimbursed to us by customers are reported on a gross basis. We recognize cost reimbursements when we incur the related reimbursable costs. Cost reimbursements consist of actual expenses with no added margin.

Interest Expense

Interest expense consists of all interest expense other than consumer financing interest expense, which is included with Financing expense.

Other Items

We measure operating performance using the following key metrics:


•	Contract sales from the sale of vacation ownership products;


•	Total contract sales include contract sales from the sale of vacation ownership products including joint ventures


•	Consolidated contract sales exclude contract sales from the sale of vacation ownership products for non-consolidated joint ventures


•	Development margin percentage;

•

Volume per guest (“VPG”), which we calculate by dividing consolidated vacation ownership contract sales, excluding fractional sales, telesales, resales, joint venture sales and other sales that are not attributed to a tour at a sales location, by the number of tours at sales locations in a given period (which we refer to as “tour flow”). We believe that this operating metric is valuable in evaluating the effectiveness of the sales process as it combines the impact of average contract price with the number of touring guests who make a purchase;


•	Average revenue per member, which we calculate by dividing membership fee revenue, transaction revenue and other member revenue for the Interval International network by the monthly weighted average number of Interval International network active members during the applicable period; and


•	Total active members, which is the number of Interval International network active members at the end of the applicable period.

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Consolidated Results



	Three Months Ended						Nine Months Ended
($ in millions)	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
REVENUES
Sale of vacation ownership products	$	350		$	252		$	1,001		$	632
Management and exchange	231			126			709			274
Rental	149			90			472			239
Financing	72			48			209			119
Cost reimbursements	280			234			819			652
TOTAL REVENUES	1,082			750			3,210			1,916
EXPENSES
Cost of vacation ownership products	91			64			262			167
Marketing and sales	188			135			569			346
Management and exchange	115			65			349			140
Rental	111			74			323			191
Financing	23			19			70			40
General and administrative	68			53			225			114
Depreciation and amortization	33			18			106			29
Litigation charges	3			17			5			33
Royalty fee	27			19			79			50
Impairment	73			—			99			—
Cost reimbursements	280			234			819			652
TOTAL EXPENSES	1,012			698			2,906			1,762
(Losses) gains and other (expense) income, net	(5		)	2			5			(4		)
Interest expense	(31		)	(14		)	(100		)	(23		)
ILG acquisition-related costs	(32		)	(78		)	(94		)	(98		)
Other	1			—			1			(3		)
INCOME (LOSS) BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS	3			(38		)	116			26
(Provision) benefit for income taxes	(10		)	2			(50		)	(15		)
NET (LOSS) INCOME	(7		)	(36		)	66			11
Net income attributable to noncontrolling interests	(2		)	—			(2		)	—
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(9	)	$	(36	)	$	64		$	11

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Operating Statistics

2019 Third Quarter



	Three Months Ended							Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
(Contract sales $ in millions)	September 30, 2019		September 30, 2018		Change			Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Vacation Ownership
Total contract sales	$	401	$	283	$	118		$	116	$	2	1%
Consolidated contract sales	$	390	$	279	$	111		$	109	$	2	1%
Exchange & Third-Party Management
Total active members at end of period (000's)	1,701		1,802		(101		)
Average revenue per member⁽¹⁾	$	40.89	$	12.50	$	28.39

_______________


⁽¹⁾	Only includes members of the Interval International exchange network.

2019 First Three Quarters



	Nine Months Ended							Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
(Contract sales $ in millions)	September 30, 2019		September 30, 2018		Change			Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Vacation Ownership
Total contract sales	$	1,164	$	719	$	445		$	410	$	35	5%
Consolidated contract sales	$	1,130	$	715	$	415		$	380	$	35	5%
Exchange & Third-Party Management
Total active members at end of period (000's)	1,701		1,802		(101		)
Average revenue per member⁽¹⁾	$	130.21	$	12.50	$	117.71

_______________


⁽¹⁾	Only includes members of the Interval International exchange network.

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Revenues

2019 Third Quarter

The following table presents our revenues for the third quarter of 2019 compared to the third quarter of 2018 and, as a result of the ILG Acquisition on September 1, 2018, includes results for Legacy-ILG for the third quarter of 2019 and for the month of September during the third quarter of 2018.



	Three Months Ended						Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019		September 30, 2018		Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Vacation Ownership	$	967	$	709	$	258	$	249	$	9	1%
Exchange & Third-Party Management	112		40		72		72		—		—%
Total Segment Revenues	1,079		749		330		321		9		1%
Consolidated Property Owners’ Associations	3		1		2		2		—		—%
Total Revenues	$	1,082	$	750	$	332	$	323	$	9	1%

2019 First Three Quarters

The following table presents our revenues for the first three quarters of 2019 compared to the first three quarters of 2018 and, as a result of the ILG Acquisition on September 1, 2018, includes results for Legacy-ILG for the first three quarters of 2019 and for the month of September during the first three quarters of 2018.



	Nine Months Ended						Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019		September 30, 2018		Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Vacation Ownership	$	2,849	$	1,875	$	974	$	916	$	58	3%
Exchange & Third-Party Management	351		40		311		311		—		—%
Total Segment Revenues	3,200		1,915		1,285		1,227		58		3%
Consolidated Property Owners’ Associations	10		1		9		9		—		—%
Total Revenues	$	3,210	$	1,916	$	1,294	$	1,236	$	58	3%

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Earnings Before Interest Expense, Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA

EBITDA, a financial measure that is not prescribed by GAAP, is defined as earnings, or net income attributable to common shareholders, before interest expense (excluding consumer financing interest expense associated with term loan securitization transactions), income taxes, depreciation and amortization. For purposes of our EBITDA and Adjusted EBITDA calculations, we do not adjust for consumer financing interest expense because we consider it to be an operating expense of our business. We consider EBITDA and Adjusted EBITDA to be indicators of operating performance, which we use to measure our ability to service debt, fund capital expenditures and expand our business. We also use EBITDA and Adjusted EBITDA, as do analysts, lenders, investors and others, because these measures exclude certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company’s capital structure, debt levels and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provision for income taxes can vary considerably among companies. EBITDA and Adjusted EBITDA also exclude depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies. Adjusted EBITDA reflects additional adjustments for certain items described below, and excludes share-based compensation expense to address considerable variability among companies in recording compensation expense because companies use share-based payment awards differently, both in the type and quantity of awards granted. We evaluate Adjusted EBITDA as an indicator of operating performance because it allows for period-over-period comparisons of our on-going core operations before the impact of the excluded items. Together, EBITDA and Adjusted EBITDA facilitate our comparison of results from our on-going core operations before the impact of these items with results from other vacation ownership companies.

EBITDA and Adjusted EBITDA have limitations and should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. In addition, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do or may not calculate them at all, limiting their usefulness as comparative measures. The table below shows our EBITDA and Adjusted EBITDA calculation and reconciles these measures with Net income attributable to common shareholders, which is the most directly comparable GAAP financial measure.

2019 Third Quarter



	Three Months Ended						Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019			September 30, 2018			Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
Net loss attributable to common shareholders	$	(9	)	$	(36	)	$	27		$	67		$	(40	)
Interest expense	31			14			17			(1		)	18
Tax provision (benefit)	10			(2		)	12			9			3
Depreciation and amortization	33			18			15			14			1
EBITDA	65			(6		)	71			89			(18		)
Share-based compensation expense	9			13			(4		)	(6		)	2
Certain items	116			93			23			(9		)	32
Adjusted EBITDA	$	190		$	100		$	90		$	74		$	16

Certain items for the third quarter of 2019 consisted of $73 million of asset impairment charges, $33 million of acquisition costs (including $32 million of ILG acquisition-related costs and $1 million of other acquisition costs), $5 million of losses and other expenses, $2 million of purchase price adjustments, and $3 million of litigation charges.

Certain items for the third quarter of 2018 consisted of $78 million of ILG acquisition-related costs and $17 million of litigation charges, partially offset by $2 million of gains and other income. The net impact of purchase accounting adjustments to adjusted EBITDA was less than $1 million in the third quarter of 2018.

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2019 First Three Quarters



	Nine Months Ended				Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019		September 30, 2018		Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Net income attributable to common shareholders	$	64	$	11	$	53	$	133	$	(80	)
Interest expense	100		23		77		3		74
Tax provision	50		15		35		42		(7		)
Depreciation and amortization	106		29		77		72		5
EBITDA	320		78		242		250		(8		)
Share-based compensation expense	29		23		6		2		4
Certain items	202		138		64		10		54
Adjusted EBITDA	$	551	$	239	$	312	$	262	$	50

Certain items for the first three quarters of 2019 consisted of $99 million of asset impairment charges, $95 million of acquisition costs (including $94 million of ILG acquisition-related costs and $1 million of other acquisition costs), $7 million of purchase price adjustments, $5 million of litigation charges, and $1 million of other severance costs, partially offset by $5 million of miscellaneous gains and other income.

Certain items for the first three quarters of 2018 consisted of $101 million of acquisition costs (including $98 million of ILG acquisition-related costs and $3 million of acquisition costs associated with the then anticipated capital efficient acquisition of the operating property in San Francisco), $33 million of litigation charges (including $17 million related to a project in Hawaii, $11 million related to a project in San Francisco and $5 million related to a project in Lake Tahoe), and $6 million of losses and other expenses primarily resulting from fraudulently induced electronic payment disbursements made to third parties, partially offset by $1 million favorable true-up of previously recorded costs associated with the 2017 Hurricanes (recorded in Gains and other income) and $1 million of miscellaneous gains and other income.

Segment Adjusted EBITDA

2019 Third Quarter



	Three Months Ended						Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019			September 30, 2018			Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
Vacation Ownership	$	195		$	123		$	72		$	47		$	25
Exchange & Third-Party Management	56			19			37			37			—
Segment adjusted EBITDA	251			142			109			84			25
General and administrative	(61		)	(42		)	(19		)	(10		)	(9		)
Consolidated property owners’ associations	—			—			—			—			—
Adjusted EBITDA	$	190		$	100		$	90		$	74		$	16

2019 First Three Quarters



	Nine Months Ended						Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019			September 30, 2018			Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
Vacation Ownership	$	574		$	315		$	259		$	202		$	57
Exchange & Third-Party Management	180			19			161			161			—
Segment adjusted EBITDA	754			334			420			363			57
General and administrative	(204		)	(95		)	(109		)	(102		)	(7		)
Consolidated property owners’ associations	1			—			1			1			—
Adjusted EBITDA	$	551		$	239		$	312		$	262		$	50

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The following tables present Adjusted EBITDA for our reportable segments reconciled to segment financial results.

Vacation Ownership

2019 Third Quarter



	Three Months Ended						Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019			September 30, 2018			Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
Segment adjusted EBITDA	$	195		$	123		$	72		$	47		$	25
Depreciation and amortization	(16		)	(10		)	(6		)	(6		)	—
Share-based compensation expense	(2		)	(2		)	—			6			(6		)
Certain items	(77		)	(15		)	(62		)	(4		)	(58		)
Segment financial results	$	100		$	96		$	4		$	43		$	(39	)

Certain items in the Vacation Ownership segment for the third quarter of 2019 consisted of $73 million of asset impairment charges, $2 million of purchase accounting adjustments, $2 million of litigation charges, and $1 million of acquisition costs, partially offset by $1 million of gains and other income.

Certain items in the Vacation Ownership segment for the third quarter of 2018 consisted of $17 million of litigation charges related to a project in Hawaii, partially offset by $1 million of gains and other income and $1 million of purchase accounting adjustments.

2019 First Three Quarters



	Nine Months Ended						Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019			September 30, 2018			Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
Segment adjusted EBITDA	$	574		$	315		$	259		$	202		$	57
Depreciation and amortization	(50		)	(19		)	(31		)	(29		)	(2		)
Share-based compensation expense	(6		)	(4		)	(2		)	(1		)	(1		)
Certain items	(102		)	(33		)	(69		)	(9		)	(60		)
Segment financial results	$	416		$	259		$	157		$	163		$	(6	)

Certain items in the Vacation Ownership segment for the first three quarters of 2019 consisted of $99 million of asset impairment charges, $7 million of purchase accounting adjustments, $4 million of litigation charges, and $1 million of acquisition costs, partially offset by $9 million of gains and other income.

Certain items in the Vacation Ownership segment for the first three quarters of 2018 consisted of $33 million of litigation charges (including $17 million related to a project in Hawaii, $11 million related to a project in San Francisco and $5 million related to a project in Lake Tahoe) and $3 million of acquisition costs associated with the then anticipated capital efficient acquisition of the operating property in San Francisco, partially offset by a $2 million of gains and other income and $1 million of purchase accounting adjustments.

Exchange & Third-Party Management

2019 Third Quarter



	Three Months Ended						Change
($ in millions)	September 30, 2019			September 30, 2018			Change
Segment adjusted EBITDA	$	56		$	19		$	37
Depreciation and amortization	(11		)	(6		)	(5		)
Share-based compensation expense	—			—			—
Certain items	1			(1		)	2
Segment financial results	$	46		$	12		$	34

Certain items in the Exchange & Third-Party Management segment for the third quarter of 2019 consisted of $1 million of gains and other income.

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2019 First Three Quarters



	Nine Months Ended						Change
($ in millions)	September 30, 2019			September 30, 2018			Change
Segment adjusted EBITDA	$	180		$	19		$	161
Depreciation and amortization	(35		)	(6		)	(29		)
Non-cash share-based compensation expense	(2		)	—			(2		)
Certain items	—			(1		)	1
Segment financial results	$	143		$	12		$	131

Certain items in the Exchange & Third-Party Management segment for the first three quarters of 2019 consisted of $1 million of purchase accounting adjustments, offset by of $1 million of gains and other income.

Business Segments

Our business is grouped into two reportable business segments: Vacation Ownership and Exchange & Third-Party Management. See Footnote 18 “Business Segments” to our Financial Statements for further information on our segments.

Vacation Ownership



	Three Months Ended					Nine Months Ended
($ in millions)	September 30, 2019			September 30, 2018		September 30, 2019			September 30, 2018
REVENUES
Sale of vacation ownership products	$	350		$	252	$	1,001		$	632
Resort management and other services	125			91		384			239
Rental	135			86		423			235
Financing	71			48		206			119
Cost reimbursements	286			232		835			650
TOTAL REVENUES	967			709		2,849			1,875
EXPENSES
Cost of vacation ownership products	91			64		262			167
Marketing and sales	176			131		534			342
Resort management and other services	66			48		202			123
Rental	107			74		308			191
Financing	23			19		69			40
Depreciation and amortization	16			10		50			19
Litigation charges	2			17		4			33
Royalty fee	27			19		79			50
Impairment	73			—		99			—
Cost reimbursements	286			232		835			650
TOTAL EXPENSES	867			614		2,442			1,615
Gains and other income, net	1			1		9			2
Other	1			—		1			(3		)
SEGMENT FINANCIAL RESULTS BEFORE NONCONTROLLING INTERESTS	102			96		417			259
Net income attributable to noncontrolling interests	(2		)	—		(1		)	—
SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	100		$	96	$	416		$	259

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Contract Sales

2019 Third Quarter



	Three Months Ended						Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019		September 30, 2018		Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Total consolidated contract sales	$	390	$	279	$	111	$	109	$	2	1%
Joint venture contract sales	11		4		7		7		—		NM
Total contract sales	$	401	$	283	$	118	$	116	$	2	1%

2019 First Three Quarters



	Nine Months Ended						Change due to Legacy-ILG
($ in millions)	September 30, 2019		September 30, 2018		Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Total consolidated contract sales	1,130		715		415		380		35		5%
Joint venture contract sales	34		4		30		30		—		—%
Total contract sales	$	1,164	$	719	$	445	$	410	$	35	5%

Sale of Vacation Ownership Products

2019 Third Quarter



	Three Months Ended									Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019			September 30, 2018			Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
Total contract sales	$	401		$	283		$	118		$	116		$	2		1%
Less resales contract sales	(7		)	(8		)	1			—			1
Less joint venture contract sales	(11		)	(4		)	(7		)	(7		)	—
Consolidated contract sales, net of resales	383			271			112			109			3
Plus:
Settlement revenue	10			6			4			4			—
Resales revenue	3			3			—			—			—
Revenue recognition adjustments:
Reportability	(2		)	—			(2		)	—			(2		)
Sales reserve	(33		)	(18		)	(15		)	(11		)	(4		)
Other⁽¹⁾	(11		)	(10		)	(1		)	(1		)	—
Sale of vacation ownership products	$	350		$	252		$	98		$	101		$	(3	)	(1%)

_______________


⁽¹⁾	Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue and other adjustments to Sale of vacation ownership products revenue.

Excluding the impact of the ILG Acquisition, sale of vacation ownership products decreased $3 million due to higher sales reserve activity and an unfavorable change in reportability, partially offset by the increase in contract sales. Revenue reportability had a greater negative impact in the third quarter of 2019 than the third quarter of 2018 due to a net increase in unclosed contracts during the respective quarters.

The higher Legacy-MVW sales reserve reflected a higher required reserve in the third quarter of 2019 due to the increase in financing propensity and slightly higher default activity as compared to the third quarter of 2018.

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2019 First Three Quarters



	Nine Months Ended									Change due to Legacy-ILG
($ in millions)	September 30, 2019			September 30, 2018			Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
Total contract sales	$	1,164		$	719		$	445		$	410		$	35		5%
Less resales contract sales	(23		)	(23		)	—			—			—
Less joint venture contract sales	(34		)	(4		)	(30		)	(30		)	—
Consolidated contract sales, net of resales	1,107			692			415			380			35
Plus:
Settlement revenue	30			14			16			16			—
Resales revenue	10			8			2			—			2
Revenue recognition adjustments:
Reportability	(40		)	(16		)	(24		)	—			(24		)
Sales reserve	(79		)	(42		)	(37		)	(29		)	(8		)
Other⁽¹⁾	(27		)	(24		)	(3		)	(6		)	3
Sale of vacation ownership products	$	1,001		$	632		$	369		$	361		$	8		1%

_______________


⁽¹⁾	Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue and other adjustments to Sale of vacation ownership products revenue.

Excluding the impact of the ILG Acquisition, sale of vacation ownership products increased $8 million, driven by the increase in contract sales, partially offset by the unfavorable year-over-year impact of reportability and a higher sales reserve. Revenue reportability had a negative impact in the first three quarters of 2019 and the first three quarters of 2018 due to an increase in unclosed contracts during the respective quarters.

The higher Legacy-MVW sales reserve reflected a higher required reserve in the first three quarters of 2019 due to the increase in financing propensity and slightly higher default activity as compared to the first three quarters of 2018.

Table of Contents

Development Margin

2019 Third Quarter



	Three Months Ended									Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019			September 30, 2018			Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
Sale of vacation ownership products	$	350		$	252		$	98		$	101		$	(3	)	(1%)
Cost of vacation ownership products	(91		)	(64		)	(27		)	(28		)	1			2%
Marketing and sales	(176		)	(131		)	(45		)	(51		)	6			5%
Development margin	$	83		$	57		$	26		$	22		$	4		8%
Development margin percentage	23.6%			22.5%			1.1 pts

Excluding the impact of the ILG Acquisition, development margin increased $4 million year-over-year. The change in Legacy-MVW development margin reflected $7 million related to more efficient marketing and sales spending and $4 million from a favorable mix of inventory being sold, partially offset by $4 million of higher sales reserve expenses, $2 million from unfavorable product cost true-up activity year-over-year, and a $1 million decline due to unfavorable revenue reportability compared to the third quarter of 2018.

The increase in the development margin percentage reflected a 2.3 percentage point improvement from Legacy-MVW results, partially offset by a negative 1.2 percentage point impact from the inclusion of Legacy-ILG results post acquisition. The Legacy-MVW results included a 3.4 percentage point improvement in marketing and sales costs due to leveraging fixed costs on the increase in contract sales and a 1.7 percentage point increase due to a favorable mix of lower cost vacation ownership real estate inventory being sold, partially offset by a 1.6 percentage point decline related to sales reserve and other activity year-over-year, a 0.8 percentage point decrease from unfavorable product cost true-up activity, and a 0.4 percentage point decline due to the unfavorable revenue reportability. Legacy-MVW development margin percentage was 25.9 percent in the third quarter of 2019.

2019 First Three Quarters



	Nine Months Ended									Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019			September 30, 2018			Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
Sale of vacation ownership products	$	1,001		$	632		$	369		$	361		$	8		1%
Cost of vacation ownership products	(262		)	(167		)	(95		)	(102		)	7			5%
Marketing and sales	(534		)	(342		)	(192		)	(191		)	(1		)	—%
Development margin	$	205		$	123		$	82		$	68		$	14		12%
Development margin percentage	20.4%			19.3%			1.1 pts

Excluding the impact of the ILG Acquisition, development margin increased $14 million year-over-year. The change in Legacy-MVW development margin reflected $18 million related to more efficient marketing and sales spending, $12 million from a favorable mix of inventory being sold, $6 million from higher vacation ownership contract sales volume net of related sales reserve and direct variable expenses (i.e., cost of vacation ownership products and marketing and sales), and $1 million from favorable product cost true-up activity year-over-year, partially offset by a $17 million decline due to unfavorable revenue reportability and $6 million related to higher sales reserve expenses and other activity compared to the first three quarters of 2018.

The increase in the development margin percentage reflected a 2.1 percentage point improvement from Legacy-MVW results, partially offset by a negative 1.0 percentage point impact from the inclusion of Legacy-ILG results post acquisition. The Legacy-MVW results included a 3.0 percentage point improvement in marketing and sales costs due to leveraging fixed costs on the increase in contract sales and a 2.0 percentage point increase due to a favorable mix of lower cost vacation ownership real estate inventory being sold, partially offset by a 1.8 percentage point decline due to the unfavorable revenue reportability and a 1.1 percentage point decline related to sales reserve and other activity year-over-year. Legacy-MVW development margin percentage was 21.6 percent in the first three quarters of 2019.

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Resort Management and Other Services Revenues, Expenses and Margin

2019 Third Quarter



	Three Months Ended						Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019			September 30, 2018			Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
Management fee revenues	$	35		$	28		$	7		$	6		$	1	—%
Ancillary revenues	62			42			20			19			1		2%
Other management and exchange revenues	28			21			7			7			—		—%
Resort management and other services revenues	125			91			34			32			2		2%
Resort management and other services expenses	(66		)	(48		)	(18		)	(18		)	—		—%
Resort management and other services margin	$	59		$	43		$	16		$	14		$	2	4%
Resort management and other services margin percentage	46.9%			47.6%			(0.7 pts)

2019 First Three Quarters



	Nine Months Ended									Change due to Legacy-ILG
($ in millions)	September 30, 2019			September 30, 2018			Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
Management fee revenues	110			78			$	32		$	31		$	1		1%
Ancillary revenues	$	185		$	106		79			74			5			5%
Other management and exchange revenues	89			55			34			27			7			14%
Resort management and other services revenues	384			239			145			132			13			6%
Resort management and other services expenses	(202		)	(123		)	(79		)	(75		)	(4		)	(4%)
Resort management and other services margin	$	182		$	116		$	66		$	57		$	9		8%
Resort management and other services margin percentage	47.3%			48.6%			(1.3 pts)

Rental Revenues, Expenses and Margin

2019 Third Quarter



	Three Months Ended						Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019			September 30, 2018			Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
Rental revenues	$	135		$	86		$	49		$	44		$	5		7%
Rental expenses	(107		)	(74		)	(33		)	(32		)	(1		)	(1%)
Rental margin	$	28		$	12		$	16		$	12		$	4		38%
Rental margin percentage	21.2%			14.1%			7.1 pts



	Three Months Ended				Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
	September 30, 2019		September 30, 2018		Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Transient keys rented⁽¹⁾	604,949		403,325		201,624		189,981		11,643		4%
Average transient key rate	$	220.28	$	213.63	$	6.65	$	2.41	$	4.24	2%
Resort occupancy	87.7%		89.1%		(1.4 pts)		(1.3 pts)		(0.1 pts)

_________________________


⁽¹⁾	Transient keys rented exclude those occupied through the use of plus points and preview stays.

Table of Contents

2019 First Three Quarters



	Nine Months Ended									Change due to Legacy-ILG
($ in millions)	September 30, 2019			September 30, 2018			Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
Rental revenues	$	423		$	235		$	188		$	172		$	16	7%
Rental expenses	(308		)	(191		)	(117		)	(118		)	1		1%
Rental margin	$	115		$	44		$	71		$	54		$	17	42%
Rental margin percentage	27.1%			18.7%			8.4 pts



	Nine Months Ended						Change due to Legacy-ILG
	September 30, 2019		September 30, 2018		Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Transient keys rented⁽¹⁾	1,835,916		1,073,125		762,791		730,482		32,309		3%
Average transient key rate	$	229.95	$	221.22	$	8.73	$	3.71	$	5.02	2%
Resort occupancy	88.3%		89.6%		(1.3 pts)		(2.3 pts)		1.0 pts

_________________________


⁽¹⁾	Transient keys rented exclude those occupied through the use of plus points and preview stays.

Financing Revenues, Expenses and Margin

2019 Third Quarter



	Three Months Ended									Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019			September 30, 2018			Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
Interest income	$	69		$	45		$	24		$	15		$	9		24%
Other financing revenues	2			3			(1		)	(1		)	—			—%
Financing revenues	71			48			23			14			9			23%
Financing expenses	(11		)	(7		)	(4		)	(4		)	—			—%
Consumer financing interest expense	(12		)	(12		)	—			1			(1		)	(6%)
Financing margin	$	48		$	29		$	19		$	11		$	8		34%
Financing propensity	66.1%			66.6%

Legacy-MVW financing revenues increased due to a $155 million increase in the average gross vacation ownership notes receivable balance ($5 million) and favorable late and service fees ($4 million).

2019 First Three Quarters



	Nine Months Ended									Change due to Legacy-ILG
($ in millions)	September 30, 2019			September 30, 2018			Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
Interest income	$	201		$	113		$	88		$	67		$	21		20%
Other financing revenues	5			6			(1		)	(1		)	—			—%
Financing revenues	206			119			87			66			21			19%
Financing expenses	(28		)	(15		)	(13		)	(12		)	(1		)	(12%)
Consumer financing interest expense	(41		)	(25		)	(16		)	(11		)	(5		)	(20%)
Financing margin	$	137		$	79		$	58		$	43		$	15		20%
Financing propensity	63.4%			64.0%

Legacy-MVW financing revenues increased due to a $157 million increase in the average gross vacation ownership notes receivable balance ($15 million), favorable late and service fees ($4 million), and lower financing program incentive costs. The higher consumer financing interest expense was due to a higher average outstanding debt balance and slightly higher average debt interest rate.

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Litigation Charges

2019 Third Quarter



	Three Months Ended							Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019		September 30, 2018		Change			Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Litigation charges	$	2	$	17	$	(15	)	$	—	$	(15	)	(88%)

In the third quarter of 2019, we incurred $2 million of litigation charges related to various matters. In the third quarter of 2018, we incurred $17 million of litigation charges, including $16 million related to a project in Hawaii.

2019 First Three Quarters



	Nine Months Ended							Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019		September 30, 2018		Change			Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Litigation charges	$	4	$	33	$	(29	)	$	—	$	(29	)	(88%)

In the first three quarters of 2019, we incurred $4 million of litigation charges, including $3 million related to projects in Europe and $1 million related to projects in California. In the first three quarters of 2018, we incurred $33 million of litigation charges, including $16 million related to a project in Hawaii, $11 million related to a project in San Francisco, $5 million related to a project in Lake Tahoe, and $1 million related to projects in Europe.

Royalty Fee

2019 Third Quarter



	Three Months Ended						Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019		September 30, 2018		Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Royalty fee	$	27	$	19	$	8	$	8	$	—	—%

Excluding the impact of the ILG Acquisition, Legacy-MVW royalty fee expense remained flat in the third quarter of 2019 as the amount of closings, in dollars, was similar to the prior year quarter.

2019 First Three Quarters



	Nine Months Ended						Change due to Legacy-ILG
($ in millions)	September 30, 2019		September 30, 2018		Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Royalty fee	$	79	$	50	$	29	$	29	$	—	—%

Excluding the impact of the ILG Acquisition, Legacy-MVW royalty fee expense remained flat year-over-year due to an increase in the mix of sales of pre-owned inventory, which carry a lower royalty fee as compared to initial sales of our inventory (one percent versus two percent), partially offset by an increase in the dollar volume of closings and an increase in the fixed portion of the royalty fee. The prior year period benefited from a contractual decrease in the fixed portion of the royalty fee owed to Marriott International as a result of amendments to our licensing agreements with Marriott International entered into during the first quarter of 2018. This decrease in the fixed portion of the royalty fee was terminated upon completion of the ILG Acquisition on September 1, 2018.

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Depreciation and Amortization

2019 Third Quarter



	Three Months Ended						Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019		September 30, 2018		Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Depreciation and amortization	$	16	$	10	$	6	$	6	$	—	—%

2019 First Three Quarters



	Nine Months Ended						Change due to Legacy-ILG
($ in millions)	September 30, 2019		September 30, 2018		Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Depreciation and amortization	$	50	$	19	$	31	$	29	$	2	14%

Impairment

2019 Third Quarter



	Three Months Ended						Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019		September 30, 2018		Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Impairment	$	73	$	—	$	73	$	—	$	73	100%

2019 First Three Quarters



	Nine Months Ended						Change due to Legacy-ILG
($ in millions)	September 30, 2019		September 30, 2018		Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Impairment	$	99	$	—	$	99	$	—	$	99	100%

As a result of the change in our development strategy, we recorded a non-cash impairment charge of $72 million, of which $61 million related to land and land improvements associated with future phases of three existing resorts, primarily attributable to the fact that the book values of these assets include the historical allocations of common costs incurred when we built the infrastructure of these resorts, $9 million related to a land parcel held for future development and $2 million related to an ancillary business, as the book values of these assets were in excess of the estimated fair values of these assets. We also reviewed the remainder of the assets identified for disposition and determined that no other impairment charges were necessary.

Table of Contents

Cost Reimbursements

2019 Third Quarter



	Three Months Ended						Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019		September 30, 2018		Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Cost reimbursements	$	286	$	232	$	54	$	58	$	(4	)	(2%)

2019 First Three Quarters



	Nine Months Ended						Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019		September 30, 2018		Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Cost reimbursements	$	835	$	650	$	185	$	185	$	—	—%

Other

2019 Third Quarter



	Three Months Ended						Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019		September 30, 2018		Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Other	$	1	$	—	$	1	$	1	$	—	NM

2019 First Three Quarters



	Nine Months Ended							Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019		September 30, 2018			Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Other	$	1	$	(3	)	$	4	$	1	$	3	NM

In the first three quarters of 2018, we incurred $3 million of other expenses associated with the then anticipated capital efficient acquisition of an operating property in San Francisco.

Gains / Losses and Other Income / Expense

2019 Third Quarter



	Three Months Ended						Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019		September 30, 2018		Change		Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
Gains and other income, net	$	1	$	1	$	—	$	(1	)	$	1	NM

2019 First Three Quarters



	Nine Months Ended						Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019		September 30, 2018		Change		Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
Gains and other income, net	$	9	$	2	$	7	$	(1	)	$	8	NM

In the first three quarters of 2019, we recorded $9 million of gains and other income related to net insurance proceeds from the settlement of Legacy-MVW business interruption insurance claims arising from the 2017 Hurricanes.

Table of Contents

Noncontrolling Interest

2019 Third Quarter



	Three Months Ended								Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019			September 30, 2018		Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
Net income attributable to noncontrolling interests	$	(2	)	$	—	$	(2	)	$	(2	)	$	—	NM

2019 First Three Quarters



	Nine Months Ended								Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019			September 30, 2018		Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
Net income attributable to noncontrolling interests	$	(1	)	$	—	$	(1	)	$	(1	)	$	—	NM

Exchange & Third-Party Management

Our Exchange & Third-Party Management segment offers access to vacation accommodations and other travel-related transactions and services to leisure travelers by providing vacation exchange and management services, including vacation rentals and other services. We provide these services through a variety of brands including Interval International, Trading Places International, Vacation Resorts International, Aqua-Aston and Great Destinations. These brands were acquired as part of our acquisition of ILG on September 1, 2018 and, consequently, are only included in our results for the periods subsequent to that date.



	Three Months Ended				Nine Months Ended
($ in millions)	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
REVENUES
Management and exchange	$	75	$	28	$	232	$	28
Rental	14		4		48		4
Financing	1		—		3		—
Cost reimbursements	22		8		68		8
TOTAL REVENUES	112		40		351		40
EXPENSES
Marketing and sales	12		4		35		4
Management and exchange	15		8		48		8
Rental	7		2		22		2
Financing	—		—		1		—
Depreciation and amortization	11		6		35		6
Cost reimbursements	22		8		68		8
TOTAL EXPENSES	67		28		209		28
Gains and other income, net	1		—		1		—
SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	46	$	12	$	143	$	12

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Corporate and Other

Corporate and Other consists of results that are not allocable to our segments, including company-wide general and administrative costs, corporate interest expense, ILG acquisition-related costs and provision for income taxes. In addition, Corporate and Other includes the revenues and expenses from the Consolidated Property Owners’ Associations.



	Three Months Ended						Nine Months Ended
($ in millions)	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
REVENUES
Resort management and other services	$	31		$	7		$	93		$	7
Rental	—			—			1			—
Cost reimbursements	(28		)	(6		)	(84		)	(6		)
TOTAL REVENUES	3			1			10			1
EXPENSES
Resort management and other services	34			9			99			9
Rental	(3		)	(2		)	(7		)	(2		)
General and administrative	68			53			225			114
Depreciation and amortization	6			2			21			4
Litigation charges	1			—			1			—
Cost reimbursements	(28		)	(6		)	(84		)	(6		)
TOTAL EXPENSES	78			56			255			119
(Losses) gains and other (expense) income, net	(7		)	1			(5		)	(6		)
Interest expense	(31		)	(14		)	(100		)	(23		)
ILG acquisition-related costs	(32		)	(78		)	(94		)	(98		)
FINANCIAL RESULTS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS	(145		)	(146		)	(444		)	(245		)
(Provision) benefit for income taxes	(10		)	2			(50		)	(15		)
FINANCIAL RESULTS BEFORE NONCONTROLLING INTERESTS	(155		)	(144		)	(494		)	(260		)
Net income attributable to noncontrolling interests	—			—			(1		)	—
FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(155	)	$	(144	)	$	(495	)	$	(260	)

Table of Contents

Consolidated Property Owners’ Associations

The following table illustrates the impact of the Consolidated Property Owners’ Associations of the acquired Legacy-ILG vacation ownership properties under the voting interest model, which represents the portion related to individual or third-party VOI owners.



	Three Months Ended						Nine Months Ended
($ in millions)	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
REVENUES
Resort management and other services	$	31		$	7		$	93		$	7
Rental	—			—			1			—
Cost reimbursements	(28		)	(6		)	(84		)	(6		)
TOTAL REVENUES	3			1			10			1
EXPENSES
Resort management and other services	34			9			99			9
Rental	(3		)	(2		)	(7		)	(2		)
Cost reimbursements	(28		)	(6		)	(84		)	(6		)
TOTAL EXPENSES	3			1			8			1
FINANCIAL RESULTS BEFORE NONCONTROLLING INTERESTS	—			—			2			—
Net income attributable to noncontrolling interests	—			—			(1		)	—
FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	—		$	—		$	1		$	—

General and Administrative

2019 Third Quarter



	Three Months Ended						Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019		September 30, 2018		Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
General and administrative	$	68	$	53	$	15	$	10	$	5	14%

Excluding the impact of the ILG Acquisition, general and administrative expenses increased $5 million due to higher personnel related and other expenses, partially offset by savings from synergy initiatives. The personnel related and other expenses included annual merit, bonus and inflationary cost increases.

2019 First Three Quarters



	Nine Months Ended						Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019		September 30, 2018		Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
General and administrative	$	225	$	114	$	111	$	100	$	11	12%

Excluding the impact of the ILG Acquisition, general and administrative expenses increased $11 million due to higher personnel related and other expenses, partially offset by savings from synergy initiatives. The personnel related and other expenses included annual merit, bonus and inflationary cost increases.

Table of Contents

Depreciation and Amortization

2019 Third Quarter



	Three Months Ended						Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019		September 30, 2018		Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Depreciation and amortization	$	6	$	2	$	4	$	3	$	1	43%

2019 First Three Quarters



	Nine Months Ended						Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019		September 30, 2018		Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Depreciation and amortization	$	21	$	4	$	17	$	14	$	3	95%

Gains / Losses and Other Income / Expense

2019 Third Quarter



	Three Months Ended								Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019			September 30, 2018		Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
(Losses) gains and other (expense) income, net	$	(7	)	$	1	$	(8	)	$	(8	)	$	—	—%

In the third quarter of 2019, we recorded $7 million of losses and other expenses resulting from foreign currency translation. In the third quarter of 2018, we recorded $3 million of gains and other income resulting from the recovery of a portion of the fraudulently induced electronic payment disbursements made to third parties, partially offset by $2 million of other expenses primarily associated with such fraudulently induced electronic payment disbursements.

2019 First Three Quarters



	Nine Months Ended								Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019			September 30, 2018			Change		Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
Losses and other expense, net	$	(5	)	$	(6	)	$	1	$	(7	)	$	8	137%

In the first three quarters of 2019, we recorded $8 million of losses and other expenses resulting from foreign currency translation, partially offset by $3 million of gains and other income resulting from the recovery of a portion of the fraudulently induced electronic payment disbursements made in the second quarter of 2018. In the first three quarters of 2018, we recorded $6 million of losses and other expenses primarily resulting from fraudulently induced electronic payment disbursements made to third parties.

Interest Expense

2019 Third Quarter



	Three Months Ended									Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019			September 30, 2018			Change			Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
Interest expense	$	(31	)	$	(14	)	$	(17	)	$	1	$	(18	)	(134%)

Interest expense increased $17 million due to interest expense associated with the new debt issued in the third quarter of 2018 in connection with the ILG Acquisition.

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2019 First Three Quarters



	Nine Months Ended									Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019			September 30, 2018			Change			Change due to Legacy-ILG			Change Excluding Legacy-ILG Impact
Interest expense	$	(100	)	$	(23	)	$	(77	)	$	(3	)	$	(74	)	(339%)

Interest expense increased $77 million due to $71 million of interest expense associated with the new debt issued in the third quarter of 2018 in connection with the ILG Acquisition, $4 million of higher interest expense associated with the Warehouse Credit Facility due to higher usage in the first three quarters of 2019, and $2 million of interest expense associated with assumed Legacy-ILG debt in the first three quarters of 2019

ILG Acquisition-Related Costs

2019 Third Quarter



	Three Months Ended								Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019			September 30, 2018			Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
ILG acquisition-related costs	$	(32	)	$	(78	)	$	46	$	19	$	27	49%

2019 First Three Quarters



	Nine Months Ended								Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
($ in millions)	September 30, 2019			September 30, 2018			Change		Change due to Legacy-ILG		Change Excluding Legacy-ILG Impact
ILG acquisition-related costs	$	(94	)	$	(98	)	$	4	$	4	$	—	—%

ILG acquisition-related costs include transaction costs, employee termination costs and integration costs. Transaction costs represent costs related to the planning and execution of the ILG Acquisition, primarily for financial advisory, legal, and other professional service fees, as well as certain tax related accruals. Employee termination costs represent charges for employee severance, retention and other termination related benefits. Acquisition and integration costs primarily represent integration employee salaries and share-based compensation, fees paid to change management consultants and technology-related costs.

Income Tax

2019 Third Quarter



	Three Months Ended
($ in millions)	September 30, 2019			September 30, 2018		Change
(Provision) benefit for income taxes	$	(10	)	$	2	$	(12	)

The increase in the provision for income taxes was primarily due to increases in U.S. and foreign earnings as a result of the ILG Acquisition during the third quarter of 2018.

2019 First Three Quarters



	Nine Months Ended
($ in millions)	September 30, 2019			September 30, 2018			Change
Provision for income taxes	$	(50	)	$	(15	)	$	(35	)

The increase in the provision for income taxes was primarily due to increases in U.S. and foreign earnings as a result of the ILG Acquisition during the third quarter of 2018.

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Recent Accounting Pronouncements

See Footnote 2 “Significant Accounting Policies and Recent Accounting Standards” to our Financial Statements for a discussion of recently issued accounting pronouncements, including information on new accounting standards and the future adoption of such standards.

Liquidity and Capital Resources

Our capital needs are supported by cash on hand ($183 million at the end of the third quarter of 2019), cash generated from operations, our ability to raise capital through securitizations in the ABS market and, to the extent necessary, funds available under the Warehouse Credit Facility and the Revolving Corporate Credit Facility. We believe these sources of capital will be adequate to meet our short-term and long-term liquidity requirements, finance our long-term growth plans, satisfy debt service requirements, fulfill other cash requirements and return capital to shareholders. At September 30, 2019, we had $4.0 billion of total gross debt outstanding, which included $1.7 billion of non-recourse debt associated with vacation ownership notes receivable securitizations, $1.0 billion of Senior Notes, $1.1 billion on our Corporate Credit Facility, $230 million of Convertible Notes and $14 million related to financed lease obligations.

At the end of the third quarter of 2019, we had $899 million of real estate inventory on hand, comprised of $840 million of finished goods and $59 million of work in progress. In addition, we had $58 million of completed vacation ownership units that have been classified as a component of Property and equipment until the time at which they are legally registered and held for sale as vacation ownership products.

Our Vacation Ownership segment product offerings allow us to utilize our inventory efficiently. The majority of our sales are of points-based products, which permits us to sell vacation ownership products at most of our sales locations, including those where little or no weeks-based inventory remains available for sale. Because we no longer need specific resort-based inventory at each sales location, we need to have only a few resorts under construction at any given time and can leverage successful sales locations at completed resorts. This allows us to maintain long-term sales locations and reduces the need to develop and staff on-site sales locations at smaller projects in the future. We believe our points-based programs enable us to align our inventory acquisitions with the pace of sales of vacation ownership products. We are continuing to standardize our sales inventory acquisition policies across our portfolio of vacation ownership brands acquired as part of the ILG Acquisition.

We are selectively pursuing growth opportunities in our Vacation Ownership segment by targeting high-quality inventory that allows us to add desirable new destinations to our systems with new on-site sales locations through transactions that limit our up-front capital investment and allow us to purchase finished inventory closer to the time it is needed for sale. These capital efficient deal structures may consist of the development of new inventory, or the conversion of previously built units by third parties, just prior to sale.

Our Exchange & Third-Party Management segment includes exchange networks, membership programs and third-party property management services that were acquired as part of the ILG Acquisition. These networks, programs and services generate revenue that is generally fee-based and derived from membership, exchange and rental transactions, property and association management and other related products and services.

The following table summarizes the changes in cash, cash equivalents and restricted cash:



	Nine Months Ended
($ in millions)	September 30, 2019			September 30, 2018
Cash, cash equivalents and restricted cash provided by (used in):
Operating activities	$	180		$	67
Investing activities	1			(1,423		)
Financing activities	(290		)	1,671
Effect of change in exchange rates on cash, cash equivalents and restricted cash	—			—
Net change in cash, cash equivalents and restricted cash	$	(109	)	$	315

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Cash from Operating Activities

Our primary sources of funds from operations are (1) cash sales and down payments on financed sales, (2) cash from our financing operations, including principal and interest payments received on outstanding vacation ownership notes receivable, (3) cash from fee-based membership, exchange and rental transactions and (4) net cash generated from our rental and resort management and other services operations. Outflows include spending for the development of new phases of existing resorts, the acquisition of additional inventory, enhancement of our inventory exchange network of resorts and related technology infrastructure and funding our working capital needs.

We minimize our working capital needs through cash management, strict credit-granting policies and disciplined collection efforts. Our working capital needs fluctuate throughout the year given the timing of annual maintenance fees on unsold inventory we pay to property owners’ associations and certain annual compensation-related outflows. In addition, our cash from operations varies due to the timing of our owners’ repayment of vacation ownership notes receivable, the closing or recording of sales contracts for vacation ownership products, financing propensity and cash outlays for inventory acquisition and development.

In the first three quarters of 2019, we generated $180 million of cash flows from operating activities, compared to $67 million in the first three quarters of 2018. Excluding the impact of changes in net income and adjustments for non-cash items, the change in cash flows from operations reflected higher originations of vacation ownership notes receivable driven by higher contract sales and continued strong financing propensity, higher inventory spending and timing of maintenance fee payments on unsold inventory, partially offset by higher collections due to an increasing portfolio of outstanding vacation ownership notes receivable.

In addition to net income and adjustments for non-cash items, the following operating activities are key drivers of our cash flow from operating activities:

Inventory Spending Less Than Cost of Sales



	Nine Months Ended
($ in millions)	September 30, 2019			September 30, 2018
Inventory spending	$	(201	)	$	(76	)
Inventory costs	211			145
Inventory spending less than cost of sales	$	10		$	69

We measure our real estate inventory capital efficiency by comparing the cash outflow for real estate inventory spending (a cash item) to the amount of real estate inventory costs charged to expense on our Income Statements related to sale of vacation ownership products (a non-cash item).

Given the significant level of completed real estate inventory on hand, as well as the capital efficiency resulting from our points programs and capital efficient transactions, our spending for real estate inventory remained below the amount of real estate inventory costs in both the first three quarters of 2019 and the first three quarters of 2018. We expect our 2019 full year inventory spending to be lower than our inventory costs, even including payments to satisfy our remaining commitments to purchase vacation ownership units. We entered into these commitments in prior periods as part of our capital efficiency strategy to limit our up-front capital investment and purchase finished inventory closer to the time it is needed for sale. See Footnote 11 “Contingencies and Commitments” to our Financial Statements for additional information regarding our remaining commitments.

Our inventory spending was less than inventory costs in the first three quarters of 2018, even including a payment of $48 million for the acquisition of 78 completed vacation ownership units at our Marriott Vacation Club Pulse, San Francisco resort. During the first three quarters of 2018, inventory spending included $24 million for the acquisition of 20 completed vacation ownership units at our resort in Marco Island, Florida, as well as a deposit of $2 million for the purchase of completed vacation ownership units located in Bali, Indonesia.

Through our existing vacation ownership interest repurchase program, we proactively buy back previously sold vacation ownership interests at lower costs than would be required to develop new inventory. By repurchasing inventory in desirable locations, we expect to be able to stabilize the future cost of vacation ownership products.

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Vacation Ownership Notes Receivable Collections Less Than Originations



	Nine Months Ended
($ in millions)	September 30, 2019			September 30, 2018
Vacation ownership notes receivable collections — non-securitized	$	134		$	70
Vacation ownership notes receivable collections — securitized	328			174
Vacation ownership notes receivable originations	(681		)	(395		)
Vacation ownership notes receivable collections less than originations	$	(219	)	$	(151	)

Vacation ownership notes receivable collections include principal from non-securitized and securitized vacation ownership notes receivable. Vacation ownership notes receivable collections increased during the first three quarters of 2019, as compared to the first three quarters of 2018, due to an increase in the portfolio of outstanding vacation ownership notes receivable, including vacation ownership notes receivable acquired as part of the ILG acquisition. Vacation ownership notes receivable originations in the first three quarters of 2019 increased due to higher Legacy-MVW contract sales and the inclusion of Legacy-ILG contract sales in 2019. Financing propensity was slightly lower at 66 percent for the first three quarters of 2019 and 67 percent for the first three quarters of 2018.

Cash from Investing Activities



	Nine Months Ended
($ in millions)	September 30, 2019			September 30, 2018
Acquisition of a business, net of cash and restricted cash acquired	$	—		$	(1,393	)
Capital expenditures for property and equipment (excluding inventory)	(32		)	(17		)
Proceeds from collection of notes receivable	38			—
Purchase of company owned life insurance	(5		)	(13		)
Net cash, cash equivalents and restricted cash provided by (used in) investing activities	$	1		$	(1,423	)

Acquisition of a Business, Net of Cash and Restricted Cash Acquired

Cash outflows of $1.4 billion in 2018 were due to the ILG Acquisition. See Footnote 3 “Acquisitions and Dispositions” to our Financial Statements for more information.

Capital Expenditures for Property and Equipment

Capital expenditures for property and equipment relate to spending for technology development, buildings and equipment used at sales locations and ancillary offerings, such as food and beverage offerings, at locations where such offerings are provided. Additionally, it includes spending related to maintenance of buildings and equipment used in common areas at some of our resorts.

In the first three quarters of 2019, capital expenditures for property and equipment of $32 million included $19 million to support business operations (including $9 million for ancillary and other operations assets and $10 million for sales locations) and $13 million for technology spending.

In the first three quarters of 2018, capital expenditures for property and equipment of $17 million included $13 million to support business operations (including $7 million for ancillary and other operations assets and $6 million for sales locations) and $4 million for technology spending.

Proceeds from Collection of Notes Receivable

During the first three quarters of 2019, we collected $23 million of notes receivable related to the disposition of our interest in VRI Europe in the fourth quarter of 2018. In addition, we collected a $15 million note receivable acquired in the ILG Acquisition.

Purchase of Company Owned Life Insurance

To support our ability to meet a portion of our obligations under the Marriott Vacations Worldwide Corporation Deferred Compensation Plan (the “Deferred Compensation Plan”), we acquired company owned insurance policies on the lives of certain participants in the Deferred Compensation Plan, the proceeds of which are intended to be aligned with the investment alternatives elected by plan participants. During the first three quarters of 2019, we paid $5 million to acquire these policies as compared to $13 million during the first three quarters of 2018.

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Cash from Financing Activities



	Nine Months Ended
($ in millions)	September 30, 2019			September 30, 2018
Borrowings from securitization transactions	$	631		$	423
Repayment of debt related to securitization transactions	(673		)	(264		)
Proceeds from debt	495			1,650
Repayments of debt	(308		)	(53		)
Finance lease payment	(11		)	—
Debt issuance costs	(11		)	(34		)
Repurchase of common stock	(342		)	(2		)
Payment of dividends	(61		)	(32		)
Payment of withholding taxes on vesting of restricted stock units	(11		)	(17		)
Other, net	1			—
Net cash, cash equivalents and restricted cash (used in) provided by financing activities	$	(290	)	$	1,671

Borrowings from / Repayment of Debt Related to Securitization Transactions

We reflect proceeds from securitizations of vacation ownership notes receivable, including draw downs on the Warehouse Credit Facility, as “Borrowings from securitization transactions.” We reflect repayments of bonds associated with vacation ownership notes receivable securitizations and repayments on the Warehouse Credit Facility (including vacation ownership notes receivable repurchases) as “Repayment of debt related to securitization transactions.”

As of September 30, 2019, $247 million of gross vacation ownership notes receivable were eligible for securitization.

During the second quarter of 2019, we completed the securitization of a pool of $459 million of vacation ownership notes receivable. In connection with the securitization, investors purchased in a private placement $450 million in vacation ownership loan backed notes from the 2019-1 LLC. Three classes of vacation ownership loan backed notes were issued by the 2019-1 LLC: $350 million of Class A Notes, $67 million of Class B Notes and $33 million of Class C Notes. The Class A Notes have an interest rate of 2.89 percent, the Class B Notes have an interest rate of 3.00 percent and the Class C Notes have an interest rate of 3.33 percent, for an overall weighted average interest rate of 2.94 percent.

On October 10, 2019, subsequent to the third quarter of 2019, we completed the securitization of a pool of $315 million of vacation ownership notes receivable. Approximately $236 million of the vacation ownership notes receivable were purchased on October 10, 2019 by the 2019-2 LLC, and we expect the remaining vacation ownership notes receivable to be purchased by the 2019-2 LLC prior to March 31, 2020. The 2019-2 LLC holds the remaining proceeds, which will be released as the remaining vacation ownership notes receivable are purchased. On November 7, 2019, an additional $44 million of the remaining vacation ownership notes receivable were purchased and $42 million was released from restricted cash. Any funds not used to purchase vacation ownership notes receivable will be returned to the investors. Three classes of vacation ownership loan backed notes were issued by the 2019-2 LLC: $232 million of Class A Notes, $54 million of Class B Notes and $23 million of Class C Notes. The Class A Notes have an interest rate of 2.22 percent, the Class B Notes have an interest rate of 2.44 percent and the Class C Notes have an interest rate of 2.68 percent, for an overall weighted average interest rate of 2.29 percent.

During the first quarter of 2019, we securitized vacation ownership notes receivable under our Warehouse Credit Facility. The carrying amount of the vacation ownership notes receivable securitized was $146 million. The advance rate was 85 percent, which resulted in gross proceeds of $124 million. Net proceeds were $123 million due to the funding of reserve accounts of $1 million.

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Proceeds from / Repayments of Debt

Borrowings from / Repayment of Corporate Credit Facility

During the first three quarters of 2019, we borrowed $495 million under our Revolving Corporate Credit Facility to facilitate the funding of our short-term working capital needs, $270 million of which has been repaid, and had $225 million outstanding as of September 30, 2019. During the first three quarters of 2019, we also repaid $7 million of the amount outstanding under the Term Loan, which is part of our Corporate Credit Facility. See Footnote 14 “Debt” to our Financial Statements for additional information regarding our Corporate Credit Facility that includes our Revolving Corporate Credit Facility and the Term Loan.

Finance Lease Payment

During the third quarter of 2019, in conjunction with the acquisition of the 78 completed vacation ownership units at our Marriott Vacation Club Pulse, San Francisco resort, we acquired the accompanying sales gallery for $10 million.

Debt Issuance Costs

During the first three quarters of 2019, we paid $11 million of debt issuance costs, which included $6 million associated with the 2019-1 vacation ownership notes receivable securitization and $5 million associated with the issuance of the 2028 Notes on October 1, 2019, subsequent to the third quarter of 2019.

During the first three quarters of 2018, we paid $34 million of debt issuance costs, which included $13 million associated with the Term Loan, $9 million associated with the issuance of Senior Unsecured Note, $6 million associated with the 2018 vacation ownership notes receivable securitization, $4 million associated with our Revolving Corporate Credit Facility, $1 million associated with the amendment and extension of our Warehouse Credit Facility and $1 million associated with the issuance of the Exchange Notes.

Repayment of Other Debt

During the first three quarters of 2019, we paid the remaining balance of $31 million on the non-interest bearing note payable related to the acquisition of 112 completed vacation ownership units located on the Big Island of Hawaii in 2017.

During the first three quarters of 2018, we paid $33 million on the non-interest bearing note payable related to the acquisition of 112 completed vacation ownership units located on the Big Island of Hawaii in 2017.

Share Repurchase Program

The following table summarizes share repurchase activity under our current share repurchase program:



($ in millions, except per share amounts)	Number of Shares Repurchased	Cost of Shares Repurchased		Average Price Paid per Share
As of December 31, 2018	11,687,774	$	793	$	67.85
For the first three quarters of 2019	3,667,175	342		93.24
As of September 30, 2019	15,354,949	$	1,135	$	73.91

See Footnote 15 “Shareholders' Equity” to our Financial Statements for further information related to our share repurchase program.

Dividends

We distributed cash dividends to holders of common stock during the first three quarters of 2019 as follows:



Declaration Date	Shareholder Record Date	Distribution Date	Dividend per Share
December 6, 2018	December 20, 2018	January 3, 2019	$0.45
February 15, 2019	February 28, 2019	March 14, 2019	$0.45
May 9, 2019	May 23, 2019	June 6, 2019	$0.45

We currently expect to pay quarterly cash dividends in the future, but any future dividend payments will be subject to Board approval, which will depend on our financial condition, results of operations and capital requirements, as well as applicable law, regulatory constraints, industry practice and other business considerations that our Board of Directors considers relevant. In addition, our Corporate Credit Facility and the indentures governing our senior notes contain restrictions on our ability to pay dividends, and the terms of agreements governing debt that we may incur in the future may also limit or prohibit

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dividend payments. The payment of certain cash dividends may also result in an adjustment to the conversion rate of the Convertible Notes in a manner adverse to us. Accordingly, there can be no assurance that we will pay dividends in the future at the same rate or at all.

Contractual Obligations and Off-Balance Sheet Arrangements

The following table summarizes our contractual obligations as of September 30, 2019:



			Payments Due by Period
($ in millions)	Total		Remainder of 2019		Years 2020 - 2021		Years 2022 - 2023		Thereafter
Contractual Obligations
Debt⁽¹⁾	$	4,918	$	324	$	777	$	1,105	$	2,712
Purchase obligations⁽²⁾	408		24		368		15		1
Operating lease obligations	194		8		51		34		101
Finance lease obligations⁽³⁾	14		1		13		—		—
Other long-term obligations⁽⁴⁾	45		7		28		6		4
Total contractual obligations	$	5,579	$	364	$	1,237	$	1,160	$	2,818

_________________________


⁽¹⁾	Includes principal as well as interest payments and excludes unamortized debt discount and issuance costs.

⁽²⁾

Arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure, and approximate timing of the transaction. Amounts reflected represent expected funding under such contracts. Amounts reflected on the consolidated balance sheet as accounts payable and accrued liabilities are excluded from the table above.


⁽³⁾	Includes interest.


⁽⁴⁾	Primarily relates to future guaranteed purchases of rental inventory, operational support services, marketing related benefits, membership fulfillment benefits and other commitments.

Critical Accounting Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. Management considers an accounting estimate to be critical if: (1) it requires assumptions to be made that are uncertain at the time the estimate is made; and (2) changes in the estimate, or different estimates that could have been selected, could have a material effect on our results of operations or financial condition.

While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information presently available. Actual results may differ significantly. Additionally, changes in our assumptions, estimates or assessments as a result of unforeseen events or otherwise could have a material impact on our consolidated financial position or results of operations. We have discussed those estimates that we believe are critical and require the use of complex judgment in their application in our most recent Annual Report on Form 10-K. Since the date of our most recent Annual Report on Form 10-K, there have been no material changes to our critical accounting policies or the methodologies or assumptions we apply under them, except those resulting from the following:


•	Our adoption of Accounting Standards Update 2016-02, “Leases (Topic 842),” as amended, which is discussed in Footnote 2 “Significant Accounting Policies and Recent Accounting Standards” and Footnote 12 “Leases” to our interim consolidated financial statements presented in Part 1, Item 1 of this Quarterly Report on Form 10-Q; and


•	Purchase price allocations of business combinations, which is discussed in Footnote 3 “Acquisitions and Dispositions” to our interim consolidated financial statements presented in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk has not changed materially from that disclosed in Part I, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2018.

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Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), and management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which by their nature, can provide only reasonable assurance about management’s control objectives. Our disclosure controls and procedures have been designed to provide reasonable assurance of achieving the desired control objectives. However, you should note that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Based upon the foregoing evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and operating to provide reasonable assurance that we record, process, summarize and report the information we are required to disclose in the reports that we file or submit under the Exchange Act within the time periods specified in the rules and forms of the SEC, and to provide reasonable assurance that we accumulate and communicate such information to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions about required disclosure.

Changes in Internal Control Over Financial Reporting

We made no changes in our internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting other than changes in control over financial reporting to integrate the business we acquired in the ILG Acquisition. In the third quarter of 2019 we migrated the acquired portion of the Vacation Ownership segment to our existing general ledger system.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

Currently, and from time to time, we are subject to claims in legal proceedings arising in the normal course of business, including, among others, the legal actions discussed in Footnote 11 “Contingencies and Commitments” to our Financial Statements. While management presently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, cash flows, or overall trends in results of operations, legal proceedings are inherently uncertain, and unfavorable rulings could, individually or in aggregate, have a material adverse effect on our business, financial condition, or operating results.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 other than as disclosed in our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2019.

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

Issuer Purchases of Equity Securities



Period	Total Number of Shares Purchased	Average Price per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽¹⁾	Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs⁽¹⁾
July 1, 2019 – July 31, 2019	403,499	$98.32	403,499	4,663,772
August 1, 2019 – August 31, 2019	548,848	$90.83	548,848	4,114,924
September 1, 2019 – September 30, 2019	356,020	$105.22	356,020	3,758,904
Total	1,308,367	$97.06	1,308,367	3,758,904

_________________________

⁽¹⁾

Item 6. Exhibits

All documents referenced below are being filed as a part of this Quarterly Report on Form 10-Q, unless otherwise noted.



Exhibit Number	Description	Filed Herewith	Incorporation By Reference From
Exhibit Number	Description	Filed Herewith	Form	Exhibit	Date Filed
2.1	Agreement and Plan of Merger, dated as of April 30, 2018, by and among Marriott Vacations Worldwide Corporation, ILG, Inc., Ignite Holdco, Inc., Ignite Holdco Subsidiary, Inc., Volt Merger Sub, Inc., and Volt Merger Sub LLC*		8-K	2.1	5/1/2018
3.1	Restated Certificate of Incorporation of Marriott Vacations Worldwide Corporation		8-K	3.1	11/22/2011
3.2	Restated Bylaws of Marriott Vacations Worldwide Corporation		8-K	3.2	11/22/2011
4.1	Form of certificate representing shares of common stock, par value $0.01 per share, of Marriott Vacations Worldwide Corporation		10	4.1	10/14/2011
4.2	Indenture between Marriott Vacations Worldwide Corporation and The Bank of New York Mellon Trust Company, N.A., as trustee, dated September 25, 2017		10-Q	4.1	11/2/2017
4.3	Form of 1.50% Convertible Senior Note due 2022 (included as Exhibit A to Exhibit 4.2 above)		10-Q	4.1	11/2/2017
4.4	Indenture, dated as of August 23, 2018, by and among Marriott Ownership Resorts, Inc., Marriott Vacations Worldwide Corporation, as guarantor, the other guarantors party thereto and the Bank of New York Mellon Trust Company, N.A., as trustee		8-K	4.1	8/23/2018
4.5	Supplemental Indenture, dated September 1, 2018, by and among Marriott Ownership Resorts, Inc., ILG, LLC, the guarantors party thereto and the Bank of New York Mellon Trust Company, N.A., as trustee		8-K	4.7	9/5/2018
4.6	Form of 6.500% Senior Note due 2026 (included as Exhibit A to Exhibit 4.4 above)		8-K	4.1	8/23/2018
4.7	Registration Rights Agreement, dated as of August 23, 2018, by and among Marriott Ownership Resorts, Inc., Marriott Vacations Worldwide Corporation, as guarantor, the other guarantors party thereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated		8-K	4.3	8/23/2018
4.8	Joinder Agreement to Registration Rights Agreement, dated as of September 1, 2018, by and among ILG, LLC, the guarantors party thereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated as the representative of the initial purchasers		8-K	4.8	9/5/2018

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Exhibit Number	Description	Filed Herewith	Incorporation By Reference From
Exhibit Number	Description	Filed Herewith	Form	Exhibit	Date Filed
4.9	Indenture, dated as of September 4, 2018, by and among Marriott Ownership Resorts, Inc., ILG, LLC, Marriott Vacations Worldwide Corporation, as guarantor, the other guarantors party thereto and HSBC Bank USA, National Association, as trustee		8-K	4.1	9/5/2018
4.10	Form of 5.625% Senior Note due 2023 (included as Exhibit A to Exhibit 4.9 above)		8-K	4.1	9/5/2018
4.11	Registration Rights Agreement, dated as of September 4, 2018, by and among Marriott Ownership Resorts, Inc., ILG, LLC, Marriott Vacations Worldwide Corporation, as a guarantor, the other guarantors party thereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC		8-K	4.3	9/5/2018
4.12	Indenture, dated April 10, 2015, among Interval Acquisition Corp., Interval Leisure Group, Inc., the other Guarantors party thereto and HSBC Bank UA, National Association, as trustee		8-K⁽¹⁾	4.1	4/10/2015
4.13	Form of Interval Acquisition Corp. 5.625% Senior Note due 2023 (included as Exhibit A to Exhibit 4.12 above)		8-K⁽¹⁾	4.1	4/10/2015
4.14	Supplemental Indenture, dated as of June 29, 2016, among Interval Acquisition Corp., certain subsidiary guarantors and HSBC Bank USA, National Association		8-K⁽¹⁾	4.1	7/1/2016
4.15	Indenture, dated as of October 1, 2019, by and among Marriott Ownership Resorts, Inc., Marriott Vacations Worldwide Corporation, as guarantor, the other guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee		8-K	4.1	10/1/2019
4.16	Form of 4.750% Senior Notes due 2028 (included as Exhibit A to Exhibit 4.15 above)		8-K	4.2	10/1/2019
4.17	Registration Rights Agreement, dated as of October 1, 2019, by and among Marriott Ownership Resorts, Inc., Marriott Vacations Worldwide Corporation, as guarantor, the other guarantors party thereto and J.P. Morgan Securities LLC		8-K	4.3	10/1/2019
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934	X
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934	X
32.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002	Furnished
32.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002	Furnished
101	The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL: (i) Interim Consolidated Statements of Income, (ii) Interim Consolidated Statements of Comprehensive Income, (iii) Interim Consolidated Balance Sheets, (iv) Interim Consolidated Statements of Cash Flows, (v) Interim Consolidated Statements of Shareholders’ Equity, and (vi) Notes to Interim Consolidated Financial Statements
104	The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL and contained in Exhibit 101



*		Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplemental copies to the SEC of any omitted schedule upon request by the SEC.
(1)		Filing made by ILG, LLC under SEC File No. 001-34062.

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.



		MARRIOTT VACATIONS WORLDWIDE CORPORATION

November 12, 2019		/s/ Stephen P. Weisz
		Stephen P. Weisz
		President and Chief Executive Officer

		/s/ John E. Geller, Jr.
		John E. Geller, Jr.
		Executive Vice President and Chief Financial and Administrative Officer