We consider EBITDA to be an indicator of operating performance, and we use it to measure our ability to service debt, fund capital expenditures and expand our business. We also use it, as do analysts, lenders, investors and others, because it excludes 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 also excludes 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.

EBITDA has 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 differently than we do or may not calculate it at all, limiting its usefulness as a comparative measure. The table below shows our EBITDA calculation and reconciles that measure with Net income (loss).

We recognize revenues from the sale of vacation ownership products when all of the following conditions exist:

A a binding sales contract has been executed;

~~The~~ the statutory rescission period has expired;

~~The~~ the receivable is deemed collectible; and

~~The~~ the remainder of our obligations are substantially completed.

Sales of vacation ownership products may be made for cash or we may provide financing. For sales where we provide financing, we defer revenue recognition until we receive a minimum down payment equal to ten percent of the purchase price plus the fair value of certain sales incentives provided to the purchaser. These sales incentives typically include Marriott Rewards ~~Points~~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 the Explorer Collection, generally ~~within one~~up to two years from the date of issuance. ~~Sales~~Typically, sales incentives are only awarded if the sale is closed.

As a result of the down payment ~~requirements with respect to financed sales~~requirement described above and the requirement that the statutory rescission ~~periods,~~period has expired, we often defer revenues associated with the sale of vacation ownership products from the date of the purchase agreement to a future period. When comparing results year-over-year, this deferral frequently generates significant variances, which we refer to as the impact of revenue reportability.

Finally, as more fully described in the “Financing” section below, we record an estimate of expected uncollectibility on all vacation ownership notes receivable (also known as a vacation ownership notes receivable reserve or a sales reserve) ~~from vacation ownership purchases~~ 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 each of our three segments. Contract sales ~~represent~~consist of the total amount of vacation ownership product sales under purchase agreements 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. 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 ~~of Income~~ 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) as well as other non-capitalizable costs associated with the overall project development 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 real estate inventory costs for the project in a period, a non-cash adjustment is recorded on our Income Statements ~~of Income~~ to true-up ~~revenues and~~ 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-ups,~~true-up activity, will have a positive or negative impact on our ~~Statements of Income.~~

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.

Resort Management and Other Services

Our resort management and other services revenues include revenues generated from fees we earn for managing each of our resorts. In addition, we earn revenue for providing ancillary offerings, including food and beverage, retail, and golf and spa offerings, at our resorts. We also receive annual fees, club dues, settlement fees from the sale of vacation ownership products and certain transaction-based fees from owners and other third parties, including external exchange service providers with which we are associated.

We provide ~~day-to-day-management~~day-to-day management services, including housekeeping services, operation of reservation systems, maintenance, and certain accounting and administrative services for property owners’ associations. We receive compensation for these management services; this compensation is ~~generally~~typically based on either a percentage of the budgeted ~~cost~~costs to operate the resorts or a fixed fee arrangement. We earn these fees regardless of usage or occupancy.

Resort management and other services expenses include costs to operate the food and beverage and other ancillary operations and overall customer support services, including reservations, certain ~~transaction based~~transaction-based expenses relating to external exchange service providers and settlement expenses from the sale of vacation ownership products.

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:

Fiscal Years
2014 2013 2012
Average FICO score
730 729 729

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. The interest income earned from the financing arrangements is earned on an accrual basis on the principal balance outstanding over the life of the arrangement and is recorded as Financing revenues on our ~~Statements of Income.~~

Income Statements.

Financing revenues include interest income earned on vacation ownership notes receivable as well as 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 is impacted positively by the origination of new vacation ownership notes receivable and negatively by principal collections. ~~Due~~We calculate financing propensity as contract sales volume of financed contracts closed in the period divided by contract sales volume of all contracts closed in the period. Financing propensity was 64.0 percent in 2017 and 60.1 percent in 2016, following our implementation of new incentive programs in the first half of 2015 to ~~weakened economic conditions and our elimination of~~help increase financing propensity. We expect to continue to offer financing incentive programs ~~the percentage of customers choosing to finance their vacation ownership purchase with us (which we refer to as “financing propensity”) declined significantly through 2009~~in 2018 and ~~has stabilized since then. As a result, we expect~~ that interest income will continue to ~~decline in the near term until~~increase as new originations of vacation ownership notes receivable outpace the decline in principal of ~~the~~ existing vacation ownership notes ~~receivable portfolio.~~

receivable.

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

Fiscal Years
2014 2013 2012
Historical default rates
3.9% 3.9% 4.5%

Fiscal Years
2017 2016 2015
Historical default rates 3.6% 3.8% 3.5%

Rental

We operate a rental business to provide owner flexibility and to help mitigate carrying costs associated with our inventory. We obtain rental inventory from unsold inventory and inventory we control because owners have elected alternative usage options offered through our vacation ownership programs.

Rental revenues are primarily the revenues we earn from renting this inventory. We also recognize rental revenue from the utilization of plus points under the MVCD program when ~~those~~the points are redeemed for rental stays at one of our resorts or in the Explorer Collection, or upon expiration of the points.

Rental expenses include:

Maintenance fees on unsold inventory;

Costs to provide alternative usage options, including Marriott Rewards ~~Points~~points and offerings available as part of the Explorer Collection, for owners who elect to exchange their inventory;

Subsidy payments to property owners’ associations at resorts that are in the early phases of construction where maintenance fees collected from the owners are not sufficient to support operating costs of the resort;

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 associated with the banking and borrowing usage option that is available under our ~~MVCD program.~~points-based programs.

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), and owner use and exchange behavior. Further, as our ability to rent certain luxury inventory and inventory in our Asia Pacific segment is often limited on a site-by-site basis, rental operations may not generate adequate rental revenues to cover associated costs. Our vacation 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 property owners’ associations reimburse to us. In accordance with the accounting guidance for “gross versus net” presentation, we record these revenues and expenses on a gross basis. We recognize cost reimbursements when we incur the related reimbursable costs. These costs primarily consist of payroll and payroll related expenses for management of the property owners’ associations and other services we provide where we are the employer. Cost reimbursements consist of actual expenses with no added margin.

Consumer Financing Interest Expense

Consumer financing interest expense represents interest expense associated with the debt from our Warehouse Credit Facility and from 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 ~~that~~ is generally non-recourse to us.

Interest Expense

Interest expense consists of all interest expense other than consumer financing interest expense.

Other Items

We measure operating performance using the following key metrics:

Contract sales from the sale of vacation ownership products;

Development margin percentage; and

~~VPG,~~Volume per guest (“VPG”), which we calculate by dividing vacation ownership contract sales, excluding fractional ~~and residential~~ sales, telesales and other sales that are not attributed to a tour at a sales location, by the number of tours at sales ~~tours~~locations in a given period. 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.

~~Rounding~~

~~Percentage changes presented in our public filings are calculated using whole dollars.~~

Consolidated Results

The following discussion presents an analysis of our results of ~~operations for 2014, 2013 and 2012.~~

Fiscal Years
($ in millions) 2014 2013 2012
Revenues

Sale of vacation ownership products
$ 648 $ 672 $ 618
Resort management and other services
298 290 283
Financing
129 141 151
Rental
264 262 225
Cost reimbursements
397 385 362

Total revenues
1,736 1,750 1,639

Expenses
Cost of vacation ownership products
197 214 203
Marketing and sales
315 316 329
Resort management and other services
199 206 213
Financing
24 25 26
Rental
238 251 225
General and administrative
99 99 86
Litigation settlement
19 4 41
Organizational and separation related
3 12 16
Consumer financing interest
26 31 41
Royalty fee
60 62 61
Impairment
1 1 —
Cost reimbursements
397 385 362

Total expenses
1,578 1,606 1,603

Gains and other income
5 1 9
Interest expense
(12 ) (13 ) (17 )
Equity in earnings
— — 1
Impairment (charges) reversals on equity investment
— (1 ) 2

Income before income taxes
151 131 31
Provision for income taxes
(70 ) (51 ) (24 )

Net income
$ 81 $ 80 $ 7

operations.



	Fiscal Years
($ in thousands)	2017			2016			2015
REVENUES
Sale of vacation ownership products	$	727,940		$	637,503		$	675,329
Resort management and other services	306,196			300,821			292,561
Financing	134,906			126,126			124,033
Rental	322,902			312,071			312,997
Cost reimbursements	460,001			431,965			405,875
TOTAL REVENUES	1,951,945			1,808,486			1,810,795
EXPENSES
Cost of vacation ownership products	177,813			155,093			204,299
Marketing and sales	408,715			353,295			330,599
Resort management and other services	172,137			174,311			180,072
Financing	17,951			18,631			21,208
Rental	281,352			260,752			259,729
General and administrative	110,225			104,833			106,104
Litigation settlement	4,231			(303		)	(232		)
Organizational and separation related	—			—			1,174
Consumer financing interest	25,217			23,685			24,658
Royalty fee	63,021			60,953			58,982
Impairment	—			—			324
Cost reimbursements	460,001			431,965			405,875
TOTAL EXPENSES	1,720,663			1,583,215			1,592,792
Gains and other income, net	5,772			11,201			9,557
Interest expense	(9,572		)	(8,912		)	(12,810		)
Other	(1,599		)	(4,632		)	(8,253		)
INCOME BEFORE INCOME TAXES	225,883			222,928			206,497
Benefit (provision) for income taxes	895			(85,580		)	(83,698		)
NET INCOME	$	226,778		$	137,348		$	122,799

Contract Sales

~~2014~~

2017 Compared to ~~2013~~

Fiscal Years        Change          % Change
($ in millions)       2014             2013
Contract Sales

Vacation ownership
$ 699    $ 679    $ 20    3%
Residential products
14    15    (1 )   NM

Total contract sales
$            713    $            694    $            19    3%

~~NM = not meaningful~~

~~Excluding~~2016



	Fiscal Years
($ in thousands)	2017		2016		Change			% Change
Contract Sales
Vacation ownership
North America	$	728,712	$	645,277	$	83,435		13%
Asia Pacific	49,027		47,183		1,844			4%
Europe	25,151		31,174		(6,023		)	(19%)
Total contract sales	$	802,890	$	723,634	$	79,256		11%

We estimate that the 2017 Hurricanes negatively impacted North America contract sales by $20.0 million in 2017 and Hurricane Matthew negatively impacted North America contract sales by $8.1 million in 2016. Adjusting for the impact of the ~~additional week in 2013,~~2017 Hurricanes only, total contract sales would have increased ~~$29 million~~by 14 percent for the full year. Additionally, adjusting for the impact of hurricane activity in 2016 and were driven by $20 million of higher contract sales in our North America segment and $12 million of higher contract sales in our Europe segment, partially offset by $3 million of lower contract sales in our Asia Pacific segment.

~~The $19 million increase in~~2017, total contract sales ~~was driven~~would have increased by ~~$12 million of higher vacation ownership~~12 percent for the full year.

The changes in contract sales inare described within the discussions of our ~~key~~segment results below.

2016 Compared to 2015



	Fiscal Years
($ in thousands)	2016		2015		Change			% Change
Contract Sales
Vacation ownership
North America	$	645,277	$	631,403	$	13,874		2%
Asia Pacific	47,183		34,105		13,078			38%
Europe	31,174		34,376		(3,202		)	(9%)
	723,634		699,884		23,750			3%
Residential products
Asia Pacific	—		28,420		(28,420		)	(100%)
	—		28,420		(28,420		)	(100%)

Total contract sales	$	723,634	$	728,304	$	(4,670	)	(1%)

We estimate that the effects of Hurricane Matthew negatively impacted North America ~~segment and $11 million of higher~~ contract sales by $8.1 million in ~~our Europe segment, partially offset by $3 million of lower~~2016. Adjusting for that impact, total contract sales, ~~in our Asia Pacific segment and $1 million of lower~~excluding residential contract sales, ~~in our North America segment.~~

would have increased by approximately 4.5 percent for the full year.

The increase in vacation ownership contract sales in our North America segment reflected a $12 million increase in sales at on-site sales locations, and no change in sales at off-site (non tour-based) sales locations. The increase in sales at on-site sales locations reflected a 6 percent increase in VPG to $3,386 in 2014 from $3,200 in 2013, partially offset by a 3 percent decline in the number of tours. The increase in VPG was due to higher pricing, a 0.3 percentage point increase in closing efficiency and an increase in the number of points sold per contract. Excluding the impact of the additional week in 2013, the number of tours declined 1.5 percent. The decline in the number of tours continued to be driven by an increase in weeks-based owner utilization of the MVCD program, with owners taking advantage of the program’s flexibility to take vacations of shorter duration and exercise alternative usage options. This trend has continued to reduce our existing owner tour flow because fewer owners are in our resorts, and their stays in our resorts are shorter than in prior years. We implemented new programs in 2014 aimed at generating existing owner tours and new marketing programs targeted toward first-time buyers, which we expect will increase tour flow in 2015.

~~2013 Compared to 2012~~

Fiscal Years       Change         % Change
($ in millions)       2013             2012
Contract Sales

Vacation ownership
$ 679    $ 687    $ (8 ) (1%)
Residential products
15    1    14 NM

Total contract sales
$           694    $           688    $            6 1%

The $6 million increase in total contract sales was driven by $40 million, or 7 percent, of higher contract sales in our key North America segment, partially offset by $20 million of lower contract sales in our Asia Pacific segment (due to the closure of our off-site sales locations in Hong Kong and Japan in the fourth quarter of 2012) and $14 million of lower contract sales in our Europe segment ($11 million as we continued to sell through developer inventory and as $3 million as a result of higher rescission activity due to the extended rescission periods in our Europe segment during the second quarter of 2013). The period of time during which certain purchasers of interests in properties in our Europe segment from 2010 through 2013 could rescind their purchases was extended because the documentation that we provided for these sales was not strictly compliant. We refer to these extended periods as “extended rescission periods.” Excluding the impact of the additional week in 2013 (which was the last week of 2013), total contract sales decreased $3 million and were driven by $20 million of lower contract sales in our Asia Pacific segment and $14 million of lower contract sales in our Europe segment, partially offset by $31 million of higher contract sales in our North America segment.

~~The increase~~changes in contract sales ~~in our North America segment included $14 million of higher residential contract sales, including $9 million associated with~~are described within the ~~continued execution~~discussions of our strategy to dispose of excess inventory, and a $26 million, or 5 percent, increase in vacation ownership contract sales, which included $9 million from the additional week in 2013. The increase in vacation ownership contract sales reflected an 8 percent increase in VPG to $3,200 in 2013 from $2,963 in 2012. This increase in VPG was due to a nearly 4 percent price increase and a 1 percentage point increase in closing efficiency resulting from improved marketing and sales execution. These increases were partially offset by a 3 percent decline in the number of tours. The decline in the number of tours was driven by an increase in weeks-based owner utilization of the MVCD program, with owners taking advantage of the program’s flexibility to take vacations of shorter duration and exercise alternative usage options. This has reduced our existing owner tour flow because fewer owners are in our resorts, and their stays in our resorts are shorter, than in prior years. We intend to increase tour flow through new programs aimed at generating existing owner tours and developing new marketing programs targeted toward first-time buyers.

segment results below.

Sale of Vacation Ownership Products

~~2014~~

2017 Compared to ~~2013~~

Fiscal Years       Change             % Change
($ in millions)       2014             2013
Contract sales
$ 713 $ 694 $ 19    3%
Revenue recognition adjustments:

Reportability
            (15 ) 30                (45 )
Sales reserve
(32 )           (36 ) 4
Other⁽¹⁾
(18 ) (16 ) (2 )

Sale of vacation ownership products
$ 648 $ 672 $ (24 ) (4%)

2016



	Fiscal Years						Change			% Change
($ in thousands)	2017			2016			Change			% Change
Contract sales	$	802,890		$	723,634		$	79,256		11%
Revenue recognition adjustments:
Reportability	3,634			(7,547		)	11,181
Sales reserve	(49,920		)	(48,274		)	(1,646		)
Other⁽¹⁾	(28,664		)	(30,310		)	1,646
Sale of vacation ownership products	$	727,940		$	637,503		$	90,437		14%

_________________________


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

~~The lower vacation ownership notes receivable reserve activity is~~

Revenue reportability had a positive impact in 2017 due to an increase in the amount of sales that met the down payment requirement in 2017, partially offset by an increase in the amount of sales that remained in the rescission period as of the end of 2017. Revenue reportability had a negative impact in 2016 due to a decrease in ~~estimated default activity compared to 2013. Revenue reportability was higher~~the amount of sales that met the down payment requirement in ~~2013 because~~2016 and an increase in the amount of sales that remained in the rescission period ~~related to certain sales had expired, of which $21 million related to the impact~~as of the ~~extended rescission periods~~end of 2016.

The higher sales reserve reflected the higher vacation ownership contract sales volume (a $4.9 million increase), partially offset by unfavorable sales reserve adjustments in 2016 ($2.6 million) and a favorable sales reserve adjustment in our ~~Europe segment.~~

~~2013~~Asia Pacific segment in 2017 ($0.7 million).

The decrease in other adjustments for sales incentives was driven by a decrease in the utilization of plus points as a sales incentive in our North America segment in 2017. These revenues are deferred and recognized as rental revenue when those points are redeemed or expire.

2016 Compared to ~~2012~~

Fiscal Years       Change           % Change
($ in millions)       2013             2012
Contract sales
$ 694 $ 688 $ 6      1%
Revenue recognition adjustments:

Reportability
30           (15 ) 45
Sales reserve
            (36 ) (42 ) 6
Other⁽¹⁾
(16 ) (13 )                (3)

Sale of vacation ownership products
$ 672 $ 618 $ 54      9%

2015



	Fiscal Years						Change			% Change
($ in thousands)	2016			2015			Change			% Change
Contract sales	$	723,634		$	728,304		$	(4,670	)	(1%)
Revenue recognition adjustments:
Reportability	(7,547		)	(1,652		)	(5,895		)
Sales reserve	(48,274		)	(32,999		)	(15,275		)
Other⁽¹⁾	(30,310		)	(18,324		)	(11,986		)
Sale of vacation ownership products	$	637,503		$	675,329		$	(37,826	)	(6%)

_________________________


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

Revenue reportability had a $7.5 million negative impact in 2016, compared to a $1.7 million negative impact in 2015. The ~~$3 million~~unfavorable impact compared to 2015 was due to an increase in the amount of sales that remained in the rescission period at the end of 2016 as compared to 2015.

The higher sales reserve reflected an increase in sales ~~incentives relates~~reserve in our North America segment due to the ~~issuance~~higher financing propensity and Latin American default activity and, to a lesser extent, the higher vacation ownership contract sales, as well as a higher sales reserve in our Asia Pacific segment due to an unfavorable sales reserve adjustment to correct an immaterial error in 2016 with respect to historical static pool data as well as the increase in contract sales.

The increase in other adjustments was primarily driven by an increase in the utilization of ~~higher~~ plus points as a sales incentives in 2013. Plus points will ultimately be recognized as rental revenues upon usage or expiration of the plus points rather than revenues from the sale of vacation ownership products. Revenue reportability was higher in 2013 because the rescission period related to certain sales made in 2013 or prior periods expired during 2013, including $21 million of higher revenue reportability related to the impact of the extended rescission periodsincentive in our ~~Europe~~North America segment ~~and because certain sales met the down payment requirement for revenue recognition purposes prior~~compared to the end of 2013. The lower reportability in 2012 reflected the fact that certain sales made during, or prior to, that period remained in the statutory rescission period or did not meet the down payment requirement for revenue recognition purposes prior to the end of the year, including $9 million of lower revenue reportability related to the impact of the extended rescission periods in our Europe segment.

2015.

Development Margin

~~2014~~

2017 Compared to ~~2013~~

Fiscal Years     Change           % Change
($ in millions)       2014             2013
Sale of vacation ownership products
$ 648 $ 672 $ (24)    (4%)
Cost of vacation ownership products
          (197 )           (214 ) 17      8%
Marketing and sales
(315 ) (316 ) 1      NM

Development margin
$ 136 $ 142 $ (6)    (5%)

Development margin percentage
20.9%    21.2%        (0.3 pts)

2016



	Fiscal Years						Change			% Change
($ in thousands)	2017			2016			Change			% Change
Sale of vacation ownership products	$	727,940		$	637,503		$	90,437		14%
Cost of vacation ownership products	(177,813		)	(155,093		)	(22,720		)	(15%)
Marketing and sales	(408,715		)	(353,295		)	(55,420		)	(16%)
Development margin	$	141,412		$	129,115		$	12,297		10%
Development margin percentage	19.4%			20.3%			(0.9 pts)

The ~~decline~~increase in development margin reflected ~~a $27~~the following:

$19.2 million impact from lower revenue reportability year-over-year (of which $12 million related to the impact of the extended rescission periods in our Europe segment in 2013) and $11 million of lower favorable product cost true-ups (nearly $7 million in 2014 compared to $18 million in 2013). These declines were partially offset by a $26 million increase from higher vacation ownership contract sales volume net of ~~lower~~the sales reserve and direct variable expenses (i.e., cost of vacation ownership products and marketing and sales) ~~driven mainly by $22~~;

$17.4 million from a favorable mix of lower cost real estate inventory being sold $3in 2017;

$7.0 million of favorable revenue reportability compared to 2016; and

$2.7 million from ~~more efficient~~lower sales reserve activity.

These increases in development margin were partially offset by the following:

$18.8 million from higher marketing and sales ~~spending~~costs (of which $5.3 million was due to the ramp-up of our six newest sales locations, five in our North America segment and $1one in our Asia Pacific segment, and $2.9 million ~~from~~was due to variable compensation expense related to the ~~net~~ impact of the ~~higher contract sales volume. In addition, the development margin reflected a $4 million impact from the decrease in vacation ownership notes receivable reserve activity and $2~~2017 Hurricanes);

$14.5 million of ~~severance related~~unfavorable changes in product cost true-up activity ($0.3 million of favorable true-up activity in 2017 compared to ~~the restructuring~~$14.8 million of ~~sales locations~~favorable true-up activity in ~~Europe in 2013.~~

2016); and

$0.7 million from higher other development and inventory expenses.

The ~~0.3~~0.9 percentage point decline in the development margin percentage compared to 2016 reflected a ~~nearly 3~~2.6 percentage point decrease due to ~~lower revenue reportability year-over-year~~higher marketing and sales costs (of which 0.7 percentage points was due to the higher ramp-up expenses in 2017 associated with our six newest sales locations and 0.5 percentage points was due to variable compensation expense related to the impact of the 2017 Hurricanes) and a 22.0 percentage point decrease due to the ~~lower favorable~~unfavorable changes in product cost true-up activity year-over-year. These declines were partially offset by a 32.4 percentage point increase due to a favorable

mix of lower cost vacation ownership real estate inventory being sold in 2017, a 0.6 percentage point increase due to the favorable revenue reportability year-over-year, a 0.4 percentage point increase from the higher North America vacation ownership contract sales (which have a development margin that is higher than the company-wide average) and a 0.3 percentage point increase from the lower sales reserve activity.

2016 Compared to 2015



	Fiscal Years						Change			% Change
($ in thousands)	2016			2015			Change			% Change
Sale of vacation ownership products	$	637,503		$	675,329		$	(37,826	)	(6%)
Cost of vacation ownership products	(155,093		)	(204,299		)	49,206			24%
Marketing and sales	(353,295		)	(330,599		)	(22,696		)	(7%)
Development margin	$	129,115		$	140,431		$	(11,316	)	(8%)
Development margin percentage	20.3%			20.8%			(0.5 pts)

The decrease in development margin reflected the following:

$12.0 million of pre-opening and startup expenses incurred in 2016 in support of our six new sales locations;

$10.2 million of higher sales reserves in 2016 due to the increase in financing propensity and Latin American default activity in our North America segment, higher contract sales in our North America and Asia Pacific segments and a higher reserve in our Asia Pacific segment due to an unfavorable sales reserve adjustment to correct an immaterial error in 2016 with respect to historical static pool data;

$8.6 million of additional deferred revenue in 2016 due to higher usage of plus points as a sales incentive in our North America segment; this revenue will be recognized as rental revenue when the plus points are redeemed or expire;

$5.9 million of lower residential contract sales volume net of expenses (there were no residential contract sales in 2016, compared to $28.4 million of residential contract sales in our Asia Pacific segment in 2015);

$3.7 million of greater negative revenue reportability impact compared to 2015;

$0.6 million of higher development expenses in 2016 due to fewer costs being capitalized in 2016; and

$0.3 million of higher marketing and sales costs in 2016 due to investment in new programs to help generate future incremental tour volumes, partially offset by lower marketing and sales compensation related costs.

These decreases in development margin were partially offset by the following:

$17.4 million from a favorable mix of lower cost real estate inventory being sold in 2016;

$7.5 million of higher favorable product cost true-up activity ($14.8 million in 2016 compared to $7.3 million in 2015) of which $4.1 million resulted from projected increases in development revenue primarily due to a reduction in our estimated future sales incentive costs and $3.4 million resulted from lower development spending for completion of common elements at multiple projects; and

$5.1 million of higher vacation ownership contract sales volume net of direct variable expenses (i.e., cost of vacation ownership products and marketing and sales).

The 0.5 percentage point decrease in the development margin percentage reflected a 1.8 percentage point decline due to higher marketing and sales spending from pre-opening and startup expenses, a 1.2 percentage point decline due to the higher sales reserve activity, a 0.9 percentage point decline due to the higher usage of plus points as a sales incentive and a 0.3 percentage point decrease due to the higher unfavorable revenue reportability, in each case, year-over-year. These declines were partially offset by a 2.6 percentage point increase due to a favorable mix of lower cost vacation ownership real estate inventory being sold in ~~2014,~~2016 and a ~~less than 1~~1.1 percentage point increase due to ~~increased efficiency in marketing and sales spending and a less than 1 percentage point increase from~~ the ~~lower vacation ownership notes receivable reserve activity.~~

~~2013 Compared to 2012~~

Fiscal Years       Change             % Change
($ in millions)       2013             2012
Sale of vacation ownership products
$ 672 $ 618 $ 54       9%
Cost of vacation ownership products
          (214)              (203)    (11)    (6%)
Marketing and sales
(316)    (329)    13       4%

Development margin
$ 142 $ 86 $ 56       64%

Development margin percentage
21.2%    14.0%          7.2 pts

~~The increase in development margin reflected a $33 million increase from~~ higher contract sales volume net of lower direct variable expenses (i.e., cost of vacation ownership products and marketing and sales) due to more efficient marketing and sales spending and a favorable mix of lower cost real estate inventory being sold, $27 million of higher revenue reportability year-over-year (including $18 million of higher revenue reportability related to the impact of the extended rescission periods in our Europe segment), $6 million of charges in 2012 related mainly to the closure of our Asia Pacific off-site sales locations in the fourth quarter of 2012, a $2 million benefit from lower vacation ownership notes receivable reserve activity, a $1 million charge in 2012 related to the settlement of a construction related dispute at one of our properties, and $1 million of lower charges associated with Marriott Rewards Points issued prior to the Spin-Off as there were $1 million of higher than expected redemption costs in 2013 compared to $2 million of higher than expected redemption costs in 2012. These increases were partially offset by $12 million of lower favorable product cost true-ups ($18 million in 2013 compared to $30 million in 2012) and $2 million of severance charges related to the restructuring of sales locations in Europe in early 2013.

The favorable product cost true-ups recorded in 2013 were the result of $12 million from increases in estimated future revenues associated with the sale of foreclosed inventory as well as changes in the sequencing of inventory into the MVCD program due to the continued reacquisition of previously sold inventory, $4 million from lower construction costs, and nearly $2 million from an increase in estimated future revenues associated with our Asia Pacific product.

The 7 percentage point improvement in the development margin percentage reflected a 3 percentage point increase due to higher revenue reportability year-over-year, a 3 percentage point increase from the lower cost of vacation ownership products due to a favorable mix of lower cost real estate inventory being sold, a 2 percentage point increase due to increased efficiency in marketing and sales spending and a 1 percentage point increase from lower year-over-year other expenses. These increases were partially offset by a 2 percentage point decrease due to the lower favorable product cost true-up activity ~~compared to 2012.~~

year-over-year.

Resort Management and Other Services Revenues, Expenses and Margin

~~2014~~

2017 Compared to ~~2013~~

Fiscal Years       Change       % Change
($ in millions)       2014             2013
Management fee revenues
$ 74   $ 70   $ 4        6%
Other services revenues
224   220   4        1%

Resort management and other services revenues
298   290   8        3%
Resort management and other services expenses
          (199)           (206) 7        4%

Resort management and other services margin
$ 99   $ 84   $               15      17%

Resort management and other services margin percentage
33.2%    29.0%    4.2 pts

2016



	Fiscal Years						Change			% Change
($ in thousands)	2017			2016			Change			% Change
Management fee revenues	$	87,778		$	83,260		$	4,518		5%
Ancillary revenues	118,192			124,160			(5,968		)	(5%)
Other services revenues	100,226			93,401			6,825			7%
Resort management and other services revenues	306,196			300,821			5,375			2%
Resort management and other services expenses	(172,137		)	(174,311		)	2,174			1%
Resort management and other services margin	$	134,059		$	126,510		$	7,549		6%
Resort management and other services margin percentage	43.8%			42.1%			1.7 pts

The increase in resort management and other services revenues reflected $4 million of higher management fees, $3 million of additional annual club dues earned in connection with the MVCD program due to the cumulative increase in owners enrolled in the program, $3 million of higher fees from external exchange service providers and $1 million of higher resales commission, partially offset by $3 million of lower ancillary revenues. The decrease in ancillary revenues included a $3 million decline due to the disposition of a golf course in Orlando, Florida during the first quarter of 2014 and a $2 million decline at The Abaco Club on Winding Bay (“The Abaco Club”), in the Bahamas, partially offset by a $2 million increase in ancillary revenues from food and beverage and golf offerings at our resorts.

The improvement in the resort management and other services margin reflected the increase in revenue, as well as $5 million of lower ancillary expenses due to the dispositions noted above and other operating improvements and $2 million of lower customer service and MVCD program expenses in 2014 compared to 2013.

~~2013 Compared to 2012~~

Fiscal Years       Change       % Change
($ in millions)       2013             2012
Management fee revenues
$ 70   $ 67   $ 3        4%
Other services revenues
220   216   4        3%

Resort management and other services revenues
290   283   7        3%
Resort management and other services expenses
          (206)           (213) 7        3%

Resort management and other services margin
$ 84   $ 70   $               14      20%

Resort management and other services margin percentage
29.0%    24.8%    4.2 pts

The increase in resort management and other services revenues reflected $4 million of additional annual club dues earned in connection with the MVCD program due to the cumulative increase in owners enrolled in the program and $3$4.5 million of higher management fees resulting from the cumulative increase in the number of vacation ownership products sold and higher operating costs across the ~~system. Our~~system, $3.0 million of higher resales commissions, brand fees and other revenues, $2.1 million of additional annual club dues and other revenues earned in connection with the MVCD program due to the cumulative increase in owners enrolled in the program, $0.9 million of higher refurbishment revenue due to an increase in the number of refurbishment projects completed in 2017, and $0.9 million of higher settlement fees due to an increase in the number of closed contracts in 2017. These increases were partially offset by $6.0 million of lower ancillary revenues. The decline in ancillary revenues ~~were flat when compared to 2012, reflecting a $9~~included $6.2 million ~~decline~~of lower ancillary revenues from the operating property in Surfers Paradise, Australia (a portion of which was disposed of in the 2016 second quarter) and $7.2 million of lower revenues due to ~~the disposition of a golf course and related assets~~new outsourcing arrangements at ~~one of~~multiple resorts in our ~~Ritz-Carlton branded projects late in 2012~~North America segment, partially offset by ~~a $9~~$7.4 million ~~increase in ancillary~~of higher revenues from food and beverage and golf offerings that we continue to operate at our ~~other~~ resorts.

The improvement in the resort management and other services margin reflected $5the increases in revenue as well as $2.2 million of lower expenses. The lower expenses included $6.8 million of lower ancillary expenses due to new outsourcing arrangements at multiple resorts in our North America segment, $5.5 million of lower ancillary expenses from the operating property in Surfers Paradise, Australia and $0.7 million of lower resales and other expenses, partially offset by $6.3 million of higher ancillary expenses from food and beverage and golf offerings that we continue to operate at our resorts, $3.3 million of higher customer service expenses and expenses associated with the MVCD program and $1.2 million of higher refurbishment expenses due to an increase in the number of projects being refurbished in 2017.

The ancillary revenue producing portions of the operating property in Surfers Paradise, Australia were included in the portion of the operating property sold in the second quarter of 2016. Therefore, we do not anticipate future ancillary revenues or expenses at this property. See Footnote No. 5, “Acquisitions and Dispositions” to our Financial Statements for further information related to this transaction.

2016 Compared to 2015



	Fiscal Years						Change			% Change
($ in thousands)	2016			2015			Change			% Change
Management fee revenues	$	83,260		$	77,612		$	5,648		7%
Ancillary revenues	124,160			125,218			(1,058		)	(1%)
Other services revenues	93,401			89,731			3,670			4%
Resort management and other services revenues	300,821			292,561			8,260			3%
Resort management and other services expenses	(174,311		)	(180,072		)	5,761			(3%)
Resort management and other services margin	$	126,510		$	112,489		$	14,021		12%
Resort management and other services margin percentage	42.1%			38.4%			3.7 pts

The increase in resort management and other services revenues reflected $6.1 million of additional annual club dues and other revenues earned in connection with the MVCD program ~~net of expenses, a $4 million benefit from~~due to the ~~disposition of a golf course and related assets at one of our Ritz-Carlton branded projects late~~cumulative increase in ~~2012 that~~

~~experienced~~owners enrolled in the program as well as an ~~operating loss~~increase in ~~2012, $3~~the dues charged for each owner recognition level, $5.6 million of higher ~~customer services margin resulting from lower operating expenses, a $2 million increase in~~ management fees ~~net~~(net of ~~expenses~~$0.1 million negative foreign exchange impact in our Europe segment) and $2$0.6 million of higher other revenues, as compared to 2015. These increases were partially offset by $1.4 million of lower customer service fees, $1.1 million of lower ancillary revenues, ~~net~~$0.8 million of ~~expenses~~lower settlement fees due to a decrease in the number of contracts closed and $0.7 million of lower brand fees due to fewer closings. The decrease in ancillary revenues included $1.2 million of lower ancillary revenues from the operating property in Surfers Paradise, Australia due to the sale of the property, $1.1 million of lower revenues due to

outsourcing the operation of one restaurant in our North America segment, $1.0 million of lower ancillary revenues from food and beverage and golf offerings that we continue to operate at our resorts and $0.8 million of lower revenue at the operating property in San Diego, California due to the conversion of the property to vacation ownership inventory, partially offset by $2$2.9 million of ~~higher~~ancillary revenues in 2016 at the property in New York that we did not operate in 2015.

The improvement in the resort management and other services margin reflected the changes in revenue and $5.8 million of lower expenses. The lower expenses ~~primarily~~included $3.9 million of lower customer service and exchange company expenses, $3.1 million of lower ancillary expenses from food and beverage and golf offerings that we continue to operate at our resorts, $0.9 million of lower expenses due to ~~more MVCD owners utilizing an external exchange service provider.~~

outsourcing the operation of one restaurant in our North America segment, $0.6 million of lower expenses from the operation of the ancillary businesses at the operating property in Surfers Paradise, Australia, $0.3 million of lower refurbishment expenses due to a decrease in the number of projects being refurbished in 2016, partially offset by $3.3 million of expenses from the operation of the ancillary businesses at the property in New York in 2016.

Financing Revenues, Expenses and Margin

~~2014~~

2017 Compared to ~~2013~~

Fiscal Years       Change         % Change
($ in millions)       2014             2013
Interest income
$ 123   $ 135    $ (12)   (9%)
Other financing revenues
6   6   —      NM

Financing revenues
129   141               (12)        (9%)
Financing expenses
        (24)            (25)    1      2%
Consumer financing interest expense
(26)    (31)    5      16%

Financing margin
$ 79   $ 85   $ (6)     (8%)

Financing propensity
44%    42%

2016



	Fiscal Years						Change			% Change
($ in thousands)	2017			2016			Change			% Change
Interest income	$	127,983		$	120,113		$	7,870		7%
Other financing revenues	6,923			6,013			910			15%
Financing revenues	134,906			126,126			8,780			7%
Financing expenses	(17,951		)	(18,631		)	680			4%
Consumer financing interest expense	(25,217		)	(23,685		)	(1,532		)	(6%)
Financing margin	$	91,738		$	83,810		$	7,928		9%
Financing propensity	64.0%			60.1%

The ~~decrease~~increase in financing revenues was due to ~~an $85~~a $119 million ~~decline~~increase in the average gross vacation ownership notes receivable ~~balance. This~~balance ($16.8 million) and higher other financing revenues ($0.9 million), partially offset by higher financing program incentive costs ($6.1 million) and a slight decrease in the weighted average coupon rate of our vacation ownership notes receivable ($2.8 million).

The increase in financing margin reflected the higher financing revenues and lower other expenses, partially offset by higher consumer financing interest expense. The higher consumer financing interest expense was due to a higher average outstanding debt balance in 2017.

We expect to continue to offer financing incentive programs in 2018 and that interest income will continue to increase as new originations of vacation ownership notes receivable outpace the decline ~~reflected our continued collection~~in principal of existing vacation ownership notes ~~receivable at~~receivable.

2016 Compared to 2015



	Fiscal Years						Change		% Change
($ in thousands)	2016			2015			Change		% Change
Interest income	$	120,113		$	118,020		$	2,093	2%
Other financing revenues	6,013			6,013			—		—%
Financing revenues	126,126			124,033			2,093		2%
Financing expenses	(18,631		)	(21,208		)	2,577		12%
Consumer financing interest expense	(23,685		)	(24,658		)	973		4%
Financing margin	$	83,810		$	78,167		$	5,643	7%
Financing propensity	60.1%			49.9%

The increase in financing revenues was due to a ~~faster pace than our origination of new~~$22.8 million increase in the average gross vacation ownership notes receivable balance, partially offset by a slight decrease in the weighted average coupon rate of our vacation ownership notes receivable.

The ~~decline~~increase in financing margin ~~reflects~~reflected the higher financing revenues, as well as lower financing ~~revenues, partially offset by~~expenses and lower consumer financing interest expense. The lower consumer financing interest expense was due to ~~lower outstanding debt balances of securitized vacation ownership notes receivable and associated interest costs ($3 million) as well as~~ a lower average interest rate on outstanding debt balances ($21.4 million), partially offset by a higher average outstanding debt balance including draw downs on the Warehouse Credit Facility in 2016 ($0.4 million). The lower average interest rate reflected the continued ~~pay-down~~pay-

down of older securitization transactions that carried higher overall interest rates and the benefit of lower interest rates applicable to our more recently completed securitizations of vacation ownership notes receivable.

~~2013 Compared to 2012~~

Fiscal Years       Change             % Change
($ in millions)       2013             2012
Interest income
$ 135 $ 145   $ (10 ) (7%)
Other financing revenues
6 6   —   NM

Financing revenues
141 151                 (10 ) (7%)
Financing expenses
(25 )          (26)    1 7%
Consumer financing interest expense
          (31 ) (41)    10 23%

Financing margin
$ 85 $ 84   $ 1    1%

Financing propensity
42%    43%

The decrease in financing revenues was due to a $109 million decline in the average gross vacation ownership notes receivable balance. This decline reflected our continued collection of existing vacation ownership notes receivable at a faster pace than our origination of new vacation ownership notes receivable.

The increase in financing ~~margin reflected lower consumer financing interest expense and lower financing expenses due~~propensity resulted from the use of incentive programs during all of 2016 as compared to ~~lower foreclosure activity, partially offset by the lower interest income. The lower consumer financing interest expense was due to lower outstanding debt balances~~during only a portion of securitized vacation ownership notes receivable and associated interest costs ($5 million) as well as a lower average interest rate ($5 million). The lower average interest rate reflected the continued pay-down of older securitization transactions that carried higher overall interest rates and the benefit of lower interest rates applicable to our more recently completed securitizations of vacation ownership notes receivable.

2015.

Rental Revenues, Expenses and Margin

~~2014~~

2017 Compared to ~~2013~~

Fiscal Years       Change             % Change
($ in millions)       2014             2013
Rental revenues
  $ 264   $ 262   $ 2 1%
Unsold maintenance fees—upscale
(51 ) (54 ) 3 5%
Unsold maintenance fees—luxury
(10 ) (12 ) 2 21%

Unsold maintenance fees
(61 ) (66 ) 5 8%
Other expenses
      (177 )        (185 ) 8 4%

Rental margin
  $ 26   $ 11      $ 15 147%

Rental margin percentage
10.0%    4.1%          5.9 pts
Fiscal Years       Change             % Change
      2014             2013
Transient keys rented⁽¹⁾
     1,114,370           1,098,755                 15,615 1%
Average transient key rate
  $ 211.68      $ 205.68        $ 6.00 3%
Resort occupancy
89.4%      90.0%          (0.6 pts)

2016



	Fiscal Years						Change			% Change
($ in thousands)	2017			2016			Change			% Change
Rental revenues	$	322,902		$	312,071		$	10,831		3%
Unsold maintenance fees	(76,115		)	(68,502		)	(7,613		)	(11%)
Other rental expenses	(205,237		)	(192,250		)	(12,987		)	(7%)
Rental margin	$	41,550		$	51,319		$	(9,769	)	(19%)
Rental margin percentage	12.9%			16.4%			(3.5 pts)



	Fiscal Years				Change			% Change
	2017		2016		Change			% Change
Transient keys rented⁽¹⁾	1,278,490		1,206,118		72,372			6%
Average transient key rate	$	216.29	$	216.57	$	(0.28	)	—%
Resort occupancy	88.7%		89.1%		(0.4 pts)

_________________________


⁽¹⁾	Transient keys rented exclude those obtained through the use of plus ~~points.~~points, preview stays and those associated with our operating properties in San Diego, California and Surfers Paradise, Australia prior to their respective conversions to vacation ownership inventory.

The increase in rental revenues was due to a ~~company-wide 3~~6 percent increase in transient keys rented ($15.7 million) driven by a 6 percent increase in available keys, $2.7 million of higher plus points revenue (which is recognized when the points are redeemed or expire) and a $1.9 million increase in preview keys rented and other revenue, partially offset by $6.1 million of revenue in 2016 from the operating property in Surfers Paradise, Australia prior to the conversion of the property to vacation ownership inventory (a portion of which was disposed of in the second quarter of 2016) and $3.4 million of revenue in 2016 at our operating property in San Diego, California prior to the conversion of the property to vacation ownership inventory.

The decrease in rental margin reflected higher expenses incurred due to owners choosing alternative usage options and higher unsold maintenance fees, partially offset by the higher rental revenues net of direct variable expenses (such as housekeeping) and the $2.7 million increase in plus points revenue.

2016 Compared to 2015



	Fiscal Years						Change			% Change
($ in thousands)	2016			2015			Change			% Change
Rental revenues	$	312,071		$	312,997		$	(926	)	—%
Unsold maintenance fees	(68,502		)	(63,130		)	(5,372		)	(9%)
Other rental expenses	(192,250		)	(196,599		)	4,349			2%
Rental margin	$	51,319		$	53,268		$	(1,949	)	(4%)
Rental margin percentage	16.4%			17.0%			(0.6 pts)



	Fiscal Years
	2016		2015		Change			% Change
Transient keys rented⁽¹⁾	1,206,118		1,179,905		26,213			2%
Average transient key rate	$	216.57	$	219.45	$	(2.88	)	(1%)
Resort occupancy	89.1%		89.0%		0.1 pts

_________________________


⁽¹⁾	Transient keys rented exclude those obtained through the use of plus points, preview stays and those associated with our operating properties in San Diego, California and Surfers Paradise, Australia prior to their respective conversions to vacation ownership inventory.

The decrease in rental revenues was due to $4.3 million of lower revenue at our operating property in San Diego, California due to rooms being unavailable to rent during the conversion of the property to vacation ownership inventory and a company-wide 1 percent decrease in average transient rate ~~(nearly $7~~($3.4 million) due to the mix of inventory available for rent, partially offset by a $3.7 million increase in preview keys and other revenue and a company-wide 1 percent increase in transient keys rented ($33.1 million), both of which were ~~driven by stronger consumer demand and~~primarily due to a ~~favorable mix of~~1 percent increase in available inventory. These increases were partially offset by $7 million of lower plus points revenue (which is recognized upon utilization of plus points for stays at our resorts or upon expiration of the points).

keys.

The ~~increase~~decrease in rental margin reflected ~~$22~~a $2.2 million favorable charge in 2015 associated with Marriott Rewards points issued prior to the Spin-Off and a $1.4 million decline at the operating property in Surfers Paradise, Australia primarily due to unsold maintenance fees in 2016 incurred after conversion of the property to vacation ownership inventory, partially offset by $1.7 million of higher rental revenues net of direct variable expenses (such as housekeeping), expenses incurred due to owners choosing alternative usage options and unsold maintenance ~~fees, partially offset by the $7 million decline in plus points revenue resulting from the decline in new enrollments in the MVCD program by existing owners (due to the maturity of the MVCD program).~~

~~2013~~fees.

Cost Reimbursements

2017 Compared to ~~2012~~

Fiscal Years       Change             % Change
($ in millions)       2013             2012
Rental revenues
  $ 262   $ 225   $ 37 16%
Unsold maintenance fees—upscale
(54 ) (49 ) (5 ) (12%)
Unsold maintenance fees—luxury
(12 ) (11 ) (1 ) (12%)

Unsold maintenance fees
(66 ) (60 ) (6 ) (12%)
Other expenses
       (185 )        (165 ) (20 ) (12%)

Rental margin
  $ 11   $ —     $ 11 NM

Rental margin percentage
4.1%    0.1%          4.0 pts ��
Fiscal Years
2013 2012 Change % Change
Transient keys rented⁽¹⁾
      1,098,755          962,946            135,809 14%
Average transient key rate
  $ 205.68   $ 189.30   $ 16.38 9%
Resort occupancy
90.0%    89.8%        0.2 pts

⁽¹⁾

~~Transient keys rented exclude those obtained through the use of plus points.~~

The increase in rental revenues was due to a company-wide 14 percent increase in transient keys rented ($27 million), which were primarily sourced from an 8 percent increase in available keys (141,000 additional available keys) resulting from an increase in the number of owners choosing to exchange their vacation ownership interests for alternative usage options, additional inventory from a new phase completed at one of our projects in Hawaii in the third quarter of 2012 and a lower utilization of plus points for stays at our resorts, as well as a company-wide 9 percent increase in average transient rate ($18 million) driven by stronger consumer demand and a favorable mix of available inventory. These increases were partially offset by an $8 million decrease in plus points revenue (which is recognized upon utilization of plus points for stays at our resorts or upon expiration of the points) resulting from the decline in new enrollments in the MVCD program by existing owners (due to the maturity of the MVCD program), and the corresponding decline in the issuance of plus points as incentives for enrollment in the MVCD program.

The increase in rental margin reflected $16 million of higher rental revenues net of direct variable expenses (such as housekeeping), higher expenses incurred due to owners choosing alternative usage options, and higher unsold maintenance fees, as well as $3 million of lower charges associated with Marriott Rewards Points issued prior to the Spin-Off ($4 million of higher than expected redemption costs in 2013 compared to $7 million of higher than expected redemption costs in 2012). These increases were offset by the $8 million decline in plus points revenue. The increase in unsold maintenance fees reflected the addition of new inventory upon completion of a phase at one of our projects in Hawaii in 2012, as well as increased expenses associated with our inventory repurchase program.

~~Cost Reimbursements~~

~~2014 Compared to 2013~~

2016

Cost reimbursements increased ~~$12~~$28.0 million, or 46 percent, over ~~the prior year,~~2016, reflecting ~~an increase of $13~~$21.2 million due to higher costs, ~~and $3~~$6.5 million due to additional managed unit weeks in ~~2014, partially offset by $4~~2017 and a $0.3 million ~~of lower costs associated with the two management contracts that were terminated~~increase from foreign exchange rates in ~~2013.~~

~~2013~~our Europe segment.

2016 Compared to ~~2012~~

2015

Cost reimbursements increased ~~$23~~$26.1 million, or 66.4 percent, over ~~the prior year,~~2015, reflecting an increase of ~~$30~~$20.6 million due to higher costs ~~(including $7 million due to the fact that 2013 had 53 weeks)~~ and $6$6.2 million due to additional managed unit weeks in ~~2013,~~2016, partially offset by ~~$13~~a $0.7 million ~~of lower costs associated with the termination of two management contracts~~negative impact from foreign exchange rates in ~~2013.~~

our Europe segment.

General and Administrative

~~2014~~

2017 Compared to ~~2013~~

2016

General and administrative expenses ~~were unchanged compared~~increased $5.4 million due to ~~the prior year at $99 million and included $2~~$6.4 million of higher personnel related ~~costs~~ and ~~$1 million from the favorable resolution of an international tax (non-income tax) matter in 2013,~~other expenses, partially offset by $3$1.0 million of ~~savings~~lower litigation related ~~to organizational~~costs. The higher personnel related and ~~separation relation efforts in the human resources, information technology~~other expenses included annual merit, bonus and ~~finance and accounting organizations.~~

~~2013~~inflationary cost increases.

2016 Compared to ~~2012~~

2015

General and administrative expenses ~~increased $13~~decreased $1.3 million ~~(from $86 million to $99 million) over the prior year~~ due to $9$4.0 million of lower personnel related and other expenses, $2.5 million of lower litigation costs and $1.8 million of refurbishment costs in 2015, partially offset by $7.0 million of higher information technology project costs. The lower personnel related and other expenses includes lower compensation related costs ~~(including $1 million~~and savings due to ~~the fact that 2013 had 53 weeks), $8~~cost containment efforts, partially offset by annual merit and inflationary cost increases.

Litigation Settlement

2017

In 2017, we incurred $4.2 million of ~~higher legal expenses, $2~~litigation settlement charges, including $2.4 million related to the repurchase of two previously sold residential units at one of our resorts in North America, a $1.0 million charge related to the settlement of a construction related dispute at one of our North America resorts and $0.8 million of ~~higher stand-alone public company costs and $1~~various other charges.

2016

In 2016, we reversed the remaining $0.3 million of ~~higher audit~~an accrual related ~~expenses. These increases~~to a 2014 agreement in principle regarding The Ritz-Carlton Club and Residences, San Francisco (the “RCC San Francisco”) because actual costs incurred were ~~offset by $4~~lower than expected.

2015

In 2015, we reversed $0.3 million of ~~savings~~an accrual related to organizational and separation related efforts in the human resources, information technology and finance and accounting areas, $2 million from lower depreciation expense and $1 million from the favorable resolution of an international tax (non-income tax) matter.

~~Litigation Settlement~~

~~2014~~

~~During the fourth quarter of 2014, we completed the~~our sale of The Abaco Club in the ~~Bahamas. As~~Bahamas in the fourth quarter of 2014 because actual costs incurred were lower than expected.

Royalty Fee

2017 Compared to 2016

Royalty fee expense increased $2.1 million in 2017 (from $61.0 million to $63.0 million) due to an increase in the dollar volume of closings ($2.2 million) and a ~~result~~contractual increase late in 2016 in the fixed portion of the royalty fee owed to Marriott International ($2.2 million), partially offset by $2.3 million of lower costs due to an increase in sales of pre-owned inventory, which carry a lower royalty fee as compared to initial sales of our inventory (one percent versus two percent).

2016 Compared to 2015

Royalty fee expense increased $2.0 million in 2016 (from $59.0 million in 2015 to $61.0 million in 2016), and included $2.2 million of higher costs due to an increase in initial sales of our real estate inventory, which carry a higher royalty fee as compared to sales of pre-owned inventory (two percent compared to one percent), and a $0.1 million increase in the fixed portion of the royalty fee late in 2016, partially offset by $0.3 million of lower costs due to a lower number of closings in 2016 as compared to 2015.

Gains and Other Income, Net

2017

Gains and other income of $5.8 million during 2017 included $8.7 million in net insurance proceeds related to the settlement of business interruption insurance claims arising from Hurricane Matthew, partially offset by a charge of $1.3 million associated with the estimated property damage insurance deductibles and impairment of property and equipment at several of our resorts, primarily in Florida and the Caribbean, that were impacted by Hurricane Irma and/or Hurricane Maria, $1.2 million of variable compensation expense related to the impact of Hurricane Matthew and $0.4 million of miscellaneous losses and other expense.

2016

Gains and other income of $11.2 million during 2016 included a $10.5 million gain on the disposition of excess inventory at the RCC San Francisco, the reversal of the remaining $1.7 million accrual associated with the disposition of a golf course and related assets in Kauai, Hawaii because we no longer expected to incur additional costs in connection with this sale and a $0.9 million loss on the sale of the portion of the operating property in Surfers Paradise, Australia that we did not intend to convert to vacation ownership inventory.

2015

Gains and other income of $9.6 million during 2015 included an $8.7 million gain on the disposition of undeveloped land in Kauai, Hawaii and a $0.9 million gain from the disposition of a golf course and adjacent undeveloped land in Orlando, Florida. We disposed of the golf course and undeveloped land in Orlando, Florida in the first quarter of 2014 and, as a condition of the sale, we continued to operate the golf course through the end of the first quarter of 2015 at our own risk. We utilized the performance of services method to record a gain of $3.1 million over the period during which we operated the golf course, $0.9 million of which was recorded in 2015.

Interest Expense

2017 Compared to 2016

Interest expense increased $0.7 million due to $2.9 million of interest expense associated with the Convertible Notes, that were issued during the 2017 third quarter, $2.3 million of imputed interest on a ~~loss~~non-interest bearing note payable associated with the acquisition of ~~$24~~vacation ownership units located on the Big Island of Hawaii and $0.5 million ~~which is included~~of higher other expenses, partially offset by $5.0 million of expense incurred in 2016 associated with the redemption of the mandatorily redeemable preferred stock of a consolidated subsidiary. Due to the redemption of this mandatorily redeemable preferred stock, we will not incur further interest expense associated with this liability in the ~~Litigation settlement line~~future.

2016 Compared to 2015

Interest expense decreased $3.9 million due to a $3.4 million decline in expense associated with our liability for the Marriott Rewards customer loyalty program under our Marriott Rewards Affiliation Agreement with Marriott International and a $0.5 million decrease in other interest expense. Due to the payoff of the liability associated with the Marriott Rewards customer loyalty program in 2015, we will not incur further interest expense associated with this liability in the future.

Other

2017

In 2017, we incurred $1.6 million of other expenses, including $1.8 million of acquisition costs associated with the anticipated future acquisition of the operating property in New York that we manage, partially offset by $0.2 million of other miscellaneous income.

2016

In 2016, we incurred $4.6 million of other expenses, including $4.9 million of acquisition costs associated with the acquisition of an operating property in the South Beach area of Miami Beach, the anticipated future acquisition of the operating property in New York that we manage, the anticipated future acquisition of vacation ownership units located on the ~~Statement~~Big Island of ~~Income.~~Hawaii and the sale of the portion of the operating property located in Surfers Paradise, Australia that we did not intend to convert to vacation ownership inventory, partially offset by $0.3 million of other miscellaneous income. See Footnote No. 5, “Acquisitions and Dispositions,” and Footnote No. 9, “Contingencies and Commitments,” to our Financial Statements for further information related to ~~this transaction.~~

~~During~~these transactions.

2015

In 2015, we incurred $8.3 million of other expenses, including $5.7 million of acquisition costs associated with the ~~third quarter~~completion of ~~2014,~~our purchase of an ~~agreement~~operating property located in ~~principle~~Surfers Paradise, Australia, which was ~~reached~~required to ~~settle an action~~be accounted for as a business combination for which acquisition costs are expensed. See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for further information related to ~~The Ritz-Carlton Club~~this transaction. In addition, we incurred $2.1 million associated with potential acquisition opportunities and ~~Residences, San Francisco (the “RCC San Francisco”). As a result~~$0.6 million of costs associated with the anticipated future acquisition of the ~~agreement~~operating property in ~~principle,~~New York that we ~~recorded a charge~~had begun managing and the acquisition of ~~$3 million, which is included~~an operating property in the ~~Litigation settlement line on the Statement~~South Beach area of ~~Income.~~Miami Beach. See Footnote No. 5, “Acquisitions and Dispositions,” and Footnote No. 9, “Contingencies and Commitments,” to our Financial Statements for further information related to ~~this pending action.~~

During the second quarter of 2014, we agreed to settle a dispute with a service provider relating to services provided to us prior to 2011. The dispute related to certain lawsuits and claims asserted by several residential unit and fractional interest owners at the RCC San Francisco, a project within our North America segment, who questioned the adequacy of disclosures made regarding bonds issued for that project under California’s Mello-Roos Community Facilities Act of 1982 (the “Mello-Roos Act”) and their payment obligations with respect to such bonds. In connection with the settlement, we received a one-time payment of $8 million after the end of the second quarter from the service provider, which no longer provides services to us. We recorded a gain of $8 million as a result of the settlement, which is included in the Litigation settlement line on the Statement of Income.

~~2013~~

In the first quarter of 2013 we reversed $1 million of the charge we recorded in 2012 based upon final settlement of the lawsuit related to the RCC San Francisco described under “2012” below that was pending at the end of 2012. In the fourth quarter of 2013 we recorded a $5 million charge related to the settlement of a lawsuit related to a project in our Europe segment. The plaintiffs in this lawsuit alleged breach of a partnership agreement and copyright infringement in connection with renovations at that project.

~~2012~~

In the fourth quarter of 2012 we agreed to settle two lawsuits in which certain of our subsidiaries were defendants. The plaintiffs in the lawsuits, residential unit owners at the RCC San Francisco, questioned the adequacy of disclosures made prior to 2008, when our business was part of Marriott International, regarding bonds issued for that project under the Mello-Roos Act and their payment obligations with respect to such bonds. A third lawsuit was pending at the end of 2012 in which one owner at the RCC San Francisco had asserted similar claims. That lawsuit was settled in 2013.

~~As a result of the settlements and the pending lawsuit, we recorded a charge in connection with~~ these matters of $41 million in the year ended December 28, 2012, of which $39 million was recorded in the fourth quarter of 2012. In addition, we repurchased units owned by certain of the plaintiffs in the settled lawsuits which were recorded in inventory at fair value less cost to sell of $13 million. We used Level 3 inputs in a discounted cash flow model to determine the fair value of these assets.

~~Organizational and Separation Related Efforts~~

~~2014 Compared to 2013 and 2013 Compared to 2012~~

Following the Spin-Off, Marriott International continued to provide us with certain information technology, payroll, human resources and other administrative services pursuant to transition services agreements, most of which we had ceased using as of the end of 2013. In connection with our continued organizational and separation related activities, we continue to incur certain expenses to complete our separation

from Marriott International. These costs primarily relate to establishing our own information technology systems and services, independent payroll and accounts payable functions and reorganizing existing human resources, information technology, and related finance and accounting organizations to support our stand-alone public company needs. We expect these efforts to be substantially completed in 2015.

Organizational and separation related expenses, as reflected on our Statements of Income, continue to decline on an annual basis and were $3 million in 2014, $12 million in 2013 and $16 million in 2012. In addition, $3 million of organizational and separation related costs were capitalized in 2014, compared to $7 million and $2 million of capitalized costs in 2013 and 2012, respectively.

We expect to incur an additional $5 million to $7 million in connection with these organizational and separation related efforts by the end of 2015, of which we expect $4 million to $5 million to be capitalized and amortized over the useful lives of the assets purchased or developed to achieve annualized savings. Once completed, we expect these efforts will generate approximately $15 million of annualized savings, of which $10 million and $14 million was achieved through the end of 2013 and 2014, respectively.

~~Interest Expense~~

~~2014 Compared to 2013~~

Interest expense decreased $1 million (from $13 million to $12 million) due to a $1 million decline in expense associated with our liability for the Marriott Rewards customer loyalty program under the Marriott Rewards Agreement and a $1 million decline in other interest expense, partially offset by $1 million of lower capitalized interest costs.

~~2013 Compared to 2012~~

Interest expense decreased $4 million (from $17 million to $13 million) due to a $3 million decline in expense associated with our liability for the Marriott Rewards customer loyalty program under the Marriott Rewards Agreement and $1 million in capitalized interest costs.

~~Royalty Fee~~

~~2014 Compared to 2013 and 2013 Compared to 2012~~

Royalty fee expense decreased $2 million in 2014 (from $62 million in 2013 to $60 million in 2014), and included $1 million of lower costs due to a higher portion of sales of pre-owned inventory, which carries a lower royalty fee as compared to initial sales of our real estate inventory (one percent versus two percent), and $1 million of lower costs due to the additional week in 2013. Royalty fee expense increased $1 million in 2013 (from $61 million in 2012 to $62 million in 2013) due to the additional week in 2013.

~~Impairment~~

~~2014 Compared to 2013 and 2013 Compared to 2012~~

In 2014, we recorded an impairment charge of $1 million with respect to a building as a result of a termination of a land lease at a project in our North America segment. In 2013, we recorded an impairment charge of $1 million related to a leased golf course at a project in our Europe segment. There were no impairment charges in 2012.

~~Gains and Other Income~~

~~2014 Compared to 2013 and 2013 Compared to 2012~~

Gains and other income of $5 million during 2014 included a $3 million gain on the disposition of undeveloped and partially developed land, an operating golf course and related assets, in Kauai, Hawaii and a $2 million gain related to the disposition of a golf course and adjacent undeveloped land in Orlando, Florida. Gains

and other income of $1 million during 2013 related to a gain on the disposition of a multi-family parcel in St. Thomas, U.S. Virgin Islands. Gains and other income of $9 million during 2012 included an $8 million gain on the disposition of a golf course and related assets at one of our luxury projects.

~~Equity in Earnings~~

~~2014 Compared to 2013 and 2013 Compared to 2012~~

~~Equity in earnings, which relates to our investment in a joint venture in our Asia Pacific segment, was $0 during both 2014 and 2013, and $1 million in 2012.~~

~~Impairment (Charges) Reversals on Equity Investment~~

~~2014 Compared to 2013 and 2013 Compared to 2012~~

There were no impairment charges or reversals on equity investment in 2014. In 2013, we increased our accrual by $8 million for remaining costs we expected to incur in connection with an interest in an equity method investment in a joint venture project in our North America segment. This was partially offset by $7 million of earnings attributed to a partial repayment of previously reserved receivables due from the same joint venture. In 2012, we reversed $2 million of a previously recorded impairment of an equity investment because the actual costs incurred to suspend the marketing and sales operations associated with the equity investment were lower than previously estimated.

transactions.

Income Tax

Our effective tax rates for fiscal years ~~2014, 2013~~2017, 2016 and ~~2012~~2015 were ~~46.37%, 39.23%~~(0.40) percent, 38.39 percent and ~~80.08%,~~40.53 percent, respectively. Our tax rate is affected by recurring items, such as non-deductible expenses, tax rates in foreign jurisdictions and the relative amount of income we earn in different jurisdictions, which ~~with the exception of the loss on the disposition of The Abaco Club in 2014,~~ we expect to be fairly consistent in the near term. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year. The following is a description of the items impacting our effective tax rate during 2017 and the ~~current and~~ prior two years.

~~2014~~

2017 Compared to ~~2013~~

2016

Our provision for income taxes decreased $86.5 million (from a provision of $85.6 million) to a benefit of $0.9 million). The decrease was primarily due to the revaluation of deferred tax assets and liabilities due to a $65.2 million benefit from the Tax Cuts and Jobs Act discussed below, the release of a $7.0 million foreign valuation allowance, a decrease of $4.9 million in foreign tax rates and the favorable impact of the adoption of Accounting Standards Update No. 2016-09, “Compensation – Stock Compensation (Topic 718)” (“ASU 2016-09”). See Footnote No. 1, “Summary of Significant Accounting Policies,” to our Financial Statements for additional information on ASU 2016-09.

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. The new U.S. tax legislation is subject to a number of complex provisions, which we are currently evaluating, however we expect future earnings to be positively impacted largely due to the reduction of the U.S. federal corporate income tax rate from 35 percent to 21 percent. This rate reduction had a significant impact on our provision for income taxes for 2017, including an estimated $65.2 million benefit for the one-time impact resulting from the revaluation of our deferred tax assets and liabilities to reflect the new lower rate.

2016 Compared to 2015

Our provision for income taxes increased ~~$19~~$1.9 million (from ~~$51~~$83.7 million to ~~$70~~$85.6 million) due to ~~higher consolidated~~increases in U.S. income before ~~income~~ taxes, partially offset by both U.S. federal tax incentives which related to multiple years and ~~the change~~a decline in ~~the geographic composition of~~non-U.S. income before ~~income~~ taxes. We had lower income before income taxes in our foreign jurisdictions during 2014, as compared to 2013, due to the loss on the disposition of The Abaco Club in the Bahamas during the fourth quarter of 2014

Earnings Before Interest Expense, Taxes, Depreciation and ~~an increase in the income before income taxes attributable to the United States.~~

~~2013 Compared to 2012~~

~~Our provision for income taxes increased $27 million (from $24 million to $51 million) due to higher income before income taxes in both U.S.~~Amortization (“EBITDA”) and foreign jurisdictions. We had higher income before income taxes in our foreign jurisdictions during 2013, as compared to 2012, due to the cumulative impact of the extended rescission periods in our Europe segment.

Adjusted EBITDA

EBITDA, a financial measure that is not prescribed ~~or authorized~~ by GAAP, is defined as earnings, or net income, before interest expense (excluding consumer financing interest expense), ~~provision for~~ income taxes, depreciation and amortization. For purposes of our EBITDA ~~calculation,~~and Adjusted EBITDA calculations, we do not adjust for consumer financing interest expense because the associated debt is secured by vacation ownership notes receivable that have been sold to bankruptcy remote special purpose entities and ~~that~~ is generally non-recourse to us. Further, we consider consumer financing interest expense to be an operating expense of our business.

We consider EBITDA and Adjusted EBITDA to be ~~an indicator~~indicators of operating performance, ~~and~~which we use it to measure our ability to service debt, fund capital expenditures and expand our business. We also use ~~it,~~EBITDA and Adjusted EBITDA, as do analysts, lenders, investors and others, because ~~it excludes~~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 ~~excludes~~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 ~~has~~reflects additional adjustments for certain items described below, and excludes non-cash 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 itthem at all, limiting ~~its~~their usefulness as a comparative ~~measure.~~measures. The table below shows our EBITDA and Adjusted EBITDA calculation and reconciles ~~that measure~~these measures with Net ~~income.~~

Fiscal Years
($ in millions)            2014                  2013                 2012
Net income
$ 81    $ 80    $ 7
Interest expense
          12              13              17
Tax provision
70    51    24
Depreciation and amortization
19    23    30

EBITDA
$ 182    $ 167    $ 78

income, which is the most directly comparable GAAP financial measure.



	Fiscal Years
($ in thousands)	2017			2016			2015
Net income	$	226,778		$	137,348		$	122,799
Interest expense	9,572			8,912			12,810
Tax (benefit) provision	(895		)	85,580			83,698
Depreciation and amortization	21,494			21,044			22,217
EBITDA	256,949			252,884			241,524
Non-cash share-based compensation	16,286			13,949			14,142
Certain items	6,805			(5,456		)	(5,594		)
Adjusted EBITDA	$	280,040		$	261,377		$	250,072

2017

The “certain items” excluded from Adjusted EBITDA for 2017 consisted of $8.7 million in net insurance proceeds related to the settlement of business interruption insurance claims arising from Hurricane Matthew, $6.5 million of variable compensation expense related to the impact of the 2017 Hurricanes, $4.2 million of litigation settlement expenses, $1.8 million of acquisition costs, a charge of $1.3 million associated with the estimated property damage insurance deductibles and impairment of property and equipment at several of our resorts, primarily in Florida and the Caribbean, that were impacted by the 2017 Hurricanes, $1.2 million of variable compensation expense related to the impact of Hurricane Matthew and $0.4 million of miscellaneous losses and other expense. These exclusions increased EBITDA by $6.8 million.

We estimate that the effects of Hurricane Irma and Hurricane Maria negatively impacted Adjusted EBITDA by approximately $6.7 million in 2017. Adjusting for that impact, Adjusted EBITDA in 2017 would have totaled approximately $286.7 million.

2016

The “certain items” excluded from Adjusted EBITDA for 2016 consisted of $11.2 million of gains and other income not associated with our on-going core operations, $4.9 million of acquisition costs, $1.4 million of hurricane related expenses, $0.3 million of profit from the operations of the portion of the property we acquired in Surfers Paradise, Australia in 2015 that we sold in the second quarter of 2016, and a $0.3 million reversal of litigation settlement expense. In the aggregate, these exclusions decreased EBITDA by $5.5 million.

We estimate that the effects of Hurricane Matthew negatively impacted Adjusted EBITDA by approximately $3.6 million in the fourth quarter of 2016. Adjusting for that impact, Adjusted EBITDA in 2016 would have totaled approximately $265.0 million.

2015

The “certain items” excluded from Adjusted EBITDA for 2015 consisted of $9.6 million of gains and other income not associated with our on-going core operations, $8.4 million of transaction costs associated with acquisitions, $5.9 million of development profit from the disposition of units in Macau as whole ownership residential units rather than through our Marriott Vacation Club, Asia Pacific points program, $1.8 million of refurbishment costs, $1.6 million of profit from the operations of the portion of the property we acquired in Surfers Paradise, Australia in 2015 that we sold in the second quarter of 2016, $1.2 million of organizational and separation related costs, $0.3 million of impairment charges and a $0.2 million reversal of litigation settlement expense. In the aggregate, these exclusions decreased EBITDA by $5.6 million.

Business Segments

Our business is grouped into three reportable business segments: North America, ~~Europe~~Asia Pacific and ~~Asia Pacific.~~Europe. See Footnote No. ~~17,~~14, “Business Segments,” to our Financial Statements for further information on our segments, and “Business—Segments” for further details regarding our individual properties by segment.

North America

The following discussion presents an analysis of ~~January 2, 2015, we operated~~our results of operations for the ~~following 58 properties by segment:~~

    U.S.⁽¹⁾           Non-U.S.             Total
North America
     45              5         50
Europe
     —              5         5
Asia Pacific
     —              3         3

Total
     45              13         58

⁽¹⁾

~~Includes properties located in the 48 contiguous states, Hawaii and Alaska.~~

North America

Fiscal Years
($ in millions) 2014 2013 2012
Revenues

Sale of vacation ownership products
$ 578 $ 583 $ 532
Resort management and other services
263 255 249
Financing
120 132 143
Rental
234 233 198
Cost reimbursements
354 342 322

Total revenues
1,549 1,545 1,444

Expenses
Cost of vacation ownership products
170 184 176
Marketing and sales
272 270 260
Resort management and other services
169 176 184
Rental
209 222 196
Litigation settlement
19 (1 ) 41
Organizational and separation related
1 —   1
Royalty fee
9 10 9
Impairment
1 —   —
Cost reimbursements
354 342 322

Total expenses
        1,204         1,203         1,189

Gains and other income
5 1 9
Impairment (charges) reversals on equity investment
— (1 ) 2

Segment financial results
$ 350 $ 342 $ 266

segment.



	Fiscal Years
($ in thousands)	2017			2016			2015
REVENUES
Sale of vacation ownership products	$	662,424		$	572,305		$	586,774
Resort management and other services	276,443			266,365			255,775
Financing	127,486			118,646			115,738
Rental	289,446			276,008			277,348
Cost reimbursements	421,546			394,592			369,467
TOTAL REVENUES	1,777,345			1,627,916			1,605,102
EXPENSES
Cost of vacation ownership products	157,457			134,079			164,200
Marketing and sales	356,206			304,099			288,260
Resort management and other services	147,016			145,036			149,257
Rental	249,944			225,281			225,043
Litigation settlement	3,733			(303		)	(370		)
Organizational and separation related	—			—			532
Royalty fee	9,760			9,867			7,971
Impairment	—			—			324
Cost reimbursements	421,546			394,592			369,467
TOTAL EXPENSES	1,345,662			1,212,651			1,204,684
(Losses) gains and other (expense) income, net	(2,776		)	12,260			9,600
Other	(1,034		)	(4,191		)	(422		)
SEGMENT FINANCIAL RESULTS	$	427,873		$	423,334		$	409,596

Contract Sales

~~2014~~

2017 Compared to ~~2013~~

Fiscal Years   Change     % Change
($ in millions) 2014 2013
Contract Sales

Vacation ownership
$ 620    $ 608    $      12    2%
Residential products
14    15    (1 ) NM

Total contract sales
$       634    $       623    $      11    2%

~~Excluding~~2016



	Fiscal Years				Change		% Change
($ in thousands)	2017		2016		Change		% Change
Contract sales
Vacation ownership	$	728,712	$	645,277	$	83,435	13%
Total contract sales	$	728,712	$	645,277	$	83,435	13%

The increase in North America vacation ownership contract sales reflected a $92.8 million increase in sales at on-site sales locations, partially offset by a $9.0 million decrease in sales at off-site (non tour-based) sales locations and a $0.4 million decrease in fractional sales. We estimate that hurricane activity negatively impacted contract sales by $20.0 million in 2017 and $8.1 million in 2016.

The increase in sales at North America on-site locations reflected a 12 percent increase in the number of tours and a 3 percent increase in VPG to $3,565 in 2017 from $3,462 in 2016. The increase in the number of tours was due to increases in both owner tours and first time buyer tours, and was driven by programs that were implemented in 2015 or later to generate additional tours. The 12 percent increase in the number of total tours included an increase of 8 percent from our five new sales locations in this segment and an increase of 4 percent from existing sales locations. We estimate that the 2017 Hurricanes negatively impacted the year over year change in tours by 3 percent (or 2 percent if the impact of Hurricane Matthew on tours in 2016 is also included); the ~~additional week~~vast majority of this impact was at our exiting sales locations. The increase in ~~2013, contract~~VPG resulted from higher pricing and a 0.1 percentage point increase in closing efficiency. The sales ~~increased $20 million in our~~at North America ~~segment.~~ off-site locations were negatively impacted by lower sales in Latin America, which continued to be negatively impacted in 2017 by currency fluctuations and economic disruptions in the region.

2016 Compared to 2015



	Fiscal Years				Change		% Change
($ in thousands)	2016		2015		Change		% Change
Contract sales
Vacation ownership	$	645,277	$	631,403	$	13,874	2%
Total contract sales	$	645,277	$	631,403	$	13,874	2%

The increase in vacation ownership contract sales in our North America segment reflected a ~~$12~~$23.2 million increase in sales at on-site sales locations, ~~and no change~~partially offset by a $6.0 million decrease in sales at off-site (non tour-based) sales ~~locations.~~ locations and a $3.3 million decrease in fractional sales as we continue to sell through remaining luxury inventory.

We estimate that the effects of Hurricane Matthew negatively impacted contract sales by approximately $8.1 million in 2016. Adjusting for that impact, total contract sales, excluding residential contract sales, would have increased by approximately 3.5 percent for the full year.

The increase in sales at on-site ~~sales~~ locations reflected a 62.3 percent increase in the number of tours and a 2.2 percent increase in VPG to $3,462 in 2016 from $3,386 in ~~2014 from $3,200 in 2013, partially offset by a 3 percent decline in the number of tours.~~2015. The increase in VPG ~~was due to higher pricing, a 0.3 percentage point increase in closing efficiency and~~resulted from an increase in the number of points sold per contract. Excluding the impact of the additional week in 2013, the number of tours declined 1.5 percent. The decline in the number of tours continued to be driven by an increase in weeks-based owner utilization of the MVCD program, with owners taking advantage of the program’s flexibility to take vacations of shorter durationcontract and exercise alternative usage options. This trend has continued to reduce our existing owner tour flow because fewer owners are in our resorts, and their stays in our resorts are shorter, than in prior years. We implemented new programs in 2014 aimed at generating existing owner tours and new marketing programs targeted toward first-time buyers, which we expect will increase tour flow in 2015.

~~2013 Compared to 2012~~

Fiscal Years Change   % Change
($ in millions) 2013 2012
Contract Sales

Vacation ownership
$ 608    $ 582    $ 26    5%
Residential products
15    1    14    NM

Total contract sales
$       623    $       583    $          40    7%

~~The increase in contract sales in our North America segment included $14 million of~~ higher residential contract sales, including $9 million associated with the continued execution of our strategy to dispose of excess inventory, and a $26 million, or 5 percent, increase in vacation ownership contract sales, which included $9 million from the additional week in 2013.

The increase in vacation ownership contract sales reflected an 8 percent increase in VPG to $3,200 in 2013 from $2,963 in 2012. This increase in VPG was due to a nearly 4 percent price increase and a 1 percentage point increase in closing efficiency resulting from improved marketing and sales execution. These increases werepricing, partially offset by a ~~3 percent decline~~0.5 percentage point decrease in ~~the number of tours.~~closing efficiency. The ~~decline~~increase in the number of tours was driven by an increase in ~~weeks-based owner utilization~~first time buyer tours due to the new sales locations that were opened in the latter part of 2016 and programs that were implemented over the past two years to generate additional tours. The sales at off-site locations were negatively impacted by the strength of the ~~MVCD program, with owners taking advantage~~U.S. dollar, primarily in Latin America, which is a trend that negatively impacted the comparison to prior year results throughout most of the program’s flexibility to take vacations of shorter duration and exercise alternative usage options. This has reduced our existing owner tour flow because fewer owners are in our resorts, and their stays in our resorts are shorter, than in prior years. We intend to increase tour flow through new programs aimed at generating existing owner tours and developing new marketing programs targeted toward first-time buyers.

2016.

Sale of Vacation Ownership Products

~~2014~~

2017 Compared to ~~2013~~

Fiscal Years Change % Change
($ in millions) 2014 2013
Contract sales
$ 634 $ 623 $ 11 2%
Revenue recognition adjustments:

Reportability
(13 ) 5 (18 )
Sales reserve
(25 ) (29 ) 4
Other⁽¹⁾
(18 ) (16 ) (2 )

Sale of vacation ownership products
$ 578 $ 583 $ (5 ) (1%)

2016



	Fiscal Years						Change			% Change
($ in thousands)	2017			2016			Change			% Change
Contract sales	$	728,712		$	645,277		$	83,435		13%
Revenue recognition adjustments:
Reportability	3,632			(3,453		)	7,085
Sales reserve	(43,091		)	(39,298		)	(3,793		)
Other⁽¹⁾	(26,829		)	(30,221		)	3,392
Sale of vacation ownership products	$	662,424		$	572,305		$	90,119		16%

_________________________

⁽¹⁾

Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.

~~The lower vacation ownership notes receivable reserve activity is~~

Revenue reportability positively impacted 2017 due to an increase in the amount of sales that met the down payment requirement in 2017, partially offset by an increase in the amount of sales that remained in the rescission period as of the end of 2017. Revenue reportability negatively impacted 2016 due to a decrease in ~~estimated default activity compared to 2013.~~

~~2013~~the amount of sales that met the down payment requirement in 2016 and an increase in the amount of sales that remained in the rescission period as of the end of 2016.

The higher sales reserve reflected the higher vacation ownership contract sales volume, partially offset by an unfavorable sales reserve adjustment in 2016.

The decrease in other adjustments for sales incentives was driven by a decrease in the utilization of plus points as a sales incentive in 2017. These revenues are deferred and recognized as rental revenue when those points are redeemed or expire.

2016 Compared to ~~2012~~

Fiscal Years Change % Change
($ in millions) 2013 2012
Contract sales
$ 623 $ 583 $ 40 7%
Revenue recognition adjustments:

Reportability
5 (4 ) 9
Sales reserve
(29 ) (34 ) 5
Other⁽¹⁾
(16 ) (13 ) (3 )

Sale of vacation ownership products
$ 583 $ 532 $ 51 9%

2015



	Fiscal Years						Change			% Change
($ in thousands)	2016			2015			Change			% Change
Contract sales	$	645,277		$	631,403		$	13,874		2%
Revenue recognition adjustments:
Reportability	(3,453		)	(841		)	(2,612		)
Sales reserve	(39,298		)	(26,077		)	(13,221		)
Other⁽¹⁾	(30,221		)	(17,711		)	(12,510		)
Sale of vacation ownership products	$	572,305		$	586,774		$	(14,469	)	(2%)

_________________________

⁽¹⁾

Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.

Revenue reportability had a $3.5 million negative impact in 2016, compared to a $0.8 million negative impact in 2015. The ~~lower vacation ownership notes receivable reserve activity is~~unfavorable impact compared to 2015 was due to ~~lower estimated default and delinquency activity, net~~an increase in the amount of sales that remained in the rescission period as of the end of 2016 as compared to 2015 as a result of higher contract sales ~~volume and revenue reportability in 2013. These increases were~~near the end of 2016, partially offset by ~~$3 million~~an increase in the amount of sales meeting the down payment requirement for revenue reportability prior to the end of 2016.

The higher sales reserve was driven by the higher financing propensity and Latin American default activity and, to a lesser extent, the higher vacation ownership contract sales, as compared to 2015.

The increase in other adjustments was primarily driven by an increase in the utilization of plus points ~~issued~~ as a sales ~~incentives~~incentive in ~~2013. Plus points will ultimately be recognized as rental revenues upon usage or expiration of the plus points rather than revenues from the sale of vacation ownership products.~~

2016.

Development Margin

~~2014~~

2017 Compared to ~~2013~~

Fiscal Years Change   % Change
($ in millions) 2014 2013
Sale of vacation ownership products
$ 578 $ 583 $ (5 ) (1%)
Cost of vacation ownership products
(170 ) (184 ) 14    8%
Marketing and sales
(272 ) (270 ) (2 ) (1%)

Development margin
$ 136 $ 129 $ 7 5%

Development margin percentage
        23.4%            22.1%        1.3 pts

2016



	Fiscal Years						Change			% Change
($ in thousands)	2017			2016			Change			% Change
Sale of vacation ownership products	$	662,424		$	572,305		$	90,119		16%
Cost of vacation ownership products	(157,457		)	(134,079		)	(23,378		)	(17%)
Marketing and sales	(356,206		)	(304,099		)	(52,107		)	(17%)
Development margin	$	148,761		$	134,127		$	14,634		11%
Development margin percentage	22.5%			23.4%			(0.9 pts)

The increase in development margin reflected ~~a $24~~the following:

$21.3 million ~~increase~~ from higher vacation ownership contract sales volume net of ~~lower~~the sales reserve and direct variable expenses (i.e., cost of vacation ownership products and marketing and sales) ~~driven by $22~~;

$16.1 million from a favorable mix of lower cost real estate inventory being sold in 2017;

$4.3 million of favorable revenue reportability compared to 2016; and $2

$1.0 million from ~~the net impact of the higher contract~~lower sales ~~volume. Additionally, the increase~~reserve activity in 2017.

These increases in development margin ~~reflected a $4 million decrease in vacation ownership notes receivable reserve activity. These increases~~ were partially offset by ~~$11~~the following:

$13.7 million from higher marketing and sales costs (of which $6.0 million was due to the ramp-up of our newest sales locations and $2.9 million was due to variable compensation expense related to the impact of the 2017 Hurricanes);

$13.6 million of ~~lower revenue reportability~~unfavorable changes in product cost true-up activity (less than $0.1 million of unfavorable true-up activity in 2017 compared to ~~2013 and $10~~$13.6 million of ~~lower~~ favorable ~~product cost true-ups ($6~~true-up activity in 2016); and

$0.8 million ~~in 2014 compared to $16 million in 2013).~~

from higher other development and inventory expenses.

The ~~1.3~~0.9 percentage point ~~improvement~~decline in the development margin percentage compared to 2016 reflected a 42.1 percentage point decrease due to the unfavorable changes in product cost true-up activity year-over-year and a 1.9 percentage point decrease due to higher marketing and sales costs (of which 0.9 percentage points was due to the higher ramp-up expenses in 2017 associated with our newest sales locations and 0.4 percentage points was due to variable compensation expense related to the impact of the 2017 Hurricanes). These declines were partially offset by a 2.5 percentage point increase due to a favorable mix of lower cost vacation ownership real estate inventory being sold in ~~2014~~2017, a 0.5 percentage point increase due to the favorable revenue reportability year-over-year and a ~~less than 1~~0.1 percentage point increase from the lower sales reserve activity.

2016 Compared to 2015



	Fiscal Years						Change			% Change
($ in thousands)	2016			2015			Change			% Change
Sale of vacation ownership products	$	572,305		$	586,774		$	(14,469	)	(2%)
Cost of vacation ownership products	(134,079		)	(164,200		)	30,121			18%
Marketing and sales	(304,099		)	(288,260		)	(15,839		)	(5%)
Development margin	$	134,127		$	134,314		$	(187	)	—%
Development margin percentage	23.4%			22.9%			0.5 pts

The decrease in development margin reflected the following:

$9.0 million of additional deferred revenue in 2016 due to higher usage of plus points as a sales incentive; this revenue will be recognized as rental revenue when the plus points are redeemed or expire;

$8.9 million of higher sales reserves in 2016 due to higher vacation ownership ~~notes receivable reserve activity,~~contract sales, financing propensity, and Latin American default activity;

$8.5 million of pre-opening and startup expenses incurred in support of five new sales locations in 2016;

$1.5 million of greater negative revenue reportability impact compared to 2015; and

$0.5 million of higher marketing and sales costs due to investment in new programs to help generate future incremental tour volumes, partially offset by lower marketing and sales compensation related costs.

These decreases in development margin were partially offset by the following:

$16.4 million from a ~~2 percentage point decrease due to the~~favorable mix of lower cost real estate inventory being sold in 2016;

$8.6 million of higher favorable product cost true-up activity ~~year-over-year and a 1 percentage point decrease~~($13.6 million in 2016 compared to $5.0 million in 2015) of which $4.6 million was due to lower ~~revenue reportability year-over-year.~~

~~2013 Compared to 2012~~

Fiscal Years Change % Change
($ in millions) 2013 2012
Sale of vacation ownership products
$ 583 $ 532 $ 51 9%
Cost of vacation ownership products
(184 ) (176 ) (8 ) (5%)
Marketing and sales
(270 ) (260 ) (10 ) (4%)

Development margin
$ 129 $ 96 $ 33 33%

Development margin percentage
22.1% 18.2% 3.9 pts

~~The increase~~development spending for completion of common elements at multiple projects and $3.9 million resulted from projected increases in development ~~margin reflected~~revenue primarily due to a ~~$33~~reduction in our estimated future sales incentive costs;

$2.6 million ~~increase~~ from higher vacation ownership contract sales volume net of direct variable expenses (i.e., cost of vacation ownership products and marketing and sales); and

$0.6 million of lower other development expenses.

The 0.5 percentage point increase in the development margin percentage reflected a 2.8 percentage point increase due to a favorable mix of lower cost vacation ownership real estate inventory being sold ~~and more efficient marketing and sales spending, $6 million of higher revenue reportability year-over-year,~~in 2016, a $2 million benefit from lower vacation ownership notes receivable reserve activity, $1 million of lower charges associated with Marriott Rewards Points issued prior to the Spin-Off ($1 million of higher than expected redemption costs in 2013 compared to $2 million of higher than expected redemption costs in 2012), $1 million of severance costs incurred in 2012 and a $1 million charge in 2012 related to the settlement of a construction related dispute at one of our properties. These increases were partially offset by $11 million of higher favorable product cost true-ups in 2012 ($16 million in 2013 compared to $27 million in 2012).

The favorable product cost true-ups recorded in 2013 were the result of $12 million from increases in estimated future revenues associated with the sale of foreclosed inventory as well as changes in the sequencing of inventory into the MVCD program due to the continued reacquisition of previously sold inventory and nearly $4 million from lower construction costs.

The 4 percentage point improvement in the development margin percentage reflected a 3 percentage point increase from the lower cost of vacation ownership products due to a favorable mix of lower cost real estate inventory being sold, a nearly 21.5 percentage point increase due to ~~increased efficiency in marketing and sales spending,~~the higher favorable product cost true-up activity year-over-year and a 10.1 percentage point increase due to ~~higher revenue reportability year-over-year.~~the lower development expenses. These increases were partially offset by a 21.5 percentage point ~~decrease~~decline due to the ~~lower favorable product cost true-up activity compared~~higher marketing and sales spending (including a 1.4 percentage point impact from the pre-opening and startup expenses), a 1.1 percentage point decline due to ~~2012.~~

the higher usage of plus points as a sales incentive, a 1.1 percentage point decline due to the higher sales reserve rate, and a 0.2 percentage point decline due to the higher unfavorable revenue reportability, in each case, year-over-year.

Resort Management and Other Services Revenues, Expenses and Margin

~~2014~~

2017 Compared to ~~2013~~

Fiscal Years Change   % Change
($ in millions) 2014 2013
Management fee revenues
$ 64 $ 61 $ 3    6%
Other services revenues
199 194 5    2%

Resort management and other services revenues
263 255 8    3%
Resort management and other services expenses
(169 ) (176 ) 7    4%

Resort management and other services margin
$ 94 $ 79 $ 15    18%

Resort management and other services margin percentage
        35.8%            31.1%            4.7 pts

2016



	Fiscal Years						Change			% Change
($ in thousands)	2017			2016			Change			% Change
Management fee revenues	$	78,595		$	74,507		$	4,088		5%
Ancillary revenues	101,247			102,065			(818		)	(1%)
Other services revenues	96,601			89,793			6,808			8%
Resort management and other services revenues	276,443			266,365			10,078			4%
Resort management and other services expenses	(147,016		)	(145,036		)	(1,980		)	(1%)
Resort management and other services margin	$	129,427		$	121,329		$	8,098		7%
Resort management and other services margin percentage	46.8%			45.5%			1.3 pts

The increase in resort management and other services revenues reflected $3 million of higher management fees, $3 million of additional annual club dues earned in connection with the MVCD program due to the cumulative increase in owners enrolled in the program, $3 million of higher fees from external exchange service providers and $2 million of higher resales commission and other revenues, partially offset by $3 million of lower ancillary revenues. The decrease in ancillary revenues included a $3 million decline due to the disposition of a golf course in Orlando, Florida during the first quarter of 2014 and a $2 million decline at The Abaco Club, partially offset by a $2 million increase in ancillary revenues from food and beverage and golf offerings at our resorts.

The improvement in the resort management and other services margin reflected the increases in revenue, as well as $5 million of lower ancillary expenses due to the dispositions described above and other operating improvements and $2 million of lower customer service and MVCD program expenses in 2014 compared to 2013.

~~2013 Compared to 2012~~

Fiscal Years Change
  % Change
($ in millions) 2013 2012
Management fee revenues
$ 61 $ 58 $ 3      4%
Other services revenues
194 191 3      3%

Resort management and other services revenues
255 249 6      3%
Resort management and other services expenses
(176 ) (184 ) 8      4%

Resort management and other services margin
$ 79 $ 65 $ 14    22%

Resort management and other services margin percentage
        31.1%            26.2%            4.9 pts

The increase in resort management and other services revenues reflected $4 million of additional annual club dues earned in connection with the MVCD program due to the cumulative increase in owners enrolled in the program and $3$4.1 million of higher management fees resulting from the cumulative increase in the number of vacation ownership products sold and higher operating costs across the ~~system.~~system, $2.4 million of additional annual club dues and other revenues earned in connection with the MVCD program due to the cumulative increase in owners enrolled in the program, $2.6 million of higher resales commissions, brand fees and other revenues, $0.9 million of higher refurbishment revenue due to an increase in the number of refurbishment projects completed in 2017 and $0.9 million of higher settlement fees due to an increase in the number of closed contracts in 2017, partially offset by $0.8 million of lower ancillary revenues. The decline in ancillary revenues included $7.2 million of lower revenues due to new outsourcing arrangements at multiple resorts, partially offset by $6.4 million of higher revenues from food and beverage and golf offerings that we continue to operate at our resorts.

The increase in the resort management and other services margin reflected the increases in revenue, partially offset by $2.0 million of higher expenses. The higher expenses included $3.0 million of higher customer service expenses and expenses associated with the MVCD program, $5.1 million of higher ancillary expenses from food and beverage and golf offerings that we continue to operate at our resorts and $1.2 million of higher refurbishment expenses due to an increase in the number of projects being refurbished in 2017, partially offset by $6.8 million of lower ancillary expenses due to new outsourcing arrangements at multiple resorts and $0.5 million of lower resales and other expenses.

2016 Compared to 2015



	Fiscal Years						Change		% Change
($ in thousands)	2016			2015			Change		% Change
Management fee revenues	$	74,507		$	68,770		$	5,737	8%
Ancillary revenues	102,065			100,773			1,292		1%
Other services revenues	89,793			86,232			3,561		4%
Resort management and other services revenues	266,365			255,775			10,590		4%
Resort management and other services expenses	(145,036		)	(149,257		)	4,221		3%
Resort management and other services margin	$	121,329		$	106,518		$	14,811	14%
Resort management and other services margin percentage	45.5%			41.6%			3.9 pts

The increase in resort management and other services revenues reflected $5.8 million of additional annual club dues and other revenues earned in connection with the MVCD program due to the cumulative increase in owners enrolled in the program as well as an increase in the dues charged for each owner recognition level, $5.7 million of higher management fees, $1.3 million of higher ancillary revenues and $0.3 million of higher other revenues, as compared to 2015. These increases were partially offset by $1$0.9 million of lower settlement fees due to a decrease in the number of contracts closed, $0.9 million of lower customer service fees, $0.7 million of lower brand fees due to fewer closings, in each case, in 2016 as compared to 2015. The increase in ancillary revenues ~~which reflected~~included $2.9 million of ancillary revenues in 2016 at the property in New York that we did not operate in 2015 and a ~~$9 million decline due to the disposition of a golf course and related assets at one of our Ritz-Carlton branded projects late in 2012, partially offset by an $8~~$0.3 million increase in ancillary revenues from food and beverage and golf offerings that we continue to operate at our ~~other resorts.~~

resorts, partially offset by $1.1 million of lower revenues due to outsourcing the operation of one restaurant and $0.8 million of lower revenue at the operating property in San Diego, California due to the conversion of the property to vacation ownership inventory in 2016.

The improvement in the resort management and other services margin reflected $4the changes in revenue and $4.2 million of ~~additional annual club dues earned in connection with the MVCD program net of~~lower expenses. The lower expenses a $4 million benefit from the disposition of a golf course and related assets at one of our Ritz-Carlton branded projects late in 2012 that experienced an operating loss in 2012, a $3 million increase in customer services margin resulting from lower operating expenses, $2included $4.5 million of ~~higher ancillary revenues net of~~lower customer service and exchange company expenses, ~~at our resorts, a $2 million increase in management fees net of expenses and $1~~$1.8 million of ~~higher resales revenues net~~lower ancillary expenses, $0.9 million of lower expenses due to outsourcing the operation of one restaurant and $0.3 million of lower refurbishment expenses due to a decrease in the number of projects being refurbished in 2016, partially offset by $2$3.3 million of ~~higher~~ expenses ~~primarily due to more MVCD owners utilizing an external exchange service provider.~~

in 2016 from the operation of the ancillary businesses at the property in New York.

Financing Revenues ~~Expenses and Margin~~

~~2014~~

2017 Compared to ~~2013~~

Fiscal Years Change   % Change
($ in millions) 2014 2013
Interest income
$ 114    $ 126    $ (12 ) (10%)
Other financing revenues
6    6            —    NM

Financing revenues
$ 120    $ 132    $ (12 ) (10%)

Financing propensity
        42%            40%

2016



	Fiscal Years				Change		% Change
($ in thousands)	2017		2016		Change		% Change
Interest income	$	120,711	$	112,775	$	7,936	7%
Other financing revenues	6,775		5,871		904		15%
Financing revenues	$	127,486	$	118,646	$	8,840	7%
Financing propensity	63.9%		58.9%

The ~~decrease~~increase in financing revenues was due to ~~lower interest income from a lower outstanding~~an increase in the average gross vacation ownership notes receivable ~~balance. This~~balance ($16.6 million) and higher other financing revenues ($0.9 million), partially offset by financing program incentive costs ($6.1 million) and a decrease in the weighted average coupon rate of our vacation ownership notes receivable ($2.6 million). We expect to continue to offer financing incentive programs in 2018 and that interest income will continue to increase as new originations of vacation ownership notes receivable outpace the decline ~~reflected our continued collection~~in principal of existing vacation ownership notes ~~receivable at a faster pace than our origination of new vacation ownership notes~~ receivable. ~~We expect financing propensity to remain at or near these levels in the future.~~

~~2013~~

2016 Compared to ~~2012~~

Fiscal Years Change
  % Change
($ in millions) 2013 2012
Interest income
$ 126    $ 136    $         (10 ) (7%)
Other financing revenues
6    7    (1 ) (1%)

Financing revenues
$ 132    $ 143    $ (11 ) (7%)

Financing propensity
        40%            42%

2015



	Fiscal Years				Change		% Change
($ in thousands)	2016		2015		Change		% Change
Interest income	$	112,775	$	109,884	$	2,891	3%
Other financing revenues	5,871		5,854		17		—%
Financing revenues	$	118,646	$	115,738	$	2,908	3%
Financing propensity	58.9%		49.1%

The ~~decrease~~increase in financing revenues was due to ~~lower interest income from a lower outstanding~~an increase in the average gross vacation ownership notes receivable ~~balance. This decline reflected~~balance, partially offset by a slight decrease in the weighted average coupon rate of our ~~continued collection of existing~~ vacation ownership notes ~~receivable at~~receivable. The increase in financing propensity resulted from the use of incentive programs during all of 2016 as compared to during only a ~~faster pace than our origination~~portion of ~~new vacation ownership notes receivable.~~

2015.

Rental Revenues, Expenses and Margin

We hold a significant amount of luxury inventory in the North America segment and as such, have a corresponding obligation to pay maintenance fees on the real estate interests we own. Because vacation ownership interests in our luxury inventory often consist of multiple weeks and require upscale fit and finishes and levels of service to meet Ritz-Carlton brand standards, maintenance fees for luxury inventory are much higher than for our other inventory. We mitigate the maintenance fee expense to the extent possible through open market rental and internal sales-related marketing programs; however, our opportunities to rent this inventory are limited due to contractual and legal restrictions.

~~2014~~

2017 Compared to ~~2013~~

2016



	Fiscal Years						Change			% Change
($ in thousands)	2017			2016			Change			% Change
Rental revenues	$	289,446		$	276,008		$	13,438		5%
Unsold maintenance fees	(67,643		)	(62,188		)	(5,455		)	(9%)
Other rental expenses	(182,301		)	(163,093		)	(19,208		)	(12%)
Rental margin	$	39,502		$	50,727		$	(11,225	)	(22%)
Rental margin percentage	13.6%			18.4%			(4.8 pts)



	Fiscal Years				Change			% Change
	2017		2016		Change			% Change
Transient keys rented⁽¹⁾	1,180,474		1,111,039		69,435			6%
Average transient key rate	$	209.98	$	211.66	$	(1.68	)	(1%)
Resort occupancy	89.1%		89.8%		(0.7 pts)

Fiscal Years Change   % Change
($ in millions) 2014 2013
Rental revenues
$ 234 $ 233 $ 1 1%
Unsold maintenance fees—upscale
(45 ) (49 ) 4 5%
Unsold maintenance fees—luxury
(10 ) (11 ) 1 21%

Unsold maintenance fees
(55 ) (60 ) 5 8%
Other expenses
(154 ) (162 ) 8 5%

Rental margin
$ 25 $ 11 $ 14 141%

Rental margin percentage
10.8%    4.5%    6.3  pts
Fiscal Years
2014 2013 Change   % Change
Transient keys rented⁽¹⁾
     1,022,846      1,005,851 16,995 2%
Average transient key rate
$ 204.38 $ 199.65 $ 4.73 2%
Resort occupancy
90.3%    90.7%           (0.4 pts)


⁽¹⁾	Transient keys rented exclude those obtained through the use of plus ~~points.~~points, preview stays and those associated with our operating property in San Diego, California prior to conversion to vacation ownership inventory.

The increase in rental revenues was due to a ~~2 percent increase in average transient rate (nearly $5 million) and a 2~~6 percent increase in transient keys rented ($314.7 million) driven by a 7 percent increase in available keys, $2.7 million of higher plus points revenue (which is recognized when the points are redeemed or expire) and a $1.4 million increase in preview keys rented and other revenue, partially offset by $3.4 million of revenue in 2016 at our operating property in San Diego, California prior to the conversion of the property to vacation ownership inventory and a 1 percent decrease in average transient rate ($2.0 million).

2016 Compared to 2015



	Fiscal Years						Change			% Change
($ in thousands)	2016			2015			Change			% Change
Rental revenues	$	276,008		$	277,348		$	(1,340	)	—%
Unsold maintenance fees	(62,188		)	(59,339		)	(2,849		)	(5%)
Other rental expenses	(163,093		)	(165,704		)	2,611			2%
Rental margin	$	50,727		$	52,305		$	(1,578	)	(3%)
Rental margin percentage	18.4%			18.9%			(0.5) pts



	Fiscal Years				Change			% Change
	2016		2015		Change			% Change
Transient keys rented⁽¹⁾	1,111,039		1,088,206		22,833			2%
Average transient key rate	$	211.66	$	214.47	$	(2.81	)	(1%)
Resort occupancy	89.8%		90.2%		(0.4 pts)


⁽¹⁾	Transient keys rented exclude those obtained through the use of plus points, preview stays and those associated with our operating property in San Diego, California prior to conversion to vacation ownership inventory.

partially offset by a $3.3 million increase in preview keys and other revenue and a 1 percent increase in transient keys rented ($2.8 million), both of which were primarily due to a 4 percent increase in available keys.

The decrease in rental margin reflected a $2.2 million favorable charge in 2015 associated with Marriott Rewards points issued prior to the Spin-Off, partially offset by $0.5 million of higher rental revenues net of direct variable expenses (such as housekeeping), expenses incurred due to owners choosing alternative usage options, and unsold maintenance fees, and the $0.1 million increase in plus points revenue.

Asia Pacific

The following discussion presents an analysis of our results of operations for the Asia Pacific segment.



	Fiscal Years
($ in thousands)	2017			2016			2015
REVENUES
Sale of vacation ownership products	$	42,677		$	40,664		$	59,592
Resort management and other services	4,211			10,166			11,664
Financing	4,504			4,187			4,346
Rental	12,554			16,471			14,970
Cost reimbursements	3,827			3,461			3,060
TOTAL REVENUES	67,773			74,949			93,632
EXPENSES
Cost of vacation ownership products	8,513			7,606			26,877
Marketing and sales	34,868			30,054			20,365
Resort management and other services	4,629			10,055			10,368
Rental	15,865			20,463			19,255
Royalty fee	981			924			684
Cost reimbursements	3,827			3,461			3,060
TOTAL EXPENSES	68,683			72,563			80,609
Losses and other expense, net	(20		)	(878		)	(29		)
Other	(38		)	(230		)	(5,731		)
SEGMENT FINANCIAL RESULTS	$	(968	)	$	1,278		$	7,263

Overview

In our Asia Pacific segment, we continue to identify opportunities for development margin growth and improvement. We plan to continue to focus on future inventory acquisitions with strong on-site sales locations. In 2015, we purchased an operating property located in Surfers Paradise, Australia and in 2016, we sold the portion of this operating property that we did not intend to convert to vacation ownership inventory and converted the remaining portion of this operating property to vacation ownership inventory, a portion of which was contributed to our points-based programs within this segment. We began selling from this new location at the end of the 2016 first quarter. During the 2017 third quarter, we completed the purchase of 51 completed vacation ownership units, as well as a sales gallery and related resort amenities, in Bali, Indonesia. We expect to begin selling from this new location in 2018.

Contract Sales

2017 Compared to 2016



	Fiscal Years				Change		% Change
($ in thousands)	2017		2016		Change		% Change
Contract sales
Vacation ownership	$	49,027	$	47,183	$	1,844	4%
Total contract sales	$	49,027	$	47,183	$	1,844	4%

The increase in Asia Pacific vacation ownership contract sales was driven by ~~stronger consumer demand~~a 31 percent increase in tours, partially offset by a 20 percent decrease in VPG. The increase in tours reflected the continued ramp-up of the new sales location in Surfers Paradise, Australia and an 11 percent increase at existing sales locations. The decrease in VPG was driven by an increase in sales to first time buyers, which generally have a lower VPG than sales to existing owners due in part to a higher

cancellation rate. Contract sales at the new sales location in Surfers Paradise, Australia are not reported as sale of vacation ownership products until closing.

2016 Compared to 2015



	Fiscal Years				Change			% Change
($ in thousands)	2016		2015		Change			% Change
Contract sales
Vacation ownership	$	47,183	$	34,105	$	13,078		38%
Residential products	—		28,420		(28,420		)	(100%)
Total contract sales	$	47,183	$	62,525	$	(15,342	)	(25%)

The increase in vacation ownership contract sales in our Asia Pacific segment was driven by an 11 percent increase in VPG and a 25 percent increase in tours. These increases were both driven by an increase in sales to existing owners, and the increase in tours was also driven by the new sales location in Surfers Paradise, Australia. The decrease in Asia Pacific residential contract sales was due to the bulk sale of 18 whole ownership residential units in Macau during the first quarter of 2015 for $28.4 million, following which no residential inventory remained in this segment.

Sale of Vacation Ownership Products

2017 Compared to 2016



	Fiscal Years						Change			% Change
($ in thousands)	2017			2016			Change			% Change
Contract sales	$	49,027		$	47,183		$	1,844		4%
Revenue recognition adjustments:
Reportability	(846		)	(1,093		)	247
Sales reserve	(3,980		)	(5,116		)	1,136
Other⁽¹⁾	(1,524		)	(310		)	(1,214		)
Sale of vacation ownership products	$	42,677		$	40,664		$	2,013		5%

_________________________


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

Revenue reportability had an unfavorable $0.8 million impact in 2017 compared to an unfavorable $1.1 million impact in 2016. The decrease in the sales reserve was due to an unfavorable sales reserve adjustment made in 2016 to correct an immaterial error with respect to historical static pool data and a favorable ~~mix of available inventory,~~sales reserve adjustment in 2017, partially offset by $7the higher vacation ownership contract sales.

2016 Compared to 2015



	Fiscal Years						Change			% Change
($ in thousands)	2016			2015			Change			% Change
Contract sales	$	47,183		$	62,525		$	(15,342	)	(25%)
Revenue recognition adjustments:
Reportability	(1,093		)	333			(1,426		)
Sales reserve	(5,116		)	(3,242		)	(1,874		)
Other⁽¹⁾	(310		)	(24		)	(286		)
Sale of vacation ownership products	$	40,664		$	59,592		$	(18,928	)	(32%)

_________________________


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

The increase in the sales reserve was due to an unfavorable adjustment to correct an immaterial error of $1.3 million in 2016 with respect to historical static pool data as well as the higher vacation ownership contract sales volume in 2016. The unfavorable revenue reportability in 2016 as compared to 2015 was due to unclosed sales at the new sales location in Surfers Paradise, Australia at the end of 2016.

Development Margin

2017 Compared to 2016



	Fiscal Years						Change			% Change
($ in thousands)	2017			2016			Change			% Change
Sale of vacation ownership products	$	42,677		$	40,664		$	2,013		5%
Cost of vacation ownership products	(8,513		)	(7,606		)	(907		)	(12%)
Marketing and sales	(34,868		)	(30,054		)	(4,814		)	(16%)
Development margin	$	(704	)	$	3,004		$	(3,708	)	(123%)
Development margin percentage	(1.6%)			7.4%			(9.0 pts)

The decrease in development margin reflected higher marketing and sales costs due to the shift to focus on more first time buyer tours and lower favorable product cost true-up activity, partially offset by the higher vacation ownership contract sales volume net of the sales reserve and direct variable expenses (i.e., cost of vacation ownership products and marketing and sales).

2016 Compared to 2015



	Fiscal Years						Change			% Change
($ in thousands)	2016			2015			Change			% Change
Sale of vacation ownership products	$	40,664		$	59,592		$	(18,928	)	(32%)
Cost of vacation ownership products	(7,606		)	(26,877		)	19,271			72%
Marketing and sales	(30,054		)	(20,365		)	(9,689		)	(48%)
Development margin	$	3,004		$	12,350		$	(9,346	)	(76%)
Development margin percentage	7.4%			20.7%			(13.3 pts)

The decrease in development margin reflected the following:

$5.9 million of lower ~~plus points revenue (which is recognized upon utilization~~residential contract sales volume net of ~~plus points for stays at our resorts or upon expiration~~expenses (there were no residential contract sales in 2016, compared to $28.4 million of residential contract sales in 2015);

$3.5 million of pre-opening and startup expenses incurred in support of the ~~points)~~new sales location in Surfers Paradise, Australia in 2016;

$1.0 million of lower revenue reportability compared to the prior year comparable period;

$0.9 million of the higher sales reserves compared to the prior year comparable period due to an unfavorable adjustment to correct an immaterial error in 2016 with respect to historical static pool data as well as the higher vacation ownership contract sales volume; and

$0.8 million of lower favorable product cost true-up activity ($1.2 million in 2016 compared to $2.0 million in 2015).

These decreases in development margin were partially offset by $2.8 million of higher sales volume net of higher direct variable expenses (i.e., cost of vacation ownership products and marketing and sales) as compared to 2015.

Resort Management and Other Services Revenues, Expenses and Margin

2017 Compared to 2016



	Fiscal Years						Change			% Change
($ in thousands)	2017			2016			Change			% Change
Management fee revenues	$	2,755		$	2,403		$	352		15%
Ancillary revenues	—			6,249			(6,249		)	(100%)
Other services revenues	1,456			1,514			(58		)	(4%)
Resort management and other services revenues	4,211			10,166			(5,955		)	(59%)
Resort management and other services expenses	(4,629		)	(10,055		)	5,426			54%
Resort management and other services margin	$	(418	)	$	111		$	(529	)	(477%)
Resort management and other services margin percentage	(9.9%)			1.1%			(11.0 pts)

The decrease in resort management and other services revenues reflected $6.2 million of lower ancillary revenues from the operating property in Surfers Paradise, Australia (a portion of which was disposed of in the second quarter of 2016) and $0.1 million of lower other services revenues, partially offset by $0.4 million of higher management fees. The decline in the resort management and other services margin reflected $0.8 million of ancillary profit from the operating property in Surfers Paradise, Australia in 2016 (compared to no ancillary activity in 2017), partially offset by the higher management fees in 2017 compared to 2016.

2016 Compared to 2015



	Fiscal Years						Change			% Change
($ in thousands)	2016			2015			Change			% Change
Management fee revenues	$	2,403		$	2,695		$	(292	)	(11%)
Ancillary revenues	6,249			7,431			(1,182		)	(16%)
Other services revenues	1,514			1,538			(24		)	(2%)
Resort management and other services revenues	10,166			11,664			(1,498		)	(13%)
Resort management and other services expenses	(10,055		)	(10,368		)	313			3%
Resort management and other services margin	$	111		$	1,296		$	(1,185	)	(91%)
Resort management and other services margin percentage	1.1%			11.1%			(10.0 pts)

The decrease in resort management and other services revenues reflected $1.2 million of lower ancillary revenues from the portion of the operating property in Surfers Paradise, Australia that was disposed of during the second quarter of 2016 and $0.3 million of lower management fees.

The decline in the resort management and other services margin reflected $0.6 million of lower profit at the operating property in Surfers Paradise, Australia and $0.2 million of higher other costs, as compared to 2015.

Rental Revenues, Expenses and Margin

2017 Compared to 2016



	Fiscal Years						Change			% Change
($ in thousands)	2017			2016			Change			% Change
Rental revenues	$	12,554		$	16,471		$	(3,917	)	(24%)
Rental expenses	(15,865		)	(20,463		)	4,598			22%
Rental margin	$	(3,311	)	$	(3,992	)	$	681		17%
Rental margin percentage	(26.4%)			(24.2%)			(2.2 pts)

The decline in rental revenues was due to $5.0 million of lower revenue from the operating property in Surfers Paradise, Australia (a portion of which was disposed of in the 2016 second quarter), partially offset by $1.1 million of higher revenues at the other resorts in the segment due to increases in transient keys rented, preview keys rented and the average transient rate. The lower expenses were due to $5.7 million of lower expenses from the operating property in Surfers Paradise, Australia (a portion of which was disposed of in the 2016 second quarter), partially offset by $1.1 million of higher other rental expenses in 2017.

2016 Compared to 2015



	Fiscal Years						Change			% Change
($ in thousands)	2016			2015			Change			% Change
Rental revenues	$	16,471		$	14,970		$	1,501		10%
Rental expenses	(20,463		)	(19,255		)	(1,208		)	(6%)
Rental margin	$	(3,992	)	$	(4,285	)	$	293		7%
Rental margin percentage	(24.2%)			(28.6%)			4.4 pts

The increase in rental revenues included $1.4 million from an increase in transient and preview keys rented and $0.1 million of higher revenue at the operating property in Surfers Paradise, Australia (a portion of which was disposed of in the second quarter of 2016). The increase in rental margin reflected ~~$21~~$1.7 million of higher rental revenues net of direct variable expenses (such as housekeeping), expenses incurred due to owners choosing alternative usage options, and unsold maintenance fees, partially offset by ~~the $7~~a $1.4 million decline at the operating results at the operating property in ~~plus points revenue resulting from the decline in new enrollments in the MVCD program by existing owners (due to the maturity of the MVCD program).~~

~~2013 Compared to 2012~~

Fiscal Years Change   % Change
($ in millions) 2013 2012
Rental revenues
$ 233 $ 198 $ 35 17%
Unsold maintenance fees—upscale
(49 ) (43 ) (6 ) (12%)
Unsold maintenance fees—luxury
(11 ) (11 ) — (12%)

Unsold maintenance fees
(60 ) (54 ) (6 ) (12%)
Other expenses
(162 ) (142 ) (20 ) (13%)

Rental margin
$ 11 $ 2 $ 9 NM

Rental margin percentage
4.5%    1.0%    3.5  pts
Fiscal Years
2013 2012 Change % Change
Transient keys rented⁽¹⁾
     1,005,851      874,927       130,924 15%
Average transient key rate
$ 199.65 $ 181.65 $ 18.00 10%
Resort occupancy
90.7%    90.7%    0.0  pts

⁽¹⁾

~~Transient keys rented exclude those obtained through the use of plus points.~~

~~The increase in rental revenues was~~Surfers Paradise, Australia primarily due to a 15 percent increase in transient keys rented ($25 million), which were primarily sourced from a 10 percent increase in available keys (159,000 additional available keys) resulting from an increase in the number of owners choosing to exchange their vacation ownership interests for alternative usage options, additional inventory from a new phase completed at one of our projects in Hawaii after the end of the second quarter of 2012 and a lower utilization of plus points for stays at our resorts, as well as a 10 percent increase in average transient rate ($18 million) driven by stronger consumer demand and a favorable mix of available inventory. These increases were partially offset by an $8 million decrease in plus points revenue (which is recognized upon utilization of plus points for stays at our resorts or upon expiration of the points) resulting from the decline in new enrollments in the MVCD program by existing owners (due to the maturity of the MVCD program) and the corresponding decline in the issuance of plus points as incentives for enrollment in the MVCD program.

The increase in rental margin reflected $14 million of higher rental revenues net of direct variable expenses (such as housekeeping), higher expenses incurred due to owners choosing alternative usage options and higher unsold maintenance fees ~~as well as $3~~in 2016 incurred after conversion of the property to vacation ownership inventory.

Other

2017

In 2017, we incurred less than $0.1 million of ~~lower charges associated with Marriott Rewards Points issued prior to the Spin-Off ($4~~other expenses.

2016

In 2016, we incurred $0.2 million of higher than expected redemption costs in 2013 compared to $7 million of higher than expected redemption costs in 2012). These increases were partially offset by the $8 million decline in plus points revenue. The increase in unsold maintenance fees reflected the addition of new inventory upon completion of a phase at one of our projects in Hawaii in 2012, as well as increasedother expenses associated with the then-anticipated sale of the portion of the operating property located in Surfers Paradise, Australia that we did not intend to convert to vacation ownership inventory. See Footnote No. 5, “Acquisitions and Dispositions,” to our ~~inventory repurchase program.~~

Financial Statements for further information related to this transaction.

2015

In 2015, we incurred $5.7 million of acquisition costs associated with the completion of our purchase of the operating property located in Surfers Paradise, Australia, which was required to be accounted for as a business combination for which transaction costs are expensed.

Europe

Fiscal Years
($ in millions) 2014 2013⁽¹⁾ 2012
Revenues

Sale of vacation ownership products
$ 35    $ 55    $ 32
Resort management and other services
31    31    30
Financing
4    4    4
Rental
22    22    20
Cost reimbursements
40    36    26

Total revenues
      132          148          112

Expenses
Cost of vacation ownership products
9    16    9
Marketing and sales
24    26    29
Resort management and other services
27    28    27
Rental
16    17    18
Litigation settlement
—   5    —
Royalty fee
—   1    1
Impairment
—   1    —
Cost reimbursements
40    36    26

Total expenses
116    130    110

Segment financial results
$ 16    $ 18    $ 2

⁽¹⁾

Europe and Asia Pacific segment revenues and expenses have been restated to correct certain immaterial prior period errors. For 2013, $7 million of cost reimbursements were reclassified from the Asia Pacific segment to the Europe segment.

The following discussion presents an analysis of our results of operations for the Europe segment.



	Fiscal Years
($ in thousands)	2017			2016		2015
REVENUES
Sale of vacation ownership products	$	22,839		$	24,534	$	28,963
Resort management and other services	25,542			24,290		25,122
Financing	2,916			3,293		3,949
Rental	20,902			19,592		20,679
Cost reimbursements	34,628			33,912		33,348
TOTAL REVENUES	106,827			105,621		112,061
EXPENSES
Cost of vacation ownership products	3,515			5,889		6,509
Marketing and sales	17,641			19,142		21,974
Resort management and other services	20,492			19,220		20,447
Rental	15,543			15,008		15,431
Royalty fee	267			383		464
Cost reimbursements	34,628			33,912		33,348
TOTAL EXPENSES	92,086			93,554		98,173
Losses and other expense, net	(63		)	—		(14		)
SEGMENT FINANCIAL RESULTS	$	14,678		$	12,067	$	13,874

Overview

In our Europe segment, we are focused on selling our existing projects and managing existing resorts. We do not have any current plans for new development in this segment.

Contract Sales

~~2014~~

2017 Compared to ~~2013~~

Fiscal Years Change     % Change
($ in millions) 2014 2013
Contract Sales

Vacation ownership
$         45    $         34    $           11    34%

Total contract sales
$ 45    $ 34    $ 11    34%

2016



	Fiscal Years				Change			% Change
($ in thousands)	2017		2016		Change			% Change
Contract sales
Vacation ownership	$	25,151	$	31,174	$	(6,023	)	(19%)
Total contract sales	$	25,151	$	31,174	$	(6,023	)	(19%)

The ~~increase~~decrease in contract sales ~~reflected stronger~~was primarily due to several large multi-week purchases in 2016 that did not reoccur in 2017.

2016 Compared to 2015



	Fiscal Years				Change			% Change
($ in thousands)	2016		2015		Change			% Change
Contract sales
Vacation ownership	$	31,174	$	34,376	$	(3,202	)	(9%)
Total contract sales	$	31,174	$	34,376	$	(3,202	)	(9%)

The decrease in vacation ownership contract sales ~~from~~in our ~~Middle East~~Europe segment was due to $9.4 million of lower fractional sales ~~location ($6 million) and from our onsite sales locations in Spain ($1 million), stronger sales~~due to the near sell-out of ~~fractional interests~~developer inventory at our one fractional project ~~in London, United Kingdom ($1 million) and higher cancellation activity in 2013 associated with the extended rescission periods~~ in this segment ~~($3 million).~~

~~2013 Compared to 2012~~

Fiscal Years Change     % Change
($ in millions) 2013 2012
Contract Sales

Vacation ownership
$         34    $         48    $         (14)    (29%)

Total contract sales
$ 34    $ 48    $ (14)    (29%)

~~The decline~~ in ~~contract sales reflected $11~~2015, partially offset by $6.2 million ~~as we continued our strategy to sell through developer inventory and $3 million as a result~~ of higher ~~rescission activity~~timeshare sales. The higher timeshare sales are due to ~~the extended rescission periods~~increases in ~~this segment during the second quarter of 2013.~~

tours and VPG as compared to 2015.

Sale of Vacation Ownership Products

~~2014~~

2017 Compared to ~~2013~~

Fiscal Years
($ in millions) 2014 2013 Change     % Change
Contract sales
$ 45 $ 34 $ 11 33%
Revenue recognition adjustments:

Reportability
(5 ) 25            (30 )
Sales reserve
(5 ) (4 ) (1 )

Sale of vacation ownership products
$           35 $           55 $ (20 ) (36%)

2016



	Fiscal Years						Change			% Change
($ in thousands)	2017			2016			Change			% Change
Contract sales	$	25,151		$	31,174		$	(6,023	)	(19%)
Revenue recognition adjustments:
Reportability	848			(3,001		)	3,849
Sales reserve	(2,849		)	(3,860		)	1,011
Other⁽¹⁾	(311		)	221			(532		)
Sale of vacation ownership products	$	22,839		$	24,534		$	(1,695	)	(7%)

_________________________


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

Revenue reportability positively impacted 2017 due to an increase in the amount of sales that met the down payment requirement in 2017. Revenue reportability negatively impacted 2016 due to a decrease in the amount of sales that met the down payment requirement in 2016.

2016 Compared to 2015



	Fiscal Years						Change			% Change
($ in thousands)	2016			2015			Change			% Change
Contract sales	$	31,174		$	34,376		$	(3,202	)	(9%)
Revenue recognition adjustments:
Reportability	(3,001		)	(1,144		)	(1,857		)
Sales reserve	(3,860		)	(3,680		)	(180		)
Other⁽¹⁾	221			(589		)	810
Sale of vacation ownership products	$	24,534		$	28,963		$	(4,429	)	(15%)

_________________________


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

Revenue reportability had a larger unfavorable impact in 2016 compared to 2015 because fewer sales met the down payment requirement for revenue recognition purposes prior to the end of 2016 than in 2015. The increase in the sales reserve

was ~~higher~~due to an unfavorable adjustment in ~~2013 because the rescission period related~~2016 to ~~certain sales had expired during 2013,~~correct an immaterial error of ~~which $21~~$0.5 million related to ~~the impact of the extended rescission periods in this segment.~~

~~2013 Compared to 2012~~

Fiscal Years
($ in millions) 2013 2012 Change     % Change
Contract sales
$ 34 $ 48 $            (14 ) (29%)
Revenue recognition adjustments:

Reportability
25 (11 ) 36
Sales reserve
(4 ) (5 ) 1

Sale of vacation ownership products
$           55 $           32 $ 23    73%

Revenue reportability was higher in 2013 because the rescission period related to certain sales made in the current or prior periods expired before the end of 2013, including $21 million of revenue reportability related to the impact of the extended rescission periods in this segment. The lower reportability in 2012 reflected the fact that certain sales made during or prior to that period remained in the statutory rescission period at the end of 2012.

~~Development Margin~~

~~2014 Compared to 2013~~

Fiscal Years
($ in millions) 2014 2013 Change     % Change
Sale of vacation ownership products
$ 35 $ 55 $ (20 ) (36%)
Cost of vacation ownership products
(9 ) (16 ) 7 44%
Marketing and sales
(24 ) (26 ) 2 6%

Development margin
$ 2 $ 13    $ (11 ) (85%)

Development margin percentage
           5.6%               24.2%            (18.6 pts)

The decrease in development margin reflected $18 million from lower revenue reportability year-over-year (of which $12 million related to the impact of the extended rescission periods in this segment),historical static pool data, partially offset by ~~a $5 million increase from higher vacation ownership~~the lower contract sales volume net of lower direct variable expenses (i.e., cost of vacation ownership products and marketing and sales) due to more efficient marketing and sales spending, as well as $2 million of severance charges related to the restructuring of sales locations in ~~2013.~~

~~2013~~2016.

Development Margin

2017 Compared to ~~2012~~

Fiscal Years
($ in millions) 2013 2012 Change % Change
Sale of vacation ownership products
$ 55 $ 32 $ 23 73%
Cost of vacation ownership products
(16 ) (9 ) (7 ) (80%)
Marketing and sales
(26 ) (29 ) 3 11%

Development margin
$ 13 $ (6 ) $ 19 NM

Development margin percentage
24.2% (19.3%) 43.5 pts

2016



	Fiscal Years						Change			% Change
($ in thousands)	2017			2016			Change			% Change
Sale of vacation ownership products	$	22,839		$	24,534		$	(1,695	)	(7%)
Cost of vacation ownership products	(3,515		)	(5,889		)	2,374			40%
Marketing and sales	(17,641		)	(19,142		)	1,501			8%
Development margin	$	1,683		$	(497	)	$	2,180		439%
Development margin percentage	7.4%			(2.0%)			9.4 pts

The increase in development margin reflected ~~$18~~$2.5 million of higher revenue reportability year-over-year ~~related to the impact of the extended rescission periods in this segment, a $3~~and $1.0 million ~~increase~~ from ~~lower contract sales volume net of lower direct variable expenses (i.e., cost of vacation ownership products and marketing and sales) due to~~ a favorable mix of lower cost real estate inventory being sold ~~a $1~~in 2017, partially offset by $1.3 million ~~benefit~~ from the lower estimated default and delinquency activity and $1 million of severance in 2012 as a result of eliminating positions at a regional call center. These increases were partially offset by $2 million of severance charges related to the restructuring of sales locations in early 2013, a $1 million net impact from the higher rescission activity due to the extended rescission periods in this segment and $1 million of favorable product cost true-ups in 2012.

~~Asia Pacific~~

Fiscal Years
($ in millions) 2014 2013⁽¹⁾ 2012
Revenues

Sale of vacation ownership products
$ 35    $ 34    $ 54
Resort management and other services
4    4    4
Financing
5    5    4
Rental
8    7    7
Cost reimbursements
3    7    14

Total revenues
55    57    83

Expenses
Cost of vacation ownership products
8    7    12
Marketing and sales
19    20    40
Resort management and other services
3    2    2
Rental
13    12    11
Royalty fee
1    1    1
Cost reimbursements
3    7    14

Total expenses
47    49            80

Equity in earnings
      —         —   1

Segment financial results
$ 8    $ 8    $ 4

⁽¹⁾

~~Overview~~

In our Asia Pacific segment, we continue to identify opportunities for development margin improvement. Our on-site sales locations are more efficient sales channels than our off-site sales locations and we plan to focus on future inventory acquisitions with strong on-site sales locations. Due to operational constraints, regulatory conditions and certain other conditions related to our 18 units in Macau, we decided not to sell these units through our Marriott Vacation Club, Asia Pacific points program, and instead disposed of the units as wholevacation ownership ~~residential units during the first quarter of 2015. We expect to reinvest the proceeds from the disposition in new timeshare destinations in the region with strong on-site sales locations.~~

~~Contract Sales~~

~~2014 Compared to 2013~~

Fiscal Years
($ in millions) 2014 2013 Change
  % Change
Contract Sales

Vacation ownership
$ 34    $ 37    $ (3)    (8%)

Total contract sales
$         34    $         37    $           (3)    (8%)

~~The decline in~~ contract sales reflected a 9 percent decrease in the number of tours, which were impacted by the increase in the cancellations rate due to the change in the Singapore timeshare regulations and continued political turmoil in Thailand, offset by an $18 increase in VPG.

~~2013 Compared to 2012~~

Fiscal Years
($ in millions) 2013 2012 Change   % Change
Contract Sales

Vacation ownership
$         37    $         57    $ (20 ) (36%)

Total contract sales
$ 37    $ 57    $ (20 ) (36%)

The decline in contract sales reflected the closure of off-site sales locations in 2012, partially offset by improvements at existing sales locations. These changes resulted in a 53 percent decrease in sales tours and an $851 increase in VPG.

~~Sale of Vacation Ownership Products~~

~~2014 Compared to 2013~~

Fiscal Years
($ in millions) 2014 2013 Change   % Change
Contract sales
$           34 $           37 $ (3 ) (8%)
Revenue recognition adjustments:

Reportability
3 —                  3
Sales reserve
(2 ) (3 ) 1

Sale of vacation ownership products
$ 35 $ 34 $ 1 4%

~~2013 Compared to 2012~~

Fiscal Years
($ in millions) 2013 2012 Change   % Change
Contract sales
$           37 $           57 $ (20 ) (36%)
Revenue recognition adjustments:

Sales reserve
(3 ) (3 )               —

Sale of vacation ownership products
$ 34 $ 54 $ (20 ) (38%)

~~Development Margin~~

~~2014 Compared to 2013~~

Fiscal Years
($ in millions) 2014 2013 Change % Change
Sale of vacation ownership products
$ 35 $ 34 $ 1 4%
Cost of vacation ownership products
(8 ) (7 ) (1 ) (22%)
Marketing and sales
(19 ) (20 ) 1 6%

Development margin
$ 8 $ 7 $ 1 15%

Development margin percentage
22.0% 19.8% 2.2 pts

~~The increase in development margin reflected $2 million of favorable reportability compared to the prior year. This increase was partially offset by the lower~~ sales volume net of direct variable expenses (i.e., cost of vacation ownership products and marketing and sales), and included less efficient marketing and sales spending at our existing sales locations due to an inability to leverage fixed costs on the lower sales volumes, as well as a more than $1 million favorable product cost true up in 2013.

~~2013~~.

2016 Compared to ~~2012~~

Fiscal Years
($ in millions) 2013 2012 Change     % Change
Sale of vacation ownership products
$         34 $         54 $ (20 ) (38%)
Cost of vacation ownership products
(7 ) (12 ) 5 43%
Marketing and sales
(20 ) (40 )         20 50%

Development margin
$ 7 $ 2 $ 5 NM

Development margin percentage
19.8%    3.4%    16.4 pts

2015



	Fiscal Years						Change			% Change
($ in thousands)	2016			2015			Change			% Change
Sale of vacation ownership products	$	24,534		$	28,963		$	(4,429	)	(15%)
Cost of vacation ownership products	(5,889		)	(6,509		)	620			10%
Marketing and sales	(19,142		)	(21,974		)	2,832			13%
Development margin	$	(497	)	$	480		$	(977	)	(204%)
Development margin percentage	(2.0%)			1.7%			(3.7 pts)

The ~~increase~~decrease in development margin ~~was due to $4~~reflected $1.2 million of ~~charges related~~lower revenue reportability year-over-year, $0.3 million of lower product cost true-up activity (no true-up activity in 2016 compared to $0.3 million of favorable true-up activity in 2015) and $0.3 million from the ~~closure of our off-site sales locations~~year-over-year change in the ~~fourth quarter of 2012. The lower~~sales reserve, partially offset by $0.8 million from the change in vacation ownership contract sales volume net of direct variable expenses (i.e., cost of vacation ownership products and marketing and sales) ~~was flat compared~~due to ~~2012 as the~~ lower ~~sales volumes were offset by more efficient~~ marketing and sales ~~spending at our existing sales locations in 2013. There were nearly $2 million of favorable product cost true-ups in 2013 and 2012.~~

costs as compared to 2015.

Corporate and Other

Fiscal Years
($ in millions) 2014 2013 2012
Cost of vacation ownership products
$ 10    $ 7    $ 6
Financing
24    25    26
General and administrative
99    99    86
Organizational and separation related
2    12    15
Consumer financing interest
26    31    41
Royalty fee
50    50    50

Total Expenses
$         211    $         224    $         224

The following discussion presents an analysis of our results of operations.



	Fiscal Years
($ in thousands)	2017			2016			2015
EXPENSES
Cost of vacation ownership products	$	8,328		$	7,519		$	6,713
Financing	17,951			18,631			21,208
General and administrative	110,225			104,833			106,104
Litigation settlement	498			—			138
Organizational and separation related	—			—			642
Consumer financing interest	25,217			23,685			24,658
Royalty fee	52,013			49,779			49,863
TOTAL EXPENSES	214,232			204,447			209,326
Gains (losses) and other income (expense), net	8,631			(181		)	—
Interest expense	(9,572		)	(8,912		)	(12,810		)
Other	(527		)	(211		)	(2,100		)
TOTAL FINANCIAL RESULTS	$	(215,700	)	$	(213,751	)	$	(224,236	)

Corporate and Other consists of results not specifically attributable to an individual segment, including expenses in support of our financing operations, non-capitalizable development expenses incurred to support overall company development, company-wide general and administrative costs, corporate interest expense, consumer financing interest expense and the fixed royalty fee payable under the ~~License Agreements~~license agreements that we entered into with Marriott International in connection with the ~~Spin-Off, as well as consumer financing interest expense.~~

~~2014~~Spin-Off.

Total Expenses

2017 Compared to ~~2013~~

2016

Total expenses ~~decreased $13~~increased $9.8 million from ~~2013.~~2016. The ~~$13~~$9.8 million ~~decrease~~increase resulted from ~~$10~~$5.4 million of ~~lower organizational~~higher general and ~~separation related~~administrative expenses, $2.2 million of higher royalty fees due to a contractual increase late in 2016 in the ~~completion of many~~fixed portion of the ~~initiatives relating~~royalty fee owed to ~~our separation from~~ Marriott International, $5$1.5 million of ~~lower~~higher consumer financing interest expense, ~~and $1 million of lower financing expenses, partially offset by $3~~$0.8 million of higher cost of vacation ownership products expenses due to higher ~~pre-development spending associated with potential acquisitions.~~

other development and inventory expenses and $0.5 million of litigation settlements in 2017, partially offset by $0.7 million of lower financing expenses.

General and administrative expenses increased $5.4 million due to $6.4 million of higher personnel related and other expenses, partially offset by $1.0 million of lower litigation related costs. The $5higher personnel related and other expenses included annual merit, bonus and inflationary cost increases.

The $1.5 million increase in consumer financing interest expense was due to a higher average outstanding debt balance in 2017.

2016 Compared to 2015

Total expenses decreased $4.9 million from the prior fiscal year. The $4.9 million decrease resulted from $2.6 million of lower financing expenses, $1.3 million of lower general and administrative expenses, $1.0 million of lower consumer financing interest expense, $0.6 million of prior year organizational and separation related expenses and $0.1 million of prior year litigation settlement expenses, partially offset by $0.8 million of higher cost of vacation ownership products expenses due to higher non-capitalizable project expenses, and $0.1 million of higher royalty fee due to an increase in the fixed portion of the royalty fee late in 2016.

The lower general and administrative expenses were driven by $4.0 million of lower personnel related and other expenses, $2.5 million of lower litigation costs and $1.8 million of refurbishment costs in 2015, partially offset by $7.0 million of higher information technology project costs. The lower personnel related and other expenses includes lower compensation related costs and savings due to cost containment efforts, partially offset by annual merit and inflationary cost increases.

The $1.0 million decline in consumer financing interest expense was due to ~~lower outstanding debt balances of securitized vacation ownership notes receivable and associated interest costs ($3 million) as well as~~ a lower average interest rate on outstanding debt balances ($21.4 million), partially offset by a higher average outstanding debt balance including draw downs on the Warehouse Credit Facility in 2016 ($0.4 million). The lower average interest rate reflected the continued pay-down of older

securitization transactions that carried higher overall interest rates and the benefit of lower interest rates applicable to our more recently completed securitizations of vacation ownership notes receivable.

General and administrative expenses were unchanged compared to 2013 at $99 million and included $2 million of higher personnel related costs and $1 million from the favorable resolution of an international tax (non-income tax) matter in 2013, partially offset by $3 million of savings related to organizational and separation relation efforts in the human resources, information technology and finance and accounting organizations.

~~2013 Compared to 2012~~

Total expenses were flat compared to 2012. The $10 million of lower consumer financing interest expense, $3 million of lower organizational and separation related expenses and $1 million of lower financing expenses due to lower foreclosure activity, was offset by $13 million of higher general and administrative expenses and $1 million of higher cost of vacation ownership products.

The $10 million decline in consumer financing interest expense was due to lower outstanding debt balances of securitized vacation ownership notes receivable and associated interest costs ($5 million) as well as a lower average interest rate ($5 million). The lower average interest rate reflected the continued pay-down of older securitization transactions that carried higher overall interest rates and the benefit of lower interest rates applicable to our more recently completed securitizations of vacation ownership notes receivable.

The $13 million of higher general and administrative expense was due to $9 million of higher personnel related costs (including $1 million due to the fact that 2013 had 53 weeks), $8 million of higher legal expenses, $2 million of higher stand-alone public company costs and $1 million of higher audit related expenses. These increases were offset by $4 million of savings related to organizational and separation related efforts in the human resources, information technology and finance and accounting areas, $2 million from lower depreciation expense and $1 million from the favorable resolution of an international non-income tax matter.

Liquidity and Capital Resources

Our capital needs are supported by cash on hand ($~~347~~409.1 million at the end of ~~2014)~~2017), 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, ~~and~~ fulfill other cash ~~requirements.~~requirements and return capital to shareholders. At the end of ~~2014, $708~~2017, we had $1.1 billion of total gross debt outstanding, which included $845.1 million of ~~the $711 million of total debt outstanding was~~ non-recourse debt associated with vacation ownership notes receivable ~~securitizations. In addition, we have $40~~securitizations, $230.0 million of ~~mandatorily redeemable preferred~~Convertible Notes and a $63.6 million non-interest bearing note payable issued in connection with the acquisition of completed vacation ownership units on the Big Island of Hawaii.

In September 2017, we completed a private offering of $230.0 million of Convertible Notes. While we did not have an immediate need for the proceeds, we felt that it was an opportune time for us to capitalize on the interest rate environment and the strength of our stock ~~of a consolidated subsidiary~~price to optimize our capital structure. We evaluated several different debt instruments and chose the one that we ~~are not required~~believe provided the most flexibility for us in terms of covenants and use of proceeds, while enabling us to ~~redeem until October 2021. We may, however, redeem~~take advantage of the ~~preferred~~strength of our stock price and a very low rate of interest. In connection with the Convertible Notes, we also entered into Convertible Note Hedges at ~~par~~a cost of $33.2 million, and received proceeds of $20.3 million from the issuance of Warrants. Issuance of the Convertible Notes resulted in the receipt of net proceeds, after ~~October 2016 at~~adjusting for debt issue costs, including underwriting discount, and the net cash used to purchase the Convertible Note Hedges and sell the Warrants, of $210.8 million. See additional discussion in “Cash from Financing Activities” below and in Footnote No. 10, “Debt,” to our ~~option.~~

Financial Statements.

At the end of ~~2014,~~2017, we had ~~$768~~$711.5 million of real estate inventory on hand, comprised of ~~$413~~$379.2 million of finished goods, ~~and $355~~$330.0 million of land and ~~infrastructure. We expect to continue to sell excess Ritz-Carlton branded inventory through~~infrastructure and $2.3 million of work-in-progress. In addition, we had $48.3 million of completed vacation ownership units that have been classified as a component of Property and equipment until the ~~MVCD program in order to generate incremental cash and reduce related carrying costs.~~

time at which they are legally registered for sale as vacation ownership products.

Our vacation ownership product offerings ~~also~~ allow us to utilize our real estate inventory efficiently. The majority of our sales are of a points-based ~~product,~~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 ~~that~~ our points-based programs enable us to align our real estate inventory acquisitions with the pace of sales of vacation ownership products.

We are selectively pursuing growth opportunities in North America and Asia Pacific by targeting high-quality inventory that ~~would allow~~allows us to add desirable new destinations to our system 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 ~~asset light deals~~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.

We intend for our capital allocation strategy to strike a balance between enhancing our operations and using our capital to provide returns to our shareholders through programs such as share repurchase programs and payment of dividends.

~~During 2014, 2013 and 2012, we had net changes in cash and cash equivalents of $147 million, $97 million and ($7) million, respectively.~~

The following table summarizes ~~these changes:~~

   Fiscal Years
($ in millions)    2014 2013 2012
Cash provided by (used in):

Operating activities
   $         291 $         162 $         163
Investing activities
   43    (36 ) 3
Financing activities
   (185 ) (29 ) (172 )
Effect of change in exchange rates on cash and cash equivalents
   (2 ) —    (1 )


Net change in cash and cash equivalents
$ 147 $ 97 $ (7 )

the changes in cash, cash equivalents and restricted cash:

Fiscal Years
($ in thousands) 2017 2016 2015
Cash, cash equivalents and restricted cash provided by (used in):
Operating activities $ 142,172
$ 141,379
$ 118,414
Investing activities (38,364 ) 34,183
(62,749 )
Financing activities 170,737
(206,159 ) (259,127 )
Effect of change in exchange rates on cash, cash equivalents and restricted cash 2,965
(4,813 ) (4,448 )
Net change in cash, cash equivalents and restricted cash $ 277,510
$ (35,410 ) $ (207,910 )

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 and (3) 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 orand 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~~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 of sales contracts for vacation ownership products, financing propensity and cash outlays for real estate inventory acquisition and development.

In ~~2014,~~2017, we generated ~~$291~~$142.2 million of cash flows from operating activities, compared to ~~$162~~$141.4 million in ~~2013. The improvement~~2016. Excluding the impact of changes in net income and adjustments for non-cash items, the change in cash flows from operations reflected higher originations driven by higher contract sales and higher financing propensity due to the ~~favorable~~continued success of the financing incentive programs offered in our North America segment, timing of payments related to unsold inventory and higher real estate inventory spending, partially offset by higher closings on vacation ownership contract sales, higher collections due to an increasing portfolio of outstanding vacation ownership notes receivable, timing of payments related to operating payables and lower payments onrelated to employee benefits programs.

In 2016, we generated $141.4 million of cash flows from operating activities, compared to $118.4 million in 2015. Excluding the impact of changes in net income and adjustments for non-cash items, the increase in cash flows was attributable to the pay down of our liability for the Marriott Rewards customer loyalty program ~~higher cash receipts on sales that have not met the criteria for revenue recognition,~~in 2015 and ~~the unfavorable~~favorable timing of real estate inventory spending in 2016. This favorable impact ~~in 2013 attributable to payments of a previously accrued litigation settlement. These improvements were~~was partially offset by a higher financing propensity due to the continued success of the financing programs implemented in the first half of 2015, lower collections due to the reduction in the portfolio of ~~vacation ownership notes receivables resulting from lower~~outstanding vacation ownership notes receivable ~~portfolio balances.~~

and the timing of revenue reportability associated with our vacation ownership contract sales.

In ~~2014,~~2015, we ~~recorded $13 million of~~generated residential contract sales of $28.4 million associated with the sale of ~~seven~~18 units ~~at the RCC San Francisco that we bought back as part of a legal settlement at the end of 2012. We recorded $15 million of residential contract sales~~ in ~~2013, including $5 million associated with three units sold at this project.~~

Macau.

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:

Real Estate Inventory Spending Less Than Cost of Sales

Fiscal Years
($ in millions) 2014 2013 2012
Real estate inventory spending
$ (99 ) $ (165 ) $ (120 )
Real estate inventory costs
180 199 187

Real estate inventory spending less than cost of sales
$ 81 $ 34 $ 67



	Fiscal Years
($ in thousands)	2017			2016			2015
Real estate inventory spending	$	(120,999	)	$	(138,867	)	$	(119,067	)
Purchase of vacation ownership units for future transfer to inventory	(33,594		)	—			—
Purchase of operating properties for future conversion to inventory	—			—			(61,554		)
Real estate inventory costs	164,256			142,261			192,071
Real estate inventory spending less than cost of sales	$	9,663		$	3,394		$	11,450

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 ~~of Income~~ 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 the MVCD program and capital efficient transactions, our spending for real estate inventory remained below the amount of real estate inventory costs in each of ~~2014, 2013~~2017, 2016 and ~~2012. While we continue to manage our~~2015.

Our real estate inventory spending ~~as we selectively pursue growth opportunities, real estate inventory spending may exceed~~remained below real estate inventory costs in 2017, even including payments to satisfy a portion of our commitments to purchase vacation ownership units in our North America and Asia Pacific segments.Real estate inventory spending included the acquisition of 112 completed vacation ownership units located on the Big Island of Hawaii for $27.3 million, as well as 51 completed vacation ownership units located in Bali, Indonesia for $12.1 million. In connection with the acquisition on the Big Island of Hawaii, we also settled a $0.5 million note receivable from the seller on a non-cash basis, and issued a non-interest bearing note payable for $63.6 million. Purchase of vacation ownership units for future ~~due~~transfer to inventory included the acquisition of 36 completed vacation ownership units located at our resort in Marco Island, Florida, for $33.6 million. We entered into each of 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 ~~timing~~time it is needed for sale. See

Footnote No. 5, “Acquisitions and Dispositions,” and Footnote No. 9, “Contingencies and Commitments,” to our Financial Statements for additional information regarding these transactions.

Our real estate inventory spending was less than our inventory costs in 2016 and included $23.5 million for the acquisition of an operating property located in the South Beach area of Miami Beach, Florida. We rebranded this property as Marriott Vacation Club Pulse, South Beach and converted it, in its entirety, into vacation ownership interests for use in our MVCD program. See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for additional information regarding this transaction.

Our real estate inventory spending was less than our inventory costs in 2015 and included $32.0 million for the acquisition of 71 units at The Mayflower Hotel, Autograph Collection, an operating hotel, in Washington, D.C. We have included these vacation ownership units, in their current form, in our MVCD program. See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for additional information regarding this transaction.

We also completed the acquisition of an operating property located in Surfers Paradise, Australia during 2015. At the time of the acquisition, we determined that we would convert a portion of this operating property into vacation ownership interests for future ~~acquisitions~~use in our Asia Pacific segment and $14.9 million, the amount of ~~inventory.~~

the purchase price related to this portion, was included as an operating activity in Purchase of operating properties for future conversion to inventory on our Cash Flows for 2015. During 2016, we completed the conversion of this portion of the operating property, a portion of which was contributed to our points-based programs in our Asia Pacific segment. See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for additional information regarding this transaction.

We also capitalized on the opportunity to add a premier destination to our portfolio in 2015 through the acquisition of an operating property in San Diego, California, that we have converted, in its entirety, to vacation ownership interests, a portion of which has been contributed for use in our MVCD program. The $46.6 million allocated to the portion of the operating property that we converted, in its entirety, into vacation ownership inventory was classified as an operating activity in Purchase of operating properties for future conversion to inventory on our Cash Flows for 2015. See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for additional information regarding this transaction.

Real estate inventory costs for 2015 included $21.6 million related to the sale of the residential units in Macau.

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.

Vacation Ownership Notes Receivable Collections ~~in Excess of New Mortgages~~

Fiscal Years
($ in millions) 2014 2013 2012
Vacation ownership notes receivable collections —non-securitized
$ 103 $ 113 $ 107
Vacation ownership notes receivable collections — securitized
184 197 204
Vacation ownership notes receivable originations
(268 ) (260 ) (262 )

Vacation ownership notes receivable collections in excess of originations
$ 19 $ 50 $ 49

Less Than Originations



	Fiscal Years
($ in thousands)	2017			2016			2015
Vacation ownership notes receivable collections — non-securitized	$	76,278		$	73,565		$	88,919
Vacation ownership notes receivable collections — securitized	194,238			180,057			181,251
Vacation ownership notes receivable originations	(467,311		)	(356,859		)	(311,195		)
Vacation ownership notes receivable collections less than originations	$	(196,795	)	$	(103,237	)	$	(41,025	)

Vacation ownership notes receivable collections include principal from non-securitized and securitized vacation ownership notes receivable. Vacation ownership notes receivable collections ~~continued~~increased during 2017, as compared to ~~decline over the three years~~2016, due to ~~the declining vacation ownership notes receivable balance, partially offset by~~ an increase in the portfolio of outstanding vacation ownership ~~product~~notes receivable. Vacation ownership notes receivable originations in 2017 increased due to higher vacation ownership contract sales ~~volumes.~~volume and an increase in financing propensity to 64.0 percent compared to 60.1 percent for 2016, due to the continued success of the financing incentive programs that we offer in our North America segment. We expect to continue to offer financing incentive programs in 2018. Vacation ownership notes receivable originations increased in ~~2014~~2016 compared to ~~2013 and 2012~~2015 due to ~~a slight~~an increase in financing propensity to 4460.1 percent in ~~2014~~2016 from 4249.9 percent in ~~2013 and 43 percent in 2012.~~

~~During 2014 and 2013, and~~2015 resulting from the use of incentive programs during all of 2016 as compared to only during a portion of January 2, 2015 and January 3, 2014, no securitized vacation ownership notes receivable pools were out of compliance with established performance parameters. For 2012, approximately $1 million of cash flows were redirected as a result of vacation ownership notes receivable pools failing to meet established performance parameters during that year. At January 2, 2015, we had 8 securitized vacation ownership notes receivable pools outstanding.

2015.

Cash from Investing Activities

Fiscal Years
($ in millions) 2014 2013 2012
Capital expenditures for property and equipment (excluding inventory)
$ (15 ) $ (22 ) $ (17 )
(Increase) decrease in restricted cash
(24 ) (17 ) 12
Dispositions, net
82 3 8

Net cash provided by (used in) investing activities
$ 43 $ (36 ) $ 3

Fiscal Years
($ in thousands) 2017 2016 2015
Capital expenditures for property and equipment (excluding inventory) $ (26,297 ) $ (34,770 ) $ (35,735 )
Purchase of company owned life insurance (12,100 ) —
—
Purchase of operating property to be sold —
—
(47,658 )
Dispositions, net 33
68,953
20,644
Net cash (used in) provided by investing activities $ (38,364 ) $ 34,183
$ (62,749 )

Capital Expenditures for Property and Equipment

Capital expenditures for property and equipment ~~relates~~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.

In ~~2014,~~2017, capital expenditures for property and equipment of ~~$15~~$26.3 million included ~~$10~~$22.3 million to support business operations (including $7$12.4 million for ancillary and other operations assets and $3$9.9 million for sales locations) and $5$4.0 million for technology ~~spending (including $3 million for Spin-Off related initiatives).~~

spending.

In ~~2013,~~2016, capital expenditures for property and equipment of ~~$22~~$34.8 million included ~~$14~~$27.0 million to support business operations (including ~~$11~~$6.3 million for ancillary and other operations assets and $3$20.7 million for sales locations) and $8$7.8 million for technology ~~spending (including $7 million for Spin-Off related initiatives).~~

spending.

In ~~2012,~~2015, capital expenditures for property and equipment of ~~$17~~$35.7 million included ~~$12~~$26.3 million to support business operations (including $9$7.7 million associated with the assets purchased for the operating property in San Diego, California, $13.0 million for sales locations other than the operating property in San Diego, California, and $5.6 million for ancillary and other operations ~~assets~~assets) and ~~$3 million for sales locations) and $5~~$9.4 million for technology spending (including $2$3.8 million for Spin-Off related initiatives).

~~(Increase) Decrease~~ See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for additional information regarding the San Diego, California transaction.

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 ~~Restricted Cash~~

~~Restricted cash primarily consists~~the Deferred Compensation Plan, the proceeds of ~~cash held~~which are intended to be aligned with the investment alternatives elected by plan participants as discussed in ~~reserve accounts~~Footnote No. 1, “Summary of Significant Accounting Policies”, to our Financial Statements. During 2017, we paid $12.1 million to acquire these policies.

Purchase of Operating Property to be Sold

In 2015, we completed the acquisition of an operating property located in Surfers Paradise, Australia. At the time of the acquisition, we determined that we would convert a portion of this operating property into vacation ownership interests for future use in our Asia Pacific segment, and sell the remaining downsized portion of the operating property to a third party. We included $47.7 million, the amount of the purchase price related to ~~vacation ownership notes receivable securitizations, cash collected for maintenance fees~~the remaining downsized portion of the operating property, in Purchase of operating property to be ~~remitted~~sold on our Cash Flows for 2015. In 2016, we completed the sale of this portion of the operating property to ~~property owners’ associations~~a third party and ~~deposits received, primarily associated with tour package sales~~included $49.1 million as an investing activity in Dispositions, net on our Cash Flows for 2016. See Footnote No. 5, “Acquisitions and ~~vacation ownership product sales that are held in escrow until the associated contract has closed or the period in which it can be rescinded has expired, depending on applicable legal requirements.~~

~~The 2014 increase in restricted cash reflected $16 million of higher cash collections~~Dispositions,” to our Financial Statements for maintenance fees to be remitted to certain property owners’ associations subsequent to the end of 2014, a $10 million increase in sales that are held in escrow related to Hawaiian requirements for tour package sales and $1 million of higher cash collected in connection with securitized vacation ownership notes receivable that was distributed to investors subsequent to the end of 2014, partially offset by a $3 million decrease in funds required to be held in escrow to guarantee our credit card business in the Asia Pacific segment.

The 2013 increase in restricted cash reflected $14 million of higher cash collections for maintenance fees to be remitted to certain property owners’ associations subsequent to the end of 2013 and $3 million of higher cash collected in connection with securitized vacation ownership notes receivable that was distributed to investors subsequent to the end of 2013.

The 2012 decrease in restricted cash reflected $11 million of lower cash collected in connection with securitized vacation ownership notes receivable that was distributed to investors subsequent to the end of 2012 (due to four fewer securitized pools outstanding in 2012) and lower cash collections for maintenance fees to be remitted to certain property owners’ associations.

We expect fluctuations in restricted cash for maintenance fee activity to be relatively stable on an annual basis, with cash inflows occurring in the fourth quarter upon receipt of maintenance fees and cash outflows occurring in the first and second quarters upon remittance to property owners’ associations.

additional information regarding this transaction.

Dispositions,

net

Dispositions of property and assets generated cash proceeds of ~~$82~~less than $0.1 million in ~~2014, $3~~2017, $69.0 million in ~~2013~~2016 and $8$20.6 million in ~~2012. The 2014 dispositions included $39 million from~~2015.

Dispositions in 2016 related to the sale of ~~undeveloped and partially developed land, an~~the remaining downsized portion of the operating ~~golf course and related assets~~property in ~~Kauai, Hawaii, $23~~Surfers Paradise, Australia for $49.1 million, ~~from~~ the sale of ~~an operating golf course~~excess inventory at the RCC San Francisco for $18.7 million and undeveloped land in Orlando, Florida, $10 million from the sale of undeveloped land on Singer Island, Florida, $8 million from the sale of undeveloped and partially developed land, an operating golf course, spa and clubhouse and related facilities at The Abaco Club, $1 million from the sale of undeveloped land in Paris, France and $1 million from the sale of several lots in St. Thomas, U.S. Virgin ~~Islands. The 2013 dispositions related to~~Islands for $1.0 million and the sale of ~~a multi-family parcel and several~~undeveloped land in Absecon, New Jersey for $0.1 million.

The 2015 dispositions included $19.5 million from the sale of undeveloped land in Kauai, Hawaii, $0.6 million from the sale of three lots in St. Thomas, U.S. Virgin ~~Islands. The 2012 dispositions related to a disposition~~Islands, $0.4 million from the sale of ~~a golf course~~an operations facility in Hilton Head, South Carolina and ~~related assets at one~~$0.1 million from the sale of ~~our luxury projects.~~

undeveloped land in Absecon, New Jersey.

Cash from Financing Activities

Fiscal Years
($ in millions) 2014 2013 2012
Borrowings from securitization transactions

Bonds payable on securitized vacation ownership notes receivable
$ 263   $ 250   $ 238
Borrowings on Warehouse Credit Facility
—   111   —

Subtotal
263   361   238

Repayment of debt related to securitization transactions
Bonds payable on securitized vacation ownership notes receivable
(230)    (250)    (293)
Repayments on Warehouse Credit Facility
—   (111)    (118)

Subtotal
(230)    (361)    (411)

Borrowings on Revolving Corporate Credit Facility
—      25   15
Repayments on Revolving Corporate Credit Facility
—      (25)    (15)
Debt issuance costs
(7)    (5)    (7)
Repurchase of common stock
(203)    (26)    —
Payment of dividends
(8)    —        —
Proceeds from stock option exercises
3   4   9
Excess tax benefits from share-based compensation
5   3   3
Payment of withholding taxes on vesting of restricted stock units
(8)    (5)    (4)

Net cash used in financing activities
$       (185)    $         (29)    $       (172)

~~Warehouse Credit Facility~~

During 2014, we amended and restated the agreements associated with the Warehouse Credit Facility. As a result, the revolving period was extended to September 15, 2016, and borrowings under the Warehouse Credit Facility bear interest at a rate based on the one-month LIBOR and bank conduit commercial paper rates plus 1.0 percent per annum and are generally limited at any point to the sum of the products of the applicable advance rates and the eligible vacation ownership notes receivable at such time. Other terms of the Warehouse Credit Facility are substantially similar to those in effect prior to the amendment and restatement. At January 2, 2015, no amounts were outstanding under the Warehouse Credit Facility and $25 million of gross vacation ownership notes receivable were eligible for securitization. See Footnote No. 10, “Debt,” to our Financial Statements for additional information regarding our Warehouse Credit Facility.

~~Revolving Corporate Credit Facility~~

During 2014, we amended and restated the Revolving Corporate Credit Facility. The amendment and restatement resulted in, among other things, an extension of the final maturity of the lenders’ commitments from November 21, 2016 to September 10, 2019, a decrease in the interest margin on borrowings, lower commitment fees on unused availability and additional flexibility to determine whether to pledge certain collateral. The Revolving Corporate Credit Facility has a borrowing capacity of $200 million, including a letter of credit sub-facility of $100 million, and provides support for our business, including ongoing liquidity and letters of credit. At January 2, 2015, no amounts were outstanding under the Revolving Corporate Credit Facility, however we had $3 million of letters of credit outstanding. See Footnote No. 10, “Debt,” to our Financial Statements for additional information our Revolving Corporate Credit Facility.

Fiscal Years
($ in thousands) 2017 2016 2015
Borrowings from securitization transactions
Bonds payable on securitized vacation ownership notes receivable $ 350,000
$ 250,000
$ 255,000
Borrowings on Warehouse Credit Facility 50,260
126,622
—
Subtotal 400,260
376,622
255,000
Repayment of debt related to securitization transactions
Bonds payable on securitized vacation ownership notes receivable (243,231 ) (196,242 ) (278,427 )
Repayments on Warehouse Credit Facility (50,260 ) (126,622 ) —
Subtotal (293,491 ) (322,864 ) (278,427 )
Borrowings from Revolving Corporate Credit Facility 87,500
85,000
—
Repayment of Revolving Corporate Credit Facility (87,500 ) (85,000 ) —
Proceeds from issuance of Convertible Notes 230,000
—
—
Purchase of Convertible Note Hedges (33,235 ) —
—
Proceeds from issuance of Warrants 20,332
—

Proceeds from vacation ownership inventory arrangement —
—
5,375
Debt issuance costs (15,347 ) (4,065 ) (5,335 )
Repurchase of common stock (88,305 ) (177,830 ) (201,380 )
Redemption of mandatorily redeemable preferred stock of consolidated subsidiary —
(40,000 ) —
Payment of dividends (38,028 ) (34,195 ) (23,793 )
Payment of withholding taxes on vesting of restricted stock units (10,947 ) (4,021 ) (10,894 )
Other, net (502 ) 194
327
Net cash provided by (used in) financing activities $ 170,737
$ (206,159 ) $ (259,127 )

Borrowings from / ~~Repayments~~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.”

We account for our securitizations of vacation ownership notes receivable as secured borrowings and therefore do not recognize a gain or loss as a result of the transaction. The results of operations for the securitization entities are consolidated within our results of operations as these entities are variable interest entities for which we are the primary beneficiary.

~~During 2014, we completed two securitization transactions.~~

In the ~~second~~2017 third quarter, ~~of 2014,~~ we completed the securitization of a pool of ~~$24~~$360.8 million of ~~primarily highly-seasoned~~ vacation ownership notes receivable ~~that we previously classified as not being eligible for securitization.~~generating gross cash proceeds of $349.9 million. In connection with the securitization, investors purchased in a private placement ~~$23~~$350.0 million in vacation ownership ~~loan-backed~~loan backed notes from the ~~Kyuka~~MVW Owner Trust ~~2014-A with~~2017-1 (the “2017-1 Trust”). Three classes of vacation ownership loan backed notes were issued by the 2017-1 Trust: $276.0 million of Class A Notes, $46.9 million of Class B Notes and $27.1 million of Class C Notes. The Class A Notes have an interest rate of ~~6.25~~2.42 percent, the Class B Notes have an interest rate of 2.75 percent and the Class C Notes have an interest rate of 2.99 percent, for an overall weighted average interest rate of 2.51 percent.

During the 2017 second quarter, we securitized vacation ownership notes receivable under our Warehouse Credit Facility. The carrying amount of the vacation ownership notes receivable securitized ~~loans previously~~was $59.1 million. The advance rate was 85 percent, which resulted in gross proceeds of $50.3 million. Net proceeds were ~~classified~~$50.0 million due to the funding of reserve accounts in the amount of $0.3 million. There were no amounts outstanding under this facility as ~~not~~of December 31, 2017.

At December 31, 2017, $151.4 million of gross vacation ownership notes receivable were eligible for ~~securitization using criteria applicable~~securitization. See Footnote No. 10, “Debt,” to then current securitization transactions in the ABS market because they did not meet certain representation criteria required in such securitizations, or because of other factors that may have reflected investor demand in a securitization transaction.

our Financial Statements for additional information regarding our Warehouse Credit Facility.

In the ~~fourth~~2016 third quarter, ~~of 2014,~~ we completed the securitization of a pool of ~~$250~~$259.1 million of vacation ownership notes ~~receivable.~~receivable generating gross cash proceeds of $250.0 million. In connection with the securitization, investors purchased in a private placement ~~$240~~$250.0 million in vacation ownership ~~loan-backed~~loan backed notes from the MVW Owner Trust ~~2014-1~~2016-1 (the ~~“2014-1~~“2016-1 Trust”). Two classes of vacation ownership loan backed notes were issued by the ~~2014-1~~2016-1 Trust: ~~$216~~$230.6 million of Class A Notes

and ~~$24~~$19.4 million of Class B Notes. The Class A Notes have an interest rate of 2.25 percent and the Class B Notes have an interest rate of ~~2.70~~2.64 percent, for an overall weighted average interest rate of ~~2.29~~2.28 percent.

During ~~2013,~~the 2016 third quarter, we securitized vacation ownership notes receivable under our Warehouse Credit Facility. The total carrying amount of the vacation ownership notes receivable securitized was $149.5 million. The advance rate was 85 percent, which resulted in total gross proceeds of $126.6 million. The total net proceeds were $125.7 million due to the funding of reserve accounts in the amount of $0.9 million. There were no amounts outstanding under this facility as of December 30, 2016.

During 2015, we completed the securitization of a pool of ~~$263~~$264.2 million of vacation ownership notes ~~receivable, including $116 million of vacation ownership notes receivable that were previously securitized in the Warehouse Credit Facility.~~receivable. In connection with the securitization, investors purchased in a private placement ~~$250~~$255.0 million in vacation ownership loan-backed notes from the MVW Owner Trust ~~2013-1~~2015-1 (the ~~“2013-1~~“2015-1 Trust”). Two classes of vacation ownership loan backed notes were issued by the ~~2013-1~~2015-1 Trust: ~~$224~~$233.2 million of Class A Notes and ~~$26~~$21.8 million of Class B Notes. The Class A Notes have an interest rate of ~~2.15~~2.52 percent and the Class B Notes have an interest rate of ~~2.74~~2.96 percent, for an overall weighted average interest rate of ~~2.21~~2.56 percent.

Borrowings from / Repayment of Revolving Corporate Credit Facility

During ~~2012,~~2017, we ~~completed~~borrowed $87.5 million under our $200.0 million revolving credit facility (the “Previous Revolving Corporate Credit Facility”) to facilitate the ~~securitization~~funding of ~~a pool~~our short-term working capital needs, all of ~~$250~~which was repaid as of December 31, 2017.

During 2016, we borrowed $85.0 million under our Previous Revolving Corporate Credit Facility to facilitate the funding of our short-term working capital needs, all of which was repaid as of December 30, 2016.

See Footnote No. 10, “Debt,” to our Financial Statements for additional information regarding our Revolving Corporate Credit Facility. There were no amounts outstanding under this facility as of December 31, 2017 or December 30, 2016.

Proceeds from Issuance of Convertible Notes

During the 2017 third quarter, we issued $230.0 million of Convertible Notes, which included the exercise in full of the $30.0 million over-allotment option we granted to the initial purchasers of the Convertible Notes. We received net proceeds from the offering of approximately $223.7 million after adjusting for debt issuance costs, including the discount to the initial purchasers. We used $40.1 million of the net proceeds to repurchase shares of our common stock from purchasers of the Convertible Notes in privately negotiated repurchase transactions, which is included as a Financing Activity in Repurchase of Common Stock as discussed below, and approximately $12.9 million of the net proceeds to pay the cost of the Convertible Note Hedges, after such cost was partially offset by the proceeds from the issuance of the Warrants, as discussed below. See Footnote No. 10, “Debt,” to our Financial Statements for additional information on our Convertible Notes transaction.

Purchase of Convertible Note Hedges / Proceeds from Issuance of Warrants

In connection with the offering of the Convertible Notes, we entered into Convertible Note Hedges with respect to our common stock, covering approximately 1.55 million shares of our common stock at a cost of $33.2 million. Concurrently, we sold Warrants to acquire approximately 1.55 million shares of our common stock at an initial strike price of $176.68 per share and received aggregate proceeds of $20.3 million. Taken together, the Convertible Note Hedges and the Warrants are generally expected to reduce the potential dilution to our common stock (or, in the event the conversion is settled in cash, to reduce our cash payment obligation) in the event that at the time of any conversion of Convertible Notes our stock price exceeds the conversion price under the Convertible Notes, and to effectively increase the adjusted conversion price, which was $148.13 per share as of December 31, 2017 (or a conversion premium of 30 percent) to $176.68 per share (or a conversion premium of 55 percent). See Footnote No. 10, “Debt,” to our Financial Statements for additional information on our Convertible Notes transaction.

Proceeds from Vacation Ownership Inventory Arrangement

In connection with our pursuit of growth opportunities in ways that optimize the timing of our capital investments, including working with third parties to develop new inventory or convert previously built units to be sold to us close to when we need such inventory, during the first quarter of 2015 we sold real property located in Marco Island, Florida to a third-party developer. In accordance with our agreement with the third-party developer, we are obligated to repurchase the completed property from the developer contingent upon the property meeting our brand standards, provided that the third-party developer has not sold the property to another party. As discussed in Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements, we received cash proceeds of $5.4 million upon the sale of this real property. In accordance with the authoritative guidance on accounting for sales of real estate, our conditional obligation to repurchase the property constitutes continuing involvement and thus we were unable to account for this transaction as a sale, and as such have recorded these proceeds as a Financing Activity.

Debt Issuance Costs

In 2017, we paid $15.3 million of debt issuance costs, which included $7.2 million associated with the initial purchaser discounts related to the Convertible Notes, $4.8 million associated with the 2017 vacation ownership notes receivable ~~including $122~~securitization, $2.1 million ~~of vacation ownership notes receivable that were previously securitized in~~related to the ~~Warehouse~~new $250.0 million Revolving Corporate Credit Facility. In connection with the securitization, investors purchased in a private placement $238 million in vacation ownership loan-backed notes from the Marriott Vacation Club Owner Trust 2012-1 (the “2012-1 Trust”). Two classes of vacation ownership loan backed notes were issued by the 2012-1 Trust: $210 million of Class A NotesFacility and $28 million of Class B Notes. The Class A Notes have an interest rate of 2.51 percent and the Class B Notes have an interest rate of 3.50 percent, for an overall weighted average interest rate of 2.625 percent.

~~Debt Issuance Costs~~

~~Debt issuance costs in 2014 included $4 million associated with the two 2014 vacation ownership notes receivable securitizations and $3~~$1.2 million associated with the amendment and ~~restatement~~extension of the Warehouse Credit ~~Facility and the Revolving Corporate Credit Facility during 2014. Debt~~Facility.

In 2016, we incurred $4.1 million of debt issuance costs, ~~in 2013~~which included $4$3.9 million associated with the ~~2013~~2016 vacation ownership notes receivable securitization and $0.2 million related to the amendment of the Previous Revolving Corporate Credit Facility.

In 2015, we incurred $5.3 million of debt issuance costs, which included $4.2 million associated with the 2015 vacation ownership notes receivable securitization and a combined $1$1.1 million related to the renewal of the Warehouse Credit Facility and the amendment of the ~~Revolving Corporate Credit~~

Facility during the year. Debt issuance costs in 2012 included $4 million associated with the 2012 vacation ownership notes receivable securitization and $3 million associated with the amendment and restatement of both the Warehouse Credit Facility and thePrevious Revolving Corporate Credit Facility during ~~2012.~~

the year.

Share Repurchase Program

~~During 2014,~~

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



($ in thousands, except per share amounts)	Number of Shares Repurchased	Cost of Shares Repurchased		Average Price Paid per Share
As of December 30, 2016	9,672,629	$	608,439	$	62.90
For the year ended December 31, 2017	767,876	88,305		115.00
As of December 31, 2017	10,440,505	$	696,744	$	66.73

As discussed above, we ~~repurchased 3,491,702~~used $40.1 million of the proceeds from the sale of the Convertible Notes to repurchase 351,900 shares of our common stock ~~for $203 million, at an average price per share of $58.31,~~ under our existing share repurchase program. See Footnote No. ~~13,~~10, “Debt,” to our Financial Statements for additional information on our Convertible Notes transaction and Footnote No. 11, “Shareholders’ Equity,” to our Financial Statements for further information related to ~~the~~our share repurchase program.

~~Dividends~~

Redemption of Mandatorily Redeemable Preferred Stock of Consolidated Subsidiary

During 2016, we elected to exercise our option to redeem $40.0 million of gross mandatorily redeemable preferred stock of a consolidated subsidiary that we were not required to redeem until October ~~14, 2014, our Board~~2021. We redeemed the preferred stock on October 26, 2016 at par, plus accrued and unpaid dividends, using cash on hand.

Dividends

We distributed cash dividends to holders of ~~Directors declared a~~common stock for the year ended December 31, 2017 as follows:



Declaration Date	Shareholder Record Date	Distribution Date	Dividend per Share
December 9, 2016	December 22, 2016	January 4, 2017	$0.35
February 9, 2017	February 23, 2017	March 9, 2017	$0.35
May 11, 2017	May 25, 2017	June 8, 2017	$0.35
September 7, 2017	September 21, 2017	October 5, 2017	$0.35

We currently expect to pay quarterly dividend of $0.25 per share to shareholders of record as of October 28, 2014, which we paid on November 12, 2014. On February 12, 2015, our Board of Directors declared a quarterly dividend of $0.25 per share to be paid on March 11, 2015, to shareholders of record as of February 26, 2015. Anycash 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 Revolving Corporate Credit Facility contains 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 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.~~

future at the same rate or at all.

Contractual Obligations and Off-Balance Sheet Arrangements

The following table summarizes our contractual obligations as of ~~year-end 2014:~~

Payments Due by Period
($ in millions) Total   Less Than
1 Year   1-3 Years     3-5 Years     More Than
5 Years
Contractual Obligations

Debt⁽¹⁾
$ 805    $ 138    $ 220    $ 163    $ 284
Mandatorily redeemable preferred stock of consolidated subsidiary⁽¹⁾
74    5    9    11    49
Liability for Marriott Rewards customer loyalty program⁽²⁾
93    27    66    —    —
Operating leases
78    14    23    15    26
Purchase obligations⁽³⁾
253    189    55    5    4
Other long-term obligations
9    7    2    —    —

Total contractual obligations
$       1,312    $     380    $     375    $     194    $     363

December 31, 2017:



			Payments Due by Period
($ in thousands)	Total		Less Than 1 Year		1 - 3 Years		3 - 5 Years		More Than 5 Years
Contractual Obligations
Debt⁽¹⁾	$	1,260,238	$	150,102	$	257,050	$	449,138	$	403,948
Operating leases	96,222		17,451		27,249		16,036		35,486
Purchase obligations⁽²⁾	452,208		167,560		282,035		1,897		716
Capital lease obligations⁽³⁾	7,582		361		7,221		—		—
Other long-term obligations	1,662		1,662		—		—		—
Total contractual obligations	$	1,817,912	$	337,136	$	573,555	$	467,071	$	440,150

_________________________


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


⁽²⁾	~~Includes interest accretion.~~

⁽³⁾

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 herein represent expected funding obligations under such contracts. Amounts reflected on the consolidated balance sheet as accounts payable and accrued liabilities are excluded from the table above.

We have joined in Marriott International’s U.S. Federal tax consolidated filing for periods up to the date of the Spin-Off. Although we do not anticipate that a significant impact on our unrecognized tax benefit balance will occur during the next fiscal year as a result of audits by other tax jurisdictions, the amount of our liability for unrecognized tax benefits could change as a result of these audits. See Footnote No. 2, “Income Taxes,” to our Financial Statements for additional information.

We have historically issued guarantees to certain lenders in connection with the provision of third-party financing for our sales of vacation ownership products. The terms of the guarantees generally require us to fund if the purchaser fails to pay under the terms of its note payable. We are entitled to recover any funding to third-party lenders related to these guarantees through reacquisition and resale of the vacation ownership product.

Our commitments under these guarantees expire as the notes mature or are repaid. Our maximum potential exposure under such guarantees as of January 2, 2015 in the Asia Pacific and North America segments was $8 million and $3 million, respectively. The underlying debt to third-party lenders will mature between 2015 and 2022.

For additional information on these guarantees and the circumstances under which they were entered into, see the “Guarantees” caption within Footnote No. 9, “Contingencies and Commitments,” to our Financial Statements.

⁽³⁾
Includes interest.

In the normal course of our resort management business, we enter into purchase commitments with property owners’ associations to manage the daily operating needs of our resorts. Since we are reimbursed for these commitments from the cash flows of the resorts, these obligations have minimal impact on our net income and cash flow.

Recent Accounting Pronouncements

See Footnote No. 1, “Summary of Significant Accounting Policies,” to our Financial Statements for ~~a discussion of recently issued~~information regarding accounting ~~pronouncements, including information on~~standards adopted in 2017 and other new accounting standards ~~and the future adoption~~that were issued but not effective as of ~~such standards,~~

December 31, 2017.

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.

Please see Footnote No. 1, “Summary of Significant Accounting Policies,” to our Financial Statements for further information on accounting policies that we believe to be critical, including our policies on:

Revenue recognition for vacation ownership products, including how we recognize revenue using the percentage-of-completion method of accounting;

~~Marriott Rewards customer loyalty program~~~~, including how we determine our redemption obligation for Marriott Rewards Points issued prior to 2012;~~

Inventories and cost of vacation ownership products, which requires estimation of future revenues, including incremental revenues from future price increases or from the sale of reacquired inventory resulting from defaulted vacation ownership notes receivable, and development costs to apply a relative sales value method specific to the vacation ownership industry and how we evaluate the fair value of our vacation ownership inventory;

Valuation of property and equipment, including when we record impairment losses;

Loan loss reserves for vacation ownership notes receivable, including information on how we estimate reserves for losses;

Loss contingencies, including information on how we account for loss contingencies; and

Income taxes, including information on how we determine our current year amounts payable or refundable, as well as our estimate of deferred tax assets and liabilities.

~~Item 7A.~~

~~Quantitative and Qualitative Disclosures About Market Risk~~

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk.

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. We do not foresee any significant changes in either our exposure to fluctuations in interest rates or currency rates or how we manage such exposure in the future.

Our Warehouse Credit Facility provides variable rate financing when we place consumer loans we originate primarily in support of our North American business into that facility. We may manage the interest rate risk of this facility by entering into derivative contracts such as swaps or caps that are traditionally utilized in warehouse funding arrangements. We intend to securitize vacation ownership notes receivable in the ABS market at least once per year. For these types of transactions or arrangements, we expect to secure fixed rate funding to match our fixed rate vacation ownership notes receivable. However, if we have floating rate debt in the future, we plan to hedge the interest rate risk using derivative instruments. Changes in interest rates may impact the fair value of our fixed rate long-term debt.

In September 2017, we issued $230 million of Convertible Notes. Holders may convert the Convertible Notes prior to maturity upon the occurrence of certain circumstances. Upon conversion, holders of the Convertible Notes will receive cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.

Concurrently with the issuance of the Convertible Notes, we entered into Convertible Note Hedges and Warrants. These separate transactions were intended to reduce the potential economic dilution from the conversion of the Convertible Notes.

The Convertible Notes have fixed annual interest rates of 1.50 percent and, therefore, we do not have economic interest rate exposure on our Convertible Notes. However, the value of the Convertible Notes is exposed to interest rate risk. Generally, the fair market value of the Convertible Notes will increase as interest rates fall and decrease as interest rates rise. In addition, the fair value of the Convertible Notes is affected by our stock price. The net carrying value of the Convertible Notes was $192.5 million as of December 31, 2017. This represents the liability component of the principal balance of the Convertible Notes, net of unamortized debt discount and issuance costs, as of December 31, 2017. The total estimated fair value of the Convertible Notes at December 31, 2017 was $259.9 million, and the fair value was determined based on the quoted market price of the Convertible Notes in an over-the-counter market as of the last day of trading for the quarter ended December 31, 2017. For further information, see Footnote No. 4, “Financial Instruments” and Footnote No. 10, “Debt,” to our Financial Statements.

From time to time, we may use derivative instruments to reduce market risks due to changes in interest rates and currency exchange rates, including interest rate derivatives that we may be required to enter into as a condition of the Warehouse Credit Facility. As of ~~January 2, 2015,~~December 31, 2017, we were not party to any material derivative interest rates or hedges.

Please see Footnote No. 1, “Summary of Significant Accounting Policies,” to our Financial Statements for additional information associated with derivative instruments.

The following table sets forth the scheduled maturities and the total fair value as of year-end ~~2014~~2017 for our financial instruments that are impacted by market risks:

($ in millions) Maturities by Period
Average
Interest
Rate   2015     2016     2017     2018     2019   Thereafter Total
  Carrying
Value Total Fair
Value
    Assets – Maturities represent expected principal receipts; fair values represent assets

Vacation ownership notes receivable — non-securitized
11.6% $ 47 $ 25 $ 20 $ 14    $ 11    $ 49    $ 166    $ 172
Vacation ownership notes receivable — securitized
12.8% $ 112 $ 109 $ 102 $ 87    $ 77    $ 264    $ 751    $ 909
    Liabilities – Maturities represent expected principal receipts; fair values represent liabilities

Non-recourse debt associated with vacation ownership notes receivable securitizations
3.1% $ (116)    $ (109)    $ (80)    $ (72)    $ (72)    $ (259)    $ (708)    $ (713)
Mandatorily redeemable preferred stock of consolidated subsidiary
12.0% $     —    $     —    $     —    $     —    $     —    $ (40)    $ (40)    $ (44)
Other debt
8.3% $     —    $     —    $     —    $     —    $     —    $ (3)    $ (3)    $ (3)



($ in thousands)	Average Interest Rate	Maturities by Period
($ in thousands)	Average Interest Rate	2018			2019			2020			2021			2022			Thereafter			Total Carrying Value			Total Fair Value
Assets – Maturities represent expected principal receipts; fair values represent assets
Vacation ownership notes receivable — non-securitized	11.5%	$	48,846		$	35,253		$	30,567		$	26,127		$	23,953		$	139,554		$	304,300		$	324,661
Vacation ownership notes receivable — securitized	12.6%	$	94,079		$	90,719		$	92,089		$	93,351		$	92,191		$	352,902		$	815,331		$	956,292
Liabilities – Maturities represent expected principal payments; fair values represent liabilities
Non-recourse debt associated with vacation ownership notes receivable securitizations	2.5%	$	(95,768	)	$	(92,273	)	$	(93,553	)	$	(94,503	)	$	(93,808	)	$	(375,226	)	$	(845,131	)	$	(836,028	)
Convertible debt	4.7%	$	—		$	—		$	—		$	—		$	(230,000	)	$	—		$	(230,000	)	$	(259,884	)

Item 8. Financial Statements and Supplementary Data

The following financial information is included on the pages indicated.

~~Item 8.~~

	Page
Audited Consolidated Financial Statements
Management’s Report on Internal Control Over Financial Reporting	74
Report of Independent Registered Public Accounting Firm - Internal Control Over Financial Reporting	75
Report of Independent Registered Public Accounting Firm - Financial Statements	76
Consolidated Statements of Income	77
Consolidated Statements of Comprehensive Income	78
Consolidated Balance Sheets	79
Consolidated Statements of Cash Flows	80
Consolidated Statements of Shareholders’ Equity	82
Notes to Consolidated Financial Statements	83
1. Summary of Significant Accounting Policies	83
2. Income Taxes	92
3. Vacation Ownership Notes Receivable	95
4. Financial Instruments	97
5. Acquisitions and ~~Supplementary Data~~Dispositions	99
6. Earnings per Share	101
7. Inventory	102
8. Property and Equipment	102
9. Contingencies and Commitments	103
10. Debt	106
11. Shareholders’ Equity	110
12. Share-Based Compensation	111
13. Variable Interest Entities	113
14. Business Segments	115
15. Quarterly Results (Unaudited)	117
16. Subsequent Events	117
17. Adoption of ASC 606 Effective January 1, 2018	118

MANAGEMENT’S REPORT ON

INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Marriott Vacations Worldwide Corporation (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurance on the reliability of financial reporting and the preparation of the consolidated financial statements ~~required~~in accordance with U.S. generally accepted accounting principles.

The Company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the Company’s transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (3) provide reasonable assurance on prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In connection with the preparation of the Company’s annual consolidated financial statements, management has undertaken an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”).

Based on this ~~item are contained~~assessment, management has concluded that, applying the COSO criteria, as of December 31, 2017, the Company’s internal control over financial reporting was effective to provide reasonable assurance of the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements included in this report, has issued a report on ~~pages F-2 through F-49~~the effectiveness of the Company’s internal control over financial reporting, a copy of which appears on the next page of this Annual ~~Report.~~

Report on Form 10-K.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Marriott Vacations Worldwide Corporation

Opinion on Internal Control over Financial Reporting

We have audited Marriott Vacations Worldwide Corporation’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Marriott Vacations Worldwide Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the accompanying consolidated balance sheets of the Company as of December 31, 2017 and December 30, 2016, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three fiscal years in the period ended December 31, 2017, and the related notes and our report dated February 27, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

/s/ Ernst & Young LLP

Certified Public Accountants

Orlando, Florida

February 27, 2018

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Marriott Vacations Worldwide Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Marriott Vacations Worldwide Corporation (the Company) as of December 31, 2017 and December 30, 2016, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three fiscal years in the period ended December 31, 2017, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and December 30, 2016, and the results of its operations and its cash flows for each of the three fiscal years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 27, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

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

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

/s/ Ernst & Young LLP

Certified Public Accountants

We have served as the Company’s auditor since 2011.

Orlando, Florida

February 27, 2018

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

Fiscal Years 2017, 2016 and 2015

(In thousands, except per share amounts)



	2017			2016			2015
REVENUES
Sale of vacation ownership products	$	727,940		$	637,503		$	675,329
Resort management and other services	306,196			300,821			292,561
Financing	134,906			126,126			124,033
Rental	322,902			312,071			312,997
Cost reimbursements	460,001			431,965			405,875
TOTAL REVENUES	1,951,945			1,808,486			1,810,795
EXPENSES
Cost of vacation ownership products	177,813			155,093			204,299
Marketing and sales	408,715			353,295			330,599
Resort management and other services	172,137			174,311			180,072
Financing	17,951			18,631			21,208
Rental	281,352			260,752			259,729
General and administrative	110,225			104,833			106,104
Litigation settlement	4,231			(303		)	(232		)
Organizational and separation related	—			—			1,174
Consumer financing interest	25,217			23,685			24,658
Royalty fee	63,021			60,953			58,982
Impairment	—			—			324
Cost reimbursements	460,001			431,965			405,875
TOTAL EXPENSES	1,720,663			1,583,215			1,592,792
Gains and other income, net	5,772			11,201			9,557
Interest expense	(9,572		)	(8,912		)	(12,810		)
Other	(1,599		)	(4,632		)	(8,253		)
INCOME BEFORE INCOME TAXES	225,883			222,928			206,497
Benefit (provision) for income taxes	895			(85,580		)	(83,698		)
NET INCOME	$	226,778		$	137,348		$	122,799

EARNINGS PER SHARE
Earnings per share - Basic	$	8.38		$	4.93		$	3.90
Earnings per share - Diluted	$	8.18		$	4.83		$	3.82

CASH DIVIDENDS DECLARED PER SHARE	$	1.45		$	1.25		$	1.05

See Notes to Consolidated Financial Statements

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Fiscal Years 2017, 2016 and 2015

(In thousands)



	2017		2016			2015
Net income	$	226,778	$	137,348		$	122,799
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	11,195		(5,589		)	(5,673		)
Derivative instrument adjustment, net of tax	90		(332		)	—
Total other comprehensive income (loss), net of tax	11,285		(5,921		)	(5,673		)
COMPREHENSIVE INCOME	$	238,063	$	131,427		$	117,126

See Notes to Consolidated Financial Statements

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED BALANCE SHEETS

Fiscal Year-End 2017 and 2016

(In thousands, except share and per share data)



	2017			2016
ASSETS
Cash and cash equivalents	$	409,059		$	147,102
Restricted cash (including $32,321 and $27,525 from VIEs, respectively)	81,553			66,000
Accounts and contracts receivable, net (including $5,639 and $4,865 from VIEs, respectively)	154,174			161,733
Vacation ownership notes receivable, net (including $815,331 and $717,543 from VIEs, respectively)	1,119,631			972,311
Inventory	716,533			712,536
Property and equipment	252,727			202,802
Other (including $13,708 and $0 from VIEs, respectively)	172,516			128,935
TOTAL ASSETS	$	2,906,193		$	2,391,419

LIABILITIES AND EQUITY
Accounts payable	$	145,405		$	124,439
Advance deposits	63,062			55,542
Accrued liabilities (including $701 and $584 from VIEs, respectively)	168,591			147,469
Deferred revenue	98,286			95,495
Payroll and benefits liability	111,885			95,516
Deferred compensation liability	74,851			62,874
Debt, net (including $845,131 and $738,362 from VIEs, respectively)	1,095,213			737,224
Other	13,155			15,873
Deferred taxes	90,725			149,168
TOTAL LIABILITIES	1,861,173			1,483,600
Contingencies and Commitments (Note 9)
Preferred stock — $.01 par value; 2,000,000 shares authorized; none issued or outstanding	—			—
Common stock — $.01 par value; 100,000,000 shares authorized; 36,861,843 and 36,633,868 shares issued, respectively	369			366
Treasury stock — at cost; 10,400,547 and 9,643,562 shares, respectively	(694,233		)	(606,631		)
Additional paid-in capital	1,188,538			1,162,283
Accumulated other comprehensive income	16,745			5,460
Retained earnings	533,601			346,341
TOTAL EQUITY	1,045,020			907,819
TOTAL LIABILITIES AND EQUITY	$	2,906,193		$	2,391,419

The abbreviation VIEs above means Variable Interest Entities.

See Notes to Consolidated Financial Statements

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

Fiscal Years 2017, 2016 and 2015

(In thousands)



	2017			2016			2015
OPERATING ACTIVITIES
Net income	$	226,778		$	137,348		$	122,799
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	21,494			21,044			22,217
Amortization of debt discount and issuance costs	9,908			6,509			5,586
Provision for loan losses	50,075			47,292			33,083
Share-based compensation	16,286			13,949			14,142
Loss (gain) on disposal of property and equipment, net	1,605			(11,201		)	(9,557		)
Deferred income taxes	(66,134		)	38,834			28,162
Net change in assets and liabilities:
Accounts and contracts receivable	5,695			(30,055		)	(24,189		)
Notes receivable originations	(467,311		)	(356,859		)	(311,195		)
Notes receivable collections	270,516			253,622			270,170
Inventory	42,661			4,301			72,158
Purchase of vacation ownership units for future transfer to inventory	(33,594		)	—			—
Purchase of operating properties for future conversion to inventory	—			—			(61,554		)
Other assets	(21,318		)	11,092			(10,648		)
Accounts payable, advance deposits and accrued liabilities	50,754			(18,698		)	32,841
Liability for Marriott Rewards customer loyalty program	—			(37		)	(89,251		)
Deferred revenue	1,837			17,664			(5,289		)
Payroll and benefit liabilities	16,053			(6,933		)	11,380
Deferred compensation liability	11,976			11,843			9,354
Other liabilities	(211		)	1,863			2,974
Other, net	5,102			(199		)	5,231
Net cash provided by operating activities	142,172			141,379			118,414

INVESTING ACTIVITIES
Capital expenditures for property and equipment (excluding inventory)	(26,297		)	(34,770		)	(35,735		)
Purchase of company owned life insurance	(12,100		)	—			—
Purchase of operating property to be sold	—			—			(47,658		)
Dispositions, net	33			68,953			20,644
Net cash (used in) provided by investing activities	(38,364		)	34,183			(62,749		)

Continued

See Notes to Consolidated Financial Statements

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

Fiscal Years 2017, 2016 and 2015

(In thousands)



	2017			2016			2015
FINANCING ACTIVITIES
Borrowings from securitization transactions	400,260			376,622			255,000
Repayment of debt related to securitization transactions	(293,491		)	(322,864		)	(278,427		)
Borrowings from Revolving Corporate Credit Facility	87,500			85,000			—
Repayment of Revolving Corporate Credit Facility	(87,500		)	(85,000		)	—
Proceeds from issuance of Convertible Notes	230,000			—			—
Purchase of Convertible Note Hedges	(33,235		)	—			—
Proceeds from issuance of Warrants	20,332			—			—
Proceeds from vacation ownership inventory arrangement	—			—			5,375
Debt issuance costs	(15,347		)	(4,065		)	(5,335		)
Repurchase of common stock	(88,305		)	(177,830		)	(201,380		)
Redemption of mandatorily redeemable preferred stock of consolidated subsidiary	—			(40,000		)	—
Payment of dividends	(38,028		)	(34,195		)	(23,793		)
Payment of withholding taxes on vesting of restricted stock units	(10,947		)	(4,021		)	(10,894		)
Other, net	(502		)	194			327
Net cash provided by (used in) financing activities	170,737			(206,159		)	(259,127		)

Effect of changes in exchange rates on cash, cash equivalents and restricted cash	2,965			(4,813		)	(4,448		)
Increase (decrease) in cash, cash equivalents and restricted cash	277,510			(35,410		)	(207,910		)
Cash, cash equivalents and restricted cash, beginning of year	213,102			248,512			456,422
Cash, cash equivalents and restricted cash, end of year	$	490,612		$	213,102		$	248,512

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Dividends payable	$	10,589		$	9,480		$	8,898
Non-cash issuance of debt in connection with acquisition of vacation ownership units	63,558			—			—
Non-cash transfer from Inventory to Property and equipment	—			9,741			30,985
Non-cash transfer of debt	—			2,985			—
Property acquired via capital lease	—			7,221			—

See Notes to Consolidated Financial Statements

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Fiscal Years 2017, 2016 and 2015

(In thousands)



	Common Shares Outstanding		Common Stock		Treasury Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Income			Retained Earnings			Total Equity
BALANCE AT YEAR-END 2014	32,093		$	361	$	(229,229	)	$	1,137,785		$	17,054		$	153,732		$	1,079,703
Net income	—		—		—			—			—			122,799			122,799
Foreign currency translation adjustments	—		—		—			—			(5,673		)	—			(5,673		)
Amounts related to share-based compensation	304		3		—			12,955			—			—			12,958
Adjustment to reclassification of Marriott International investment to Additional paid-in capital	—		—		—			(9		)	—			—			(9		)
Repurchase of common stock	(2,857	)	—		(201,380		)	—			—			—			(201,380		)
Dividends	—		—		—			—			—			(32,691		)	(32,691		)
Employee stock plan issuance	10		—		619			—			—			(59		)	560
BALANCE AT YEAR-END 2015	29,550		$	364	$	(429,990	)	$	1,150,731		$	11,381		$	243,781		$	976,267
Net income	—		—		—			—			—			137,348			137,348
Foreign currency translation adjustments	—		—		—			—			(5,589		)	—			(5,589		)
Derivative instrument adjustment	—		—		—			—			(332		)	—			(332		)
Amounts related to share-based compensation	240		2		—			11,424			—			—			11,426
Repurchase of common stock	(2,819	)	—		(177,830		)	—			—			—			(177,830		)
Dividends	—		—		—			—			—			(34,788		)	(34,788		)
Employee stock plan issuance	19		—		1,189			128			—			—			1,317
BALANCE AT YEAR-END 2016	26,990		$	366	$	(606,631	)	$	1,162,283		$	5,460		$	346,341		$	907,819
Impact of adoption of ASU 2016-09	—		—		—			371			—			(371		)	—
OPENING BALANCE 2017	26,990		$	366	$	(606,631	)	$	1,162,654		$	5,460		$	345,970		$	907,819
Net income	—		—		—			—			—			226,778			226,778
Foreign currency translation adjustments	—		—		—			—			11,195			—			11,195
Derivative instrument adjustment	—		—		—			—			90			—			90
Amounts related to share-based compensation	228		3		—			5,705			—			—			5,708
Repurchase of common stock	(768	)	—		(88,305		)	—			—			—			(88,305		)
Dividends	—		—		—			—			—			(39,147		)	(39,147		)
Equity component of convertible notes, net of issuance costs	—		—		—			32,573			—			—			32,573
Purchase of convertible note hedges	—		—		—			(33,235		)	—			—			(33,235		)
Issuance of warrants	—		—		—			20,332			—			—			20,332
Employee stock plan issuance	11		—		703			509			—			—			1,212
BALANCE AT YEAR-END 2017	26,461		$	369	$	(694,233	)	$	1,188,538		$	16,745		$	533,601		$	1,045,020

See Notes to Consolidated Financial Statements

MARRIOTT VACATIONS WORLDWIDE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our Business

Marriott Vacations Worldwide Corporation (“we,” “us,” “Marriott Vacations Worldwide,” or the “Company,” which includes our consolidated subsidiaries except where the context of the reference is to a single corporate entity) is the exclusive worldwide developer, marketer, seller and manager of vacation ownership and related products under the Marriott Vacation Club and Grand Residences by Marriott brands. In 2016, we introduced 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, and we have the non-exclusive right to develop, market and sell whole ownership residential products under The Ritz-Carlton Residences brand. The Ritz-Carlton Hotel Company, L.L.C. (“The Ritz-Carlton Hotel Company”), a subsidiary of Marriott International, Inc. (“Marriott International”), provides on-site management for Ritz-Carlton branded properties.

Our business is grouped into three reportable segments: North America, Asia Pacific and Europe. As of December 31, 2017, our portfolio consisted of over 65 properties in the United States and nine other countries and territories. We generate most of our revenues from four primary sources: selling vacation ownership products; managing our resorts; financing consumer purchases of vacation ownership products; and renting vacation ownership inventory.

Our Spin-Off from Marriott International

On November 21, 2011, the spin-off of Marriott Vacations Worldwide from Marriott International (the “Spin-Off”) was completed pursuant to a Separation and Distribution Agreement (the “Separation and Distribution Agreement”) between Marriott Vacations Worldwide and Marriott International. In connection with the Spin-Off, we entered into several agreements that govern the ongoing relationship between Marriott Vacations Worldwide and Marriott International.

Principles of Consolidation and Basis of Presentation

The consolidated 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. Intercompany accounts and transactions between consolidated companies have been eliminated in consolidation. The consolidated financial statements reflect our financial position, results of operations and cash flows as prepared in conformity with United States Generally Accepted Accounting Principles (“GAAP”).

In order to make this report easier to read, we refer throughout to (i) our Consolidated Financial Statements as our “Financial Statements,” (ii) our Consolidated Statements of Income as our “Income Statements,” (iii) our Consolidated Balance Sheets as our “Balance Sheets,” and (iv) our 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 Consolidated Financial Statements, unless otherwise noted. We use certain other terms that are defined within these Financial Statements.

Unless otherwise specified, each reference to a particular year in these Financial Statements means the fiscal year ended on the date shown in the following table, rather than the corresponding calendar year. Beginning with our 2017 fiscal year, we changed our financial reporting cycle to a calendar year-end and end-of-month quarterly reporting cycle. Accordingly our 2017 fiscal year began on December 31, 2016 (the day after the end of the 2016 fiscal year) and ended on December 31, 2017. Our future fiscal years will begin on January 1 and end on December 31. As a result of the change in our financial reporting cycle, our 2017 fiscal year had two more days of activity than our 2016 and 2015 fiscal years. We have not restated, and do not plan to restate, historical results.



Fiscal Year	Fiscal Year-End Date	Number of Days
2017	December 31, 2017	366
2016	December 30, 2016	364
2015	January 1, 2016	364

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, cost of vacation ownership products, inventory valuation, property and equipment valuation, loan loss reserves, income taxes and loss contingencies. Accordingly, actual amounts may differ from these estimated amounts.

We have reclassified certain prior year amounts to conform to our 2017 presentation.

Revenue Recognition

Sale of Vacation Ownership Products

We market and sell real estate and in substance real estate in our three reportable segments. Real estate and in substance real estate include deeded vacation ownership products, deeded beneficial interests, rights to use real estate, and other interests in trusts that solely hold real estate and deeded whole ownership units in residential buildings. Within the North America segment, we also market and sell residential units at certain properties on a limited basis.

Sales of vacation ownership products may be made for cash or we may provide financing. We are not providing financing on sales of whole ownership products. Except for revenue from the sale of residential stand-alone structures, which we recognize upon transfer of title to a third party, we recognize revenue under the percentage-of-completion method when all of the following exist or are true: the customer has executed a binding sales contract, the statutory rescission period has expired (after which time the purchasers are not entitled to a refund except for non-delivery by us), we have deemed the receivable collectible and the remainder of our obligations are substantially completed. In addition, before we recognize any revenues, the purchaser must have met the initial investment criteria and, as applicable, the continuing investment criteria. A purchaser has met the initial investment criteria when we receive a minimum down payment. In accordance with the authoritative guidance for accounting for real estate time-sharing transactions, we must also take into consideration the fair value of certain incentives provided to the purchaser when assessing the adequacy of the purchaser’s initial investment. In those cases where we provide financing to the purchaser, the purchaser must be obligated to remit monthly payments under financing contracts that represent the purchaser’s continuing investment.

Resort Management and Other Services Revenues

Our resort management and other services revenues consist primarily of ancillary revenues and management fees.

Ancillary revenues consist of goods and services that are sold or provided by us at restaurants, golf courses and other retail and service outlets located at our resorts. We recognize ancillary revenue when goods have been provided and/or services have been rendered. Ancillary revenues recorded as a component of Resort management and other services revenues were $118.2 million in 2017, $124.2 million in 2016 and $125.2 million in 2015, as reflected on our Income Statements.

We provide day-to-day-management services, including housekeeping services, operation of reservation systems, maintenance and certain accounting and administrative services for property owners’ associations. We receive compensation for these management services; this is typically based on either a percentage of the budgeted costs to operate the resorts or a fixed fee arrangement. We recognize revenues when earned in accordance with the terms of the contract. Management fee revenues recorded as a component of Resort management and other services revenues were $87.8 million in 2017, $83.3 million in 2016 and $77.6 million in 2015, as reflected on our Income Statements.

Resort management and other services revenues also include additional fees for services we provide to our property owners’ associations, as well as annual fees, club dues, settlement fees from the sale of vacation ownership products, and certain transaction-based fees from owners and other third parties, including external exchange service providers with which we are associated. We recognize fee revenues when services have been rendered. Fee revenues included in Resort management and other services revenues were $79.0 million in 2017, $75.7 million in 2016 and $72.4 million in 2015, as reflected on our Income Statements.

Financing Revenues

We offer consumer financing as an option to qualifying customers purchasing vacation ownership products, which is collateralized by the underlying vacation ownership products. We recognize interest income on an accrual basis. The contractual terms of the financing agreements require that the contractual level of annual principal payments be sufficient to amortize the loan over a customary period for the vacation ownership product being financed, which is generally ten years. Generally, payments commence under the financing contracts 30 to 60 days after closing. We record an estimate of uncollectible amounts at the time of the sale with a charge to the provision for loan losses, which we classify as a reduction of Sale of vacation ownership products on our Income Statements. Revisions to estimates of uncollectible amounts also impact the provision for loan losses and can increase or decrease revenue. We earn interest income from the financing arrangements on the principal balance outstanding over the life of the arrangement and record that interest income in Financing revenues on our Income Statements.

Financing revenues include certain annual and transaction-based fees we charge to owners and other third parties for services. We recognize fee revenues when services have been rendered. Fee revenues included in Financing revenues were $6.9 million in 2017, $6.0 million in 2016 and $6.0 million in 2015, as reflected on our Income Statements.

Rental Revenues

We record rental revenues when occupancy has occurred or, in the case of unused prepaid rentals, upon forfeiture. We also recognize rental revenue from the utilization of plus points under the Marriott Vacation Club Destinations ™ (“MVCD”) program when those points are redeemed for rental stays at one of our resorts or in the Explorer Collection, or upon expiration of the points.

Cost Reimbursements

Cost reimbursements include direct and indirect costs that property owners’ associations reimburse to us. In accordance with the accounting guidance for “gross versus net” presentation, we record these revenues on a gross basis. We recognize cost reimbursements when we incur the related reimbursable costs. These costs primarily consist of payroll and payroll related expenses for management of the property owners’ associations and other services we provide where we are the employer. Cost reimbursements consist of actual expenses with no added margin.

Inventory

Our inventory consists primarily of completed vacation ownership products, vacation ownership products under construction and land held for future vacation ownership product development. We carry our inventory at the lower of (1) cost, including costs of improvements and amenities incurred subsequent to acquisition, capitalized interest and real estate taxes plus other costs incurred during construction, or (2) estimated fair value, less costs to sell, which can result in impairment charges and/or recoveries of previous impairments.

We account for vacation ownership inventory and cost of vacation ownership products in accordance with the authoritative guidance for accounting for real estate time-sharing transactions, which defines a specific application of the relative sales value method for reducing vacation ownership inventory and recording cost of sales as described in our policy for revenue recognition for vacation ownership products. Also, pursuant to the guidance for accounting for real estate time-sharing transactions, we do not reduce inventory for cost of vacation ownership products related to anticipated credit losses (accordingly, no adjustment is made when inventory is reacquired upon default of the related receivable). These standards provide for changes in estimates within the relative sales value calculations to be accounted for as real estate inventory true-ups, which we refer to as product cost true-up activity, and are recorded in Cost of vacation ownership product expenses on the Income Statements to retrospectively adjust the margin previously recorded subject to those estimates. For 2017, 2016 and 2015, product cost true-up activity relating to vacation ownership products increased carrying values of inventory by $0.3 million, $14.8 million and $7.3 million, respectively.

For residential real estate projects, we allocate costs to individual residences in the projects based on the relative estimated sales value of each residence in accordance with Accounting Standards Codification (“ASC”) 970, “Real Estate—General,” which defines the accounting for costs of real estate projects. Under this method, we reduce the allocated cost of a unit from inventory and recognize that cost as cost of sales when we recognize the related sale. Changes in estimates within the relative sales value calculations for residential products (similar to condominiums) are accounted for as prospective adjustments to cost of vacation ownership products.

Capitalization of Costs

We capitalize costs clearly associated with the acquisition of real estate when a transaction is accounted for as an asset acquisition under ASC 805, “Business Combinations”(“ASC 805”). Alternatively, when acquired real estate constitutes a business under ASC 805, transaction costs are expensed as incurred. We capitalize interest and certain salaries and related costs incurred in connection with the following: (1) development and construction of sales centers; (2) internally developed software; and (3) development and construction projects for our real estate inventory. We capitalize costs clearly associated with the development and construction of a real estate project when it is probable that we will acquire a property. We capitalize salary and related costs only to the extent they directly relate to the project. We capitalize interest expense, taxes and insurance costs when activities that are necessary to get the property ready for its intended use are underway. We cease capitalization of costs during prolonged gaps in development when substantially all activities are suspended or when projects are considered substantially complete. Capitalized salaries and related costs totaled $5.7 million, $6.1 million and $7.1 million for 2017, 2016 and 2015, respectively.

Defined Contribution Plan

We administer and maintain a defined contribution plan for the benefit of all employees meeting certain eligibility requirements who elect to participate in the plan. Contributions are determined based on a specified percentage of salary deferrals by participating employees. We recognized compensation expense (net of cost reimbursements from property owners’ associations) for our participating employees totaling $9.7 million in 2017, $8.0 million in 2016 and $7.1 million in 2015.

Deferred Compensation Plan

Prior to the Spin-Off, certain members of our senior management had the opportunity to participate in the Marriott International, Inc. Executive Deferred Compensation Plan (the “Marriott International EDC”), which Marriott International maintains and administers. Under the Marriott International EDC, participating employees were able to defer payment and income taxation of a portion of their salary and bonus. Participants also had the opportunity for long-term capital appreciation by crediting their accounts with notional earnings (at a fixed annual rate of return of 4.0 percent for 2017 and 4.5 percent for 2016). Although additional discretionary contributions to the participants’ accounts under the Marriott International EDC may be made, no additional discretionary contributions were made for our employees in 2017, 2016 and 2015. Subsequent to the Spin-Off, we remain liable to reimburse Marriott International for distributions for participants that were employees of Marriott Vacations Worldwide at the time of the Spin-Off including earnings thereon.

Since 2014, certain members of our senior management have had the opportunity to participate in the Marriott Vacations Worldwide Deferred Compensation Plan (the “Deferred Compensation Plan”), which we maintain and administer. Under the Deferred Compensation Plan, participating employees may defer payment and income taxation of a portion of their salary and bonus. It also gives participants the opportunity for long-term capital appreciation by crediting their accounts with notional earnings.

Since the beginning of our 2017 fiscal year, participants in the Deferred Compensation Plan have been able to select a rate of return based on various market-based investment alternatives for a portion of their contributions, as well as any future Company contributions, to the Deferred Compensation Plan, and may also select such a rate for a portion of their existing account balances. To support our ability to meet a portion of our obligations under the Deferred Compensation Plan, we acquired company owned insurance policies (the “COLI 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 and are payable to a rabbi trust with the Company as grantor. For 2017, at least 25 percent of a participant’s contributions to the Deferred Compensation Plan was required to be subject to a fixed rate of return, which was 3.5 percent for 2017 and 5.6 percent for 2016; the rate was reduced in connection with the introduction of the market-based investment alternatives. For 2018, participants may select a rate of return based on market-based investment alternatives for up to 100 percent of their contributions and existing balances.

We consolidate the liabilities of the 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 (“VIE”). 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 December 31, 2017, the value of the assets held in the rabbi trust was $13.7 million, which is included in the Other line within assets on our Balance Sheets.

Property and Equipment

Property and equipment includes our sales centers, golf courses, information technology and other assets used in the normal course of business, as well as undeveloped and partially developed land parcels that are not part of an approved development plan and do not meet the criteria to be classified as held for sale. In addition, fully developed vacation ownership interests are classified as property and equipment until they are registered for sale. We record property and equipment at cost, including interest and real estate taxes incurred during active development. We capitalize the cost of improvements that extend the useful life of property and equipment when incurred. These capitalized costs may include structural costs, equipment, fixtures, floor and decorative items and signage. We expense all repair and maintenance costs as incurred. We compute depreciation using the straight-line method over the estimated useful lives of the assets (three to forty years), and we amortize leasehold improvements over the shorter of the asset life or lease term.

Cash and Cash Equivalents

We consider all highly liquid investments with an initial purchase maturity of three months or less at the date of purchase to be cash equivalents.

Restricted Cash

Restricted cash primarily consists of cash held in a reserve account related to vacation ownership notes receivable securitizations, cash collected for maintenance fees to be remitted to property owners’ associations, and deposits received, primarily associated with vacation ownership products and residential sales that are held in escrow until the associated contract has closed or the period in which it can be rescinded has passed, depending on legal requirements.

Loan Loss Reserves

We record an estimate of expected uncollectibility on all notes receivable from vacation ownership purchasers as a reduction of revenues from the sale of vacation ownership products at the time we recognize profit on a vacation ownership product sale. We fully reserve for all defaulted vacation ownership notes receivable in addition to recording a reserve on the estimated uncollectible portion of the remaining vacation ownership notes receivable. For those vacation ownership notes receivable that are not in default, we assess collectibility based on pools of vacation ownership notes receivable because we hold large numbers of homogeneous vacation ownership notes receivable. We use the same criteria to estimate uncollectibility for non-securitized vacation ownership notes receivable and securitized vacation ownership notes receivable because they perform similarly. We estimate uncollectibility for each pool based on historical activity for similar 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. 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 uncollectible 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 Europe or Asia Pacific, when revocation is complete. For both non-securitized and securitized vacation ownership notes receivable, we estimated average remaining default rates of 7.16 percent and 7.09 percent as of December 31, 2017 and December 30, 2016, respectively. A 0.5 percentage point increase in the estimated default rate would have resulted in an increase in our allowance for loan losses of $5.9 million and $5.0 million as of December 31, 2017 and December 30, 2016, respectively.

For additional information on our vacation ownership notes receivable, including information on the related reserves, see Footnote No. 3, “Vacation Ownership Notes Receivable.”

Variable Interest Entities

In accordance with the applicable accounting guidance for the consolidation of variable interest entities, we analyze our variable interests, including loans, guarantees and equity investments, to determine if an entity in which we have a variable interest is a variable interest entity. Our analysis includes both quantitative and qualitative reviews. We base our quantitative analysis on the forecasted cash flows of the entity, and our qualitative analysis on our review of the design of the entity, its organizational structure including decision-making ability, and relevant financial agreements. We also use our qualitative analyses to determine if we must consolidate a variable interest entity because we are its primary beneficiary.

Costs Incurred to Sell Vacation Ownership Products

We charge the majority of marketing and sales costs we incur to sell vacation ownership products to expense when incurred. Deferred marketing and selling expenses, which are direct marketing and selling costs related either to an unclosed contract or a contract for which 100 percent of revenue has not yet been recognized, were $6.0 million at year-end 2017 and $6.2 million at year-end 2016 and are included on the accompanying Balance Sheets in the Other caption within Assets.

Valuation of Property and Equipment

Property and equipment includes our sales centers, golf courses, operating properties, information technology and other assets used in the normal course of business, as well as undeveloped and partially developed land parcels that are not part of an approved development plan and do not meet the criteria to be classified as held for sale. We test long-lived asset groups for recoverability when changes in circumstances indicate the carrying value may not be recoverable, for example, when there are material adverse changes in projected revenues or expenses, significant underperformance relative to historical or projected operating results, or significant negative industry or economic trends. We evaluate recoverability of an asset group by comparing its carrying value to the future net undiscounted cash flows that we expect will be generated by the asset group. If the comparison indicates that the carrying value of an asset group is not recoverable, we recognize an impairment loss for the excess of carrying value over the estimated fair value. When we recognize an impairment loss for assets to be held and used, we depreciate the adjusted carrying amount of those assets over their remaining useful life.

Fair Value Measurements

We have few financial instruments that we must measure at fair value on a recurring basis. See Footnote No. 4, “Financial Instruments,” for further information. We also apply the provisions of fair value measurement to various non-recurring measurements for our financial and non-financial assets and liabilities.

The applicable accounting standards define fair value as the price that would be received upon selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). We measure fair value of our assets and liabilities using inputs from the following three levels of the fair value hierarchy:

Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.

Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 includes unobservable inputs that reflect our assumptions about what factors market participants would use in pricing the asset or liability. We develop these inputs based on the best information available, including our own data.

Derivative Instruments

From time to time, we may use derivative instruments to reduce market risk due to changes in interest rates and currency exchange rates, including interest rate derivatives that we may be required to enter into as a condition of our $250.0 million non-recourse warehouse credit facility (the “Warehouse Credit Facility”). As of December 31, 2017, we were not party to any material derivative instruments or hedges.

The designation of a derivative instrument as a hedge and its ability to meet the hedge accounting criteria determines how the change in fair value of the derivative instrument is recorded on our Financial Statements. A derivative qualifies for hedge accounting if, at inception, we expect the derivative to be highly effective in offsetting the underlying hedged cash flows or fair value and we fulfill the hedge documentation standards at the time we enter into the derivative contract. We 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. The asset or liability value of the derivative will change in tandem with its fair value. For the effective portion of qualifying hedges, we record changes in fair value in other comprehensive income (“OCI”). We release the derivative’s gain or loss from OCI to match the timing of the underlying hedged items’ effect on earnings. As a matter of policy, we only enter into hedging transactions that we believe will be highly effective at offsetting the underlying risk and do not use derivatives for trading or speculative purposes.

Non-U.S. Operations

The U.S. dollar is the functional currency of our consolidated entities operating in the United States. The functional currency for our consolidated entities operating outside of the United States is generally the currency of the economic environment in which the entity primarily generates and expends cash. For consolidated entities whose functional currency is not the U.S. dollar, we translate their financial statements into U.S. dollars. We translate assets and liabilities at the exchange rate in effect as of the financial statement date and translate Income Statement accounts using the weighted average exchange rate for the period. We include translation adjustments from currency exchange and the effect of exchange rate changes on intercompany transactions of a long-term investment nature as a separate component of equity. We report gains and losses from currency exchange rate changes related to intercompany receivables and payables that are not of a long-term investment nature, as well as gains and losses from non-U.S. currency transactions, currently in operating costs and expenses.

Loss Contingencies

We are subject to various legal proceedings and claims in the normal course of business, the outcomes of which are subject to significant uncertainty. We record an accrual for loss 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 the loss. We review these accruals each reporting period and make revisions based on changes in facts and circumstances.

Share-Based Compensation Costs

We established the Marriott Vacations Worldwide Corporation Stock and Cash Incentive Plan (the “Stock Plan”) in order to compensate our employees and directors by granting them equity awards such as restricted stock units (“RSUs”), stock appreciation rights (“SARs”) and stock options.

We follow the provisions of ASC 718, “Compensation—Stock Compensation,” which requires that a company measure the expense of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. Generally, share-based awards granted to our employees, other than RSUs with performance vesting conditions, vest ratably over a four-year period. For share-based awards with service-only vesting conditions, we record compensation expense on a straight-line basis over the requisite service period. For RSUs with performance vesting conditions, the number of RSUs earned, if any, is determined following the end of a three-year performance period based upon the cumulative achievement over that period of specific quantitative operating financial measures and we recognize compensation expense once it is probable that the corresponding performance condition will be achieved.

SARs awarded under the Stock Plan are granted at exercise prices or strike prices equal to the market price of our common stock on the date of grant (this price is referred to as the “base value”). SARs generally expire ten years after the date of grant and both vest and become exercisable in cumulative installments of one quarter of the grant at the end of each of the first four years following the date of grant. Upon exercise of SARs, our employees and non-employee directors receive a number of shares of our common stock equal to the number of SARs being exercised, multiplied by the quotient of (a) the market price of the common stock on the date of exercise (this price is referred to as the “final value”) minus the base value, divided by (b) the final value.

We recognize the expense associated with these awards on our Income Statements based on the fair value of the awards as of the date that the share-based awards are granted and adjust that expense to the estimated number of awards that we expect will vest or be earned. The fair value of RSUs represents the number of awards granted multiplied by the average of the high and low market price of our common stock on the date the awards are granted reduced by the present value of the dividends expected to be paid on the shares during the vesting period, discounted at a risk-free interest rate. We generally determine the fair value of SARs using the Black-Scholes option valuation model which incorporates assumptions about expected volatility, risk free interest rate, dividend yield and expected term. We will issue shares from authorized shares upon the exercise of SARs or stock options held by our employees and directors.

For share-based awards granted to non-employee directors, we recognize compensation expense on the grant date based on the fair value of the awards as of that date. See Footnote No. 12, “Share-Based Compensation,” for more information.

Convertible Senior Notes

In accounting for the 1.50% Convertible Senior Notes due 2022 (the “Convertible Notes”), we separated them into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the Convertible Notes. The excess of the principal amount of the liability over its carrying amount is amortized to interest expense over the term of the Convertible Notes using the effective interest method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the issuance costs related to the Convertible Notes, we allocated the total amount incurred to the liability and equity components based on their relative values. Issuance costs attributable to the liability component are amortized to interest expense over the term of the Convertible Notes, and issuance costs attributable to the equity component are included along with the equity component in additional paid-in capital within stockholders’ equity. See Footnote No. 10, “Debt,” for more information.

Income Taxes

We file income tax returns, including with respect to our subsidiaries, in various jurisdictions around the world. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

Changes in existing tax laws and rates, their related interpretations, and the uncertainty generated by the current economic environment may affect the amounts of deferred tax liabilities or the valuations of deferred tax assets over time. Our accounting for deferred tax consequences represents management’s best estimate of future events that can be appropriately reflected in the accounting estimates.

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In the event we determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which impacts the provision for income taxes.

For tax positions we have taken, or expect to take, in a tax return we apply a more likely than not threshold, under which we must conclude a tax position is more likely than not to be sustained, assuming that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information, in order to continue to recognize the benefit. In determining our provision for income taxes, we use judgment, reflecting our estimates and assumptions, in applying the more likely than not threshold.

We do not have any significant unrecognized tax benefits as of December, 31, 2017, December 30, 2016 or January 1, 2016, that, if recognized, would impact our effective tax rate for 2017, 2016 or 2015, respectively. We do not expect that our unrecognized tax benefits as of December 31, 2017 will change significantly within the next twelve months. Additionally, we recognize accrued interest and penalties related to our unrecognized tax benefits as a component of tax expense.

For information about income taxes and deferred tax assets and liabilities, see Footnote No. 2, “Income Taxes.”

Earnings Per Common Share

Basic earnings per common share is calculated by dividing the earnings available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per common share is calculated to give effect to all potentially dilutive common shares that were outstanding during the reporting period. The dilutive effect of outstanding equity-based compensation awards is reflected in diluted earnings per common share by application of the treasury stock methods.

New Accounting Standards

Accounting Standards Update No. 2017-09 – “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”)

In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-09, which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications for the purpose of applying the modification guidance in Accounting Standards Codification Topic 718. This update is effective for all entities for annual periods beginning after December 15, 2017, and for interim periods within those annual periods, with early adoption permitted. Our early adoption of ASU 2017-09 in the 2017 second quarter did not have an impact on our financial statements or disclosures.

Accounting Standards Update No. 2016-18 – “Restricted Cash” (“ASU 2016-18”)

In November 2016, the FASB issued ASU 2016-18, which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, we no longer present changes in restricted cash as a component of investing activities. This update is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We early adopted ASU 2016-18 on a retrospective basis commencing in the 2017 first quarter.

Accounting Standards Update No. 2016-09 – “Compensation – Stock Compensation (Topic 718)” (“ASU 2016-09”)

In March 2016, the FASB issued ASU 2016-09, which changes how entities account for certain aspects of share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The new guidance requires all income tax effects of awards, including excess tax benefits, to be recorded as income tax expense (or benefit) in the income statement, which resulted in benefits to our provision for income taxes of $6.1 million in 2017. The new guidance requires excess tax benefits to be presented as an operating inflow rather than as a financing inflow in the statement of cash flows. Prior to the adoption of ASU 2016-09, excess tax benefits were recorded in additional paid-in-capital on the balance sheet. This update is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. We adopted ASU 2016-09 in the 2017 first quarter. The adoption of ASU 2016-09 decreased our provision for income taxes, the amount of which depends on the vesting activity of our share-based compensation awards in any given period, and eliminated the presentation of excess tax benefits as a financing inflow on our statement of cash flows. Further, we made an accounting policy election to recognize forfeitures of share-based compensation awards as they occur, the cumulative effect of which resulted in an adjustment of $0.4 million to opening retained earnings. The adoption of ASU 2016-09 did not have any other material impacts on our financial statements or disclosures.

Future Adoption of Accounting Standards

Accounting Standards Update No. 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 their 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 is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We are evaluating the impact that ASU 2017-12, including the timing of implementation, will have on our financial statements and disclosures.

Accounting Standards Update No. 2016-16 – “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory” (“ASU 2016-16”)

In October 2016, the FASB issued ASU 2016-16, which changes the timing of when certain intercompany transactions are recognized within the provision for income taxes. This update is effective for public companies for annual periods beginning after December 15, 2017, and for annual periods and interim periods thereafter, with early adoption permitted. We adopted ASU 2016-16 on January 1, 2018. We do not expect the adoption of ASU 2016-16 to have a material impact on our financial statements or disclosures.

Accounting Standards Update No. 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 periods beginning after December 15, 2018. We are evaluating the impact that ASU 2016-13, including the timing of implementation, will have on our financial statements and disclosures.

Accounting Standards Update No. 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. ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, although an option to use transition relief to not restate or make required disclosures in comparative periods in the period of adoption was recently exposed by the FASB for public comment. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. Although we expect to adopt ASU 2016-02 commencing in fiscal year 2019 and are continuing our implementation efforts, we continue to evaluate the impact that adoption of this update will have on our financial statements and disclosures, but we expect that it will have a material effect on our balance sheets.

Accounting Standards Update No. 2016-01 – “Financial Instruments – Overall (Subtopic 825-10)”(“ASU 2016-01”)

In January 2016, the FASB issued ASU 2016-01, which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. For public business entities, the amendments in ASU 2016-01 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We do not expect the adoption of ASU 2016-01 to have a material impact on our financial statements.

Accounting Standards Update No. 2014-09 – “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), as Amended

In May 2014, the FASB issued ASU 2014-09, which, as amended, creates ASC Topic 606, “Revenue from Contracts with Customers,” (“ASC 606”), and supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition”, including most industry-specific guidance, and significantly enhances comparability of revenue recognition practices across entities and industries by providing a principle-based, comprehensive framework for addressing revenue recognition issues. In order for a provider of promised goods or services to recognize as revenue the consideration that it expects to receive in exchange for the promised goods or services, the provider should apply the following five steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as)

the entity satisfies a performance obligation. ASU 2014-09, as amended, will be effective for annual reporting periods, and interim periods within those reporting periods, beginning after December 15, 2017. The new standard may be applied retrospectively or on a modified retrospective basis with the cumulative effect recognized on the date of adoption. We adopted ASC 606 effective January 1, 2018, on a retrospective basis. For further information see Footnote No. 17, “Adoption of ASC 606 Effective January 1, 2018.”

2. INCOME TAXES

Tax Reform

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law effective January 1, 2018. The Tax Act significantly revised the U.S. tax code by, in part, but not limited to: reducing the U.S. corporate maximum tax rate from 35 percent to 21 percent, imposing a mandatory one-time transition tax on certain un-repatriated earnings of foreign subsidiaries, modifying executive compensation deduction limitations and repealing the deduction for domestic production activities. Under ASC Topic 740, “Income Taxes,” we must generally recognize the effects of tax law changes in the period in which the new legislation is enacted.

During December 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) No. 118 (“SAB 118”) to address the application of GAAP in situations when a registrant does not have all the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act. In accordance with SAB 118, our deferred tax assets and liabilities were remeasured using the new corporate tax rate of 21 percent, rather than the previous corporate tax rate of 35 percent, resulting in a $65.2 million decrease in our income tax expense for the year ended December 31, 2017 and a corresponding $65.2 million decrease in our net deferred tax liability as of December 31, 2017. These amounts are to be considered provisional and are not currently able to be finalized given the complexity of the underlying calculations. Additional work is necessary to perform a more detailed analysis. Any subsequent adjustment to these amounts will be recorded to tax expense in the quarter of 2018 when the analysis is complete.

The one-time transition tax on certain un-repatriated earnings of foreign subsidiaries is based on total post-1986 earnings and profits that we previously deferred from U.S. income taxes. While we have performed a preliminary analysis of the transition tax and determined that due to deficits in foreign earnings and profits, we do not have a one-time transition tax liability to record in 2017, we have not completed our calculations. As the one-time transition tax is based in part on the amount of those earnings held in cash and other specified assets, we may determine that we have a one-time transition tax liability when we finalize the calculation of post-1986 foreign earnings and profits previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations.

The modification of the executive compensation deduction limitations and the repeal of the deduction for domestic production activities did not have a significant impact on our benefit from income taxes for the year ended December 31, 2017.

Income Tax Benefit / Provision

The components of our earnings before income taxes for the last three years consisted of:



($ in thousands)	2017		2016		2015
United States	$	217,348	$	220,169	$	197,519
Non-U.S. jurisdictions	8,535		2,759		8,978
	$	225,883	$	222,928	$	206,497

In 2017, our tax benefit included an excess tax benefit of $6.1 million related to the vesting or exercise of employee share-based awards. Our tax provision did not reflect excess tax benefits of $1.2 million in 2016 and $9.4 million in 2015, as these periods were before our adoption of ASU 2016-09. In our statements of cash flows, we presented excess tax benefits as financing cash flows before our adoption of ASU 2016-09.

Our benefit (provision) for income taxes for the last three years consisted of:



($ in thousands)		2017			2016			2015
Current	– U.S. Federal	$	(48,735	)	$	(35,715	)	$	(44,728	)
	– U.S. State	(7,370		)	(4,926		)	(4,027		)
	– Non-U.S.	(7,043		)	(4,902		)	(6,953		)
		(63,148		)	(45,543		)	(55,708		)

Deferred	– U.S. Federal	49,072			(38,332		)	(25,350		)
	– U.S. State	(279		)	(3,432		)	(4,554		)
	– Non-U.S.	15,250			1,727			1,914
		64,043			(40,037		)	(27,990		)
		$	895		$	(85,580	)	$	(83,698	)

The deferred tax assets and related valuation allowances in these Financial Statements have been determined on a separate return basis. The assessment of the valuation allowances requires considerable judgment on the part of management with respect to benefits that could be realized from future taxable income, as well as other positive and negative factors. Valuation allowances are recorded against the deferred tax assets of certain foreign operations for which historical losses, restructuring and impairment charges have been incurred. The change in the valuation allowances established were ($3.9) million in 2017, $1.5 million in 2016 and ($3.7) million in 2015.

We have made no provision for U.S. income taxes or additional non-U.S. taxes on the cumulative unremitted earnings of non-U.S. subsidiaries ($184.0 million at December 31, 2017) because we consider these earnings to be permanently invested. We do not consider previously taxed income to be permanently reinvested if such earnings can be distributed to a U.S. entity without incurring additional U.S. tax. These earnings could become subject to additional taxes if remitted as dividends, loaned to a U.S. affiliate or if we sold our interests in the affiliates. We cannot estimate the amount of additional taxes that might be payable on the unremitted earnings.

We conduct business in countries that grant “holidays” from income taxes for ten to thirty year periods. These holidays expire through 2034.

Our income tax returns are subject to examination by relevant tax authorities. Certain of our returns are being audited in various jurisdictions for years 2013 and 2014. Although we do not anticipate that a significant impact to our unrecognized tax benefit balance will occur during the next fiscal year, the amount of our liability for unrecognized tax benefits could change as a result of audits in these jurisdictions.

Deferred Income Taxes

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases, as well as from net operating loss and tax credit carry-forwards. We state those balances at the enacted tax rates we expect will be in effect when we actually pay or recover taxes. Deferred income tax assets represent amounts available to reduce income taxes we will pay on taxable income in future years. We evaluate our ability to realize these future tax deductions and credits by assessing whether we expect to have sufficient future taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies, to utilize these future deductions and credits. We establish a valuation allowance when we no longer consider it more likely than not that a deferred tax asset will be realized.

The following table presents our deferred tax assets and liabilities, and the tax effect of each type of temporary difference and carry-forward that gave rise to a significant portion of our deferred tax assets and liabilities at December 31, 2017 and December 30, 2016:



($ in thousands)	At Year-End 2017			At Year-End 2016
Deferred Tax Assets
Inventory	$	24,814		$	24,821
Reserves	29,854			38,677
Long lived intangible assets	15,746			31,464
Net operating loss carry-forwards	38,831			49,205
Tax credits	39,593			21,345
Other, net	53,397			52,263
Deferred tax assets	202,235			217,775
Less valuation allowance	(43,987		)	(47,839		)
Net deferred tax assets	158,248			169,936

Deferred Tax Liabilities
Property and equipment	(16,360		)	(15,560		)
Deferred sales of vacation ownership interests	(220,130		)	(296,600		)
Deferred tax liabilities	(236,490		)	(312,160		)

Total net deferred tax liabilities	$	(78,242	)	$	(142,224	)

At December 31, 2017, we had approximately $37.2 million of foreign net operating losses (excluding valuation allowances) some of which begin expiring in 2018. However, a significant portion of these tax net operating losses have an indefinite carry forward period. We have no federal net operating losses and net operating losses of $1.3 million for state tax purposes which begin expiring in 2032.

Reconciliation of U.S. Federal Statutory Income Tax Rate to Actual Income Tax Rate

Due to the adoption of ASU 2016-09 in the 2017 first quarter, all excess tax benefits and deficiencies are now recognized as a component of income tax expense in our Income Statements; previously, excess tax benefits were recognized in additional paid-in capital. This may result in increased volatility in our effective tax rate.

The following table reconciles the U.S. statutory income tax rate to our effective income tax rate:



	2017	2016	2015
U.S. statutory income tax rate	35.00%	35.00%	35.00%
U.S. state income taxes, net of U.S. federal tax benefit	2.42	2.47	2.62
Permanent differences⁽¹⁾	(0.65)	1.03	1.65
Impact related to the Tax Cuts and Jobs Act	(28.86)	—	—
Excess tax benefits related to share-based compensation	(2.70)	—	—
Foreign tax rate changes	(2.11)	0.05	0.01
Non-U.S. income (loss)⁽²⁾	(2.81)	0.09	(0.63)
Other items⁽³⁾	(0.76)	(0.95)	1.22
Change in valuation allowance⁽⁴⁾	0.07	0.70	0.66
Effective rate	(0.40%)	38.39%	40.53%

_________________________


⁽¹⁾	Attributed to the redemption of the mandatorily redeemable preferred stock of a consolidated subsidiary.


⁽²⁾	Attributed to the difference between U.S. and foreign income tax rates and other foreign adjustments.


⁽³⁾	Attributed to changes in unrecognized tax benefits and U.S. federal tax incentives.


⁽⁴⁾	Primarily attributed to release of a foreign valuation allowance in 2017. Primarily attributed to the establishment of valuation allowances in foreign jurisdictions for losses that cannot be benefited in the U.S. income tax provision in 2016 and 2015, as discussed above.

Cash Taxes Paid

Cash taxes paid in 2017, 2016 and 2015 were $49.3 million, $47.8 million and $50.2 million, respectively.

3. VACATION OWNERSHIP NOTES RECEIVABLE

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



($ in thousands)	At Year-End 2017		At Year-End 2016
Vacation ownership notes receivable — securitized	$	815,331	$	717,543
Vacation ownership notes receivable — non-securitized
Eligible for securitization⁽¹⁾	142,269		98,508
Not eligible for securitization⁽¹⁾	162,031		156,260
Subtotal	304,300		254,768
Total vacation ownership notes receivable	$	1,119,631	$	972,311

_________________________


⁽¹⁾	Refer to Footnote No. 4, “Financial Instruments,” for discussion of eligibility of our vacation ownership notes receivable for securitization.

The following tables show future principal payments, net of reserves, as well as interest rates for our non-securitized and securitized vacation ownership notes receivable at December 31, 2017:



($ in thousands)	Non-Securitized Vacation Ownership Notes Receivable		Securitized Vacation Ownership Notes Receivable		Total
2018	$	48,846	$	94,079	$	142,925
2019	35,253		90,719		125,972
2020	30,567		92,089		122,656
2021	26,127		93,351		119,478
2022	23,953		92,191		116,144
Thereafter	139,554		352,902		492,456
Balance at year-end 2017	$	304,300	$	815,331	$	1,119,631
Weighted average stated interest rate at year-end 2017	11.5%		12.6%		12.3%
Range of stated interest rates at year-end 2017	0.0% to 18.0%		4.9% to 18.0%		0.0% to 18.0%

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:



($ in thousands)	2017		2016		2015
Interest income associated with vacation ownership notes receivable – securitized	$	101,193	$	96,606	$	89,693
Interest income associated with vacation ownership notes receivable – non-securitized	26,790		23,507		28,327
Total interest income associated with vacation ownership notes receivable	$	127,983	$	120,113	$	118,020

The following table summarizes the activity related to our vacation ownership notes receivable reserve for 2017, 2016 and 2015:



($ in thousands)	Non-Securitized Vacation Ownership Notes Receivable			Securitized Vacation Ownership Notes Receivable			Total
Balance at year-end 2014	$	64,752		$	53,666		$	118,418
Provision for loan losses	23,832			9,209			33,041
Securitizations	(16,491		)	16,491			—
Clean-up calls⁽¹⁾	7,115			(7,115		)	—
Write-offs	(48,220		)	—			(48,220		)
Defaulted vacation ownership notes receivable repurchase activity⁽²⁾	24,596			(24,596		)	—
Balance at year-end 2015	55,584			47,655			103,239
Provision for loan losses	28,652			18,505			47,157
Securitizations	(28,322		)	28,322			—
Clean-up of Warehouse Credit Facility⁽³⁾	10,496			(10,496		)	—
Write-offs	(40,033		)	—			(40,033		)
Defaulted vacation ownership notes receivable repurchase activity⁽²⁾	30,251			(30,251		)	—
Balance at year-end 2016	56,628			53,735			110,363
Provision for loan losses	41,531			9,021			50,552
Securitizations	(29,071		)	29,071			—
Clean-up of Warehouse Credit Facility⁽³⁾	3,995			(3,995		)	—
Write-offs	(45,257		)	—			(45,257		)
Defaulted vacation ownership notes receivable repurchase activity⁽²⁾	28,324			(28,324		)	—
Balance at year-end 2017	$	56,150		$	59,508		$	115,658

_________________________


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


⁽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.


⁽³⁾	Refers to our voluntary repurchase of previously securitized non-defaulted vacation ownership notes receivable from our Warehouse Credit Facility.

The following table shows our recorded investment in non-accrual vacation ownership notes receivable, which are vacation ownership notes receivable that are 90 days or more past due. As noted in Footnote No. 1, “Summary of Significant Accounting Policies,” we recognize interest income on a cash basis for these vacation ownership notes receivable.



($ in thousands)	Non-Securitized Vacation Ownership Notes Receivable		Securitized Vacation Ownership Notes Receivable		Total
Investment in vacation ownership notes receivable on non-accrual status at year-end 2017	$	38,786	$	7,428	$	46,214
Investment in vacation ownership notes receivable on non-accrual status at year-end 2016	$	43,792	$	6,687	$	50,479
Average investment in vacation ownership notes receivable on non-accrual status during 2017	$	41,289	$	7,058	$	48,347

The following table shows the aging of the recorded investment in principal, before reserves, in vacation ownership notes receivable as of December 31, 2017:



($ in thousands)	Non-Securitized Vacation Ownership Notes Receivable		Securitized Vacation Ownership Notes Receivable		Total
31 – 90 days past due	$	7,109	$	18,553	$	25,662
91 – 150 days past due	4,341		7,428		11,769
Greater than 150 days past due	34,445		—		34,445
Total past due	45,895		25,981		71,876
Current	314,555		848,858		1,163,413
Total vacation ownership notes receivable	$	360,450	$	874,839	$	1,235,289

The following table shows the aging of the recorded investment in principal, before reserves, in vacation ownership notes receivable as of December 30, 2016:



($ in thousands)	Non-Securitized Vacation Ownership Notes Receivable		Securitized Vacation Ownership Notes Receivable		Total
31 – 90 days past due	$	7,780	$	16,468	$	24,248
91 – 150 days past due	3,981		6,687		10,668
Greater than 150 days past due	39,811		—		39,811
Total past due	51,572		23,155		74,727
Current	259,824		748,123		1,007,947
Total vacation ownership notes receivable	$	311,396	$	771,278	$	1,082,674

4. 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 and contracts 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.



	At Year-End 2017						At Year-End 2016
($ in thousands)	Carrying Amount			Fair Value⁽¹⁾			Carrying Amount			Fair Value⁽¹⁾
Vacation ownership notes receivable — securitized	$	815,331		$	956,292		$	717,543		$	834,009
Vacation ownership notes receivable — non-securitized	304,300			324,661			254,768			269,161
Other assets	13,708			13,708			—			—
Total financial assets	$	1,133,339		$	1,294,661		$	972,311		$	1,103,170
Non-recourse debt associated with vacation ownership notes receivable securitizations, net	$	(834,889	)	$	(836,028	)	$	(729,188	)	$	(725,963	)
Convertible notes, net	(192,518		)	(259,884		)	—			—
Non-interest bearing note payable, net	(60,560		)	(60,560		)	—			—
Total financial liabilities	$	(1,087,967	)	$	(1,156,472	)	$	(729,188	)	$	(725,963	)

_________________________


⁽¹⁾	Fair value of financial instruments with the exception of other assets and convertible notes, has been determined using Level 3 inputs. Fair value of other assets and convertible notes that are financial instruments has been determined using Level 2 inputs.

See the “Fair Value Measurements” caption of Footnote No. 1, “Summary of Significant Accounting Policies” for additional information.

Vacation Ownership Notes Receivable

We estimate the fair value of our securitized vacation ownership notes receivable using a discounted cash flow model. We believe this is comparable to the model that an independent third party would use in the current market. Our model 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 that, when applied in combination with pricing parameters, determine the fair value of the underlying vacation ownership notes receivable.

Due to factors that impact the general marketability of our non-securitized vacation ownership notes receivable, as well as current market conditions, we bifurcate our 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 asset-backed securities (“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 Europe or Asia. 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.

The following table shows the bifurcation of our non-securitized vacation ownership notes receivable into those eligible and not eligible for securitization based upon the aforementioned eligibility criteria:



	At Year-End 2017				At Year-End 2016
($ in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Vacation ownership notes receivable
Eligible for securitization	$	142,269	$	162,630	$	98,508	$	112,901
Not eligible for securitization	162,031		162,031		156,260		156,260
Total non-securitized	$	304,300	$	324,661	$	254,768	$	269,161

We estimate the fair value of the portion of our non-securitized vacation ownership notes receivable that we believe will ultimately be securitized in the same manner as securitized vacation ownership notes receivable. We value the remaining non-securitized vacation ownership notes receivable 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 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.

Other Assets

We estimate the fair value of our other assets that are financial instruments using Level 2 inputs. These assets consist of COLI policies held in a rabbi trust. The carrying value of the COLI policies is equal to their cash surrender value.

Non-Recourse Debt Associated with Securitized Vacation Ownership Notes Receivable, Net

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.

Convertible Notes

We estimate the fair value of our Convertible Notes using quoted market prices as of the last trading day for the year; 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 they 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.

Non-Interest Bearing Note Payable

The carrying value of our non-interest bearing note payable issued in connection with the acquisition of vacation ownership units located on the Big Island of Hawaii approximates fair value, because the imputed interest rate used to discount this note payable is consistent with current market rates. See Footnote No. 5, “Acquisitions and Dispositions” and Footnote No. 10, “Debt,” for additional information on this transaction.

5. ACQUISITIONS AND DISPOSITIONS

2017 Acquisitions

Bali, Indonesia

During the 2017 third quarter, we acquired 51 completed vacation ownership units, as well as a sales gallery and related resort amenities, located in Bali, Indonesia for $23.8 million. The transaction was accounted for as an asset acquisition with the purchase price allocated to Inventory ($21.7 million) and Property and equipment ($2.1 million).

Marco Island, Florida

During the 2017 second quarter, we acquired 36 completed vacation ownership units located at our resort in Marco Island, Florida for $33.6 million. The transaction was accounted for as an asset acquisition with all of the purchase price allocated to Property and equipment. To ensure consistency with the expected related future cash flow presentation, the cash purchase price was included as an operating activity in the Purchase of vacation ownership units for future transfer to inventory line on our Cash Flow for the year ended December 31, 2017. See Footnote No. 9, “Contingencies and Commitments,” for information on our remaining commitment related to this property.

Big Island of Hawaii

During the 2017 second quarter, we acquired 112 completed vacation ownership units located on the Big Island of Hawaii. The transaction was accounted for as an asset acquisition with all of the purchase price allocated to Inventory. As consideration for the acquisition, we paid $27.3 million in cash, settled a $0.5 million note receivable from the seller on a non-cash basis, and issued a non-interest bearing note payable for $63.6 million. See Footnote No. 10, “Debt,” for information on the non-interest bearing note payable.

2017 Dispositions

We made no significant dispositions in 2017.

2016 Acquisitions

Miami Beach, Florida

During the 2016 first quarter, we completed the acquisition of an operating property located in the South Beach area of Miami Beach, Florida, for $23.5 million. The acquisition was treated as a business combination, accounted for using the acquisition method of accounting and included within operating activities on our Cash Flow for the year ended December 30, 2016. As consideration for the acquisition, we paid $23.5 million in cash; the value of the acquired property was allocated to Inventory. We rebranded this property as Marriott Vacation Club Pulse, South Beach and converted it, in its entirety, into vacation ownership inventory.

2016 Dispositions

San Francisco, California

During the 2016 second quarter, we disposed of 19 residential units, located at The Ritz-Carlton Club and Residences, San Francisco (the “RCC San Francisco”), for gross cash proceeds of $19.5 million. We accounted for the sale under the full accrual method in accordance with the authoritative guidance on accounting for sales of real estate and recorded a gain of $10.5 million in the Gains and other income line on our Income Statement for the year ended December 30, 2016.

2016 Disposition / 2015 Acquisition

Surfers Paradise, Australia

During the 2015 third quarter, we completed the acquisition of an operating property located in Surfers Paradise, Australia, for AUD $84.5 million ($62.3 million). The acquisition was treated as a business combination and accounted for using the acquisition method of accounting. As such, all transaction costs were expensed as incurred and were included in the “Other” line of our Income Statement for the year ended January 1, 2016. As consideration for the acquisition, we paid AUD $82.6 million ($61.0 million) in cash and assumed net liabilities of AUD $1.9 million ($1.3 million), which was allocated based on the fair value at the date of acquisition as follows: AUD $28.9 million ($21.3 million) to land, AUD $49.5 million ($36.5

million) to buildings and leasehold improvements and AUD $6.1 million ($4.5 million) to furniture and equipment. Fair value was determined using an independent appraisal, which was primarily based on a discounted cash flow model, a Level 3 fair value input. At the time of the acquisition we determined that we would convert a portion of this operating property into vacation ownership interests for future use in our Asia Pacific segment; the related portion of the purchase price was classified as an operating activity on our Cash Flow for the year ended January 1, 2016. Additionally, we intended to sell the remaining downsized portion of the operating property to a third party; the related portion of the purchase price was classified as an investing activity on our Cash Flow for the year ended January 1, 2016.

During the 2016 second quarter, we disposed of the portion of this operating property that we did not intend to convert into vacation ownership inventory for gross cash proceeds of AUD $70.5 million ($50.9 million). We accounted for the sale under the full accrual method in accordance with the authoritative guidance on accounting for sales of real estate. As part of the disposition, we guaranteed the net operating income of this portion of the operating property through 2021 up to a specified maximum of AUD $2.9 million ($2.2 million), which was recorded as a deferred gain in the Other line within liabilities on our balance sheet. We recognized a loss, inclusive of the deferred gain, of AUD $1.2 million ($0.9 million) in connection with the sale, which was recorded in the Gains and other income line on the Income Statement for the year ended December 30, 2016.

During 2016, we completed the conversion of the portion of this operating property that we intended to convert into vacation ownership inventory at the time of the acquisition, a portion of which was contributed to our points-based programs in our Asia Pacific segment.

2015 Acquisitions

Washington, D.C.

During the 2015 third quarter, we completed the acquisition of 71 units at The Mayflower Hotel, Autograph Collection, an operating hotel located in Washington, D.C., for $32.0 million. The asset acquisition was treated as a purchase of inventory and we have included these vacation ownership units, in their current form, in our MVCD program.

San Diego, California

During the 2015 first quarter, we completed the acquisition of an operating property located in San Diego, California, for $55.0 million. The acquisition was treated as a business combination and accounted for using the acquisition method of accounting. As consideration for the acquisition, we paid $55.0 million in cash, which was allocated based on the fair value at the date of acquisition as follows: $54.3 million to property and equipment and $0.7 million to other assets. Fair value was determined using an independent appraisal, which was primarily based on a discounted cash flow model, a Level 3 fair value input. We rebranded this property as Marriott Vacation Club Pulse, San Diego and converted it, in its entirety, into vacation ownership inventory. In order to ensure consistency with the expected related future cash flow presentation, $46.6 million of the cash purchase price allocated to property and equipment was included as an operating activity in the Purchase of operating property for future conversion to inventory line on our Cash Flow for the year ended January 1, 2016. The remaining $7.7 million was included as an investing activity in the Capital expenditures for property and equipment line on our Cash Flow for the year ended January 1, 2016, as it was allocated to assets to be used prior to conversion of the property into vacation ownership inventory, as well as ancillary and sales center assets to be retained after the conversion.

2015 Dispositions

Kauai, Hawaii

During the 2014 second quarter, we entered into a purchase and sale agreement to dispose of undeveloped and partially developed land, an operating golf course and related assets, in Kauai, Hawaii (the “Kauai Property”) for gross cash proceeds of $60.0 million, and completed the sale of a portion of the Kauai Property for gross cash proceeds of $40.0 million. During the 2015 second quarter, we completed the sale of the remaining portion of the Kauai Property for gross cash proceeds of $20.0 million. We accounted for the sale under the full accrual method in accordance with the authoritative guidance on accounting for sales of real estate and recorded a gain of $8.7 million, which is included in the Gains and other income line on our Income Statement for the year ended January 1, 2016.

Marco Island, Florida

During the 2015 first quarter, we sold real property located in Marco Island, Florida, consisting of $3.1 million of vacation ownership inventory, to a third-party developer. We received consideration consisting of $5.4 million of cash and a note receivable of $0.5 million. We did not recognize any gain or loss on this transaction.

In accordance with our agreement with the third-party developer, we are obligated to repurchase the completed property from the developer contingent upon the property meeting our brand standards, provided that the third-party developer has not sold the property to another party. In accordance with the authoritative guidance on accounting for sales of real estate, our conditional obligation to repurchase the property constitutes continuing involvement and thus we were unable to account

for this transaction as a sale. The property was sold to a variable interest entity for which we are not the primary beneficiary. See Footnote No. 13, “Variable Interest Entities” for additional information on our activities relating to the variable interest entity involved in this transaction.

6. EARNINGS PER SHARE

Basic earnings per common share is calculated by dividing net income 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 is calculated to give effect to all potentially dilutive common shares that were outstanding during the reporting period. The dilutive effect of outstanding equity-based compensation awards is reflected in diluted earnings per common share by application of the treasury stock method using average market prices during the period.

Our calculation of diluted earnings per share 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 December 31, 2017, there was no dilutive impact from the Convertible Notes for 2017.

The shares issuable on exercise of the Warrants (as defined in Footnote No. 10, “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 of $176.68, as described in Footnote No. 10, “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 No. 10, “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.

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



(in thousands, except per share amounts)	2017⁽¹⁾		2016⁽²⁾		2015⁽³⁾
Computation of Basic Earnings Per Share
Net income	$	226,778	$	137,348	$	122,799
Shares for basic earnings per share	27,078		27,882		31,487
Basic earnings per share	$	8.38	$	4.93	$	3.90
Computation of Diluted Earnings Per Share
Net income	$	226,778	$	137,348	$	122,799
Shares for basic earnings per share	27,078		27,882		31,487
Effect of dilutive shares outstanding
Employee stock options and SARs	438		367		446
Restricted stock units	217		173		235
Shares for diluted earnings per share	27,733		28,422		32,168
Diluted earnings per share	$	8.18	$	4.83	$	3.82

_________________________


⁽¹⁾	The computations of diluted earnings per share exclude approximately 238,000 shares of common stock, the maximum number of shares issuable as of December 31, 2017 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.


⁽²⁾	The computations of diluted earnings per share exclude approximately 217,000 shares of common stock, the maximum number of shares issuable as of December 30, 2016 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.


⁽³⁾	The computations of diluted earnings per share exclude approximately 136,000 shares of common stock, the maximum number of shares issuable as of January 1, 2016 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 year ended December 31, 2017, our calculation of diluted earnings per share included shares underlying stock appreciation rights (“SARs”) that may be settled in shares of common stock, because the exercise prices of such SARs were less than or equal to the average market prices for the applicable period.

For the year ended December 30, 2016, we excluded from our calculation of diluted earnings per share 62,018 shares underlying SARS that may be settled in shares of common stock because the exercise price of $77.42 of such SARs was greater than the average market price for the applicable period.

For the year ended January 1, 2016, we excluded from our calculation of diluted earnings per share 62,018 shares underlying SARs that may be settled in shares of common stock because the exercise price of $77.42 of such SARs was greater than the average market prices for the applicable period.

7. INVENTORY

The following table shows the composition of our inventory balances:



($ in thousands)	At Year-End 2017		At Year End 2016
Finished goods⁽¹⁾	$	379,194	$	337,949
Work-in-progress	2,315		39,486
Land and infrastructure⁽²⁾	330,002		330,728
Real estate inventory	711,511		708,163
Operating supplies and retail inventory	5,022		4,373
	$	716,533	$	712,536

_________________________


⁽¹⁾	Represents completed inventory that is either registered for sale as vacation ownership interests, or unregistered and available for sale in its current form.


⁽²⁾	Includes $67.6 million of inventory related to estimated future foreclosures at December 31, 2017.

We value vacation ownership and residential 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.

In addition to the above, at December 31, 2017, we had $48.3 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. As discussed in Footnote No. 9, “Contingencies and Commitments,” we also had $480.5 million of commitments to acquire completed vacation ownership units.

8. PROPERTY AND EQUIPMENT

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



($ in thousands)	At Year-End 2017			At Year-End 2016
Land	$	60,174		$	54,975
Buildings and leasehold improvements	258,919			213,190
Furniture and equipment	54,394			51,053
Information technology	184,635			180,075
Construction in progress	22,877			27,493
	580,999			526,786
Accumulated depreciation	(328,272		)	(323,984		)
	$	252,727		$	202,802

Depreciation expense totaled $21.5 million in 2017, $21.0 million in 2016 and $22.2 million in 2015.

9. CONTINGENCIES AND COMMITMENTS

Commitments and Letters of Credit

As of December 31, 2017, 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 $24.6 million, of which we expect $15.3 million, $5.5 million, $1.4 million, $0.9 million, $0.8 million and $0.7 million will be paid in 2018, 2019, 2020, 2021, 2022 and thereafter, respectively.

We have a commitment to purchase an operating property located in New York, New York for $170.2 million, of which $7.2 million is attributed to a related capital 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 $108.5 million and $61.7 million in 2019 and 2020, respectively. We currently manage this property, which we have rebranded as Marriott Vacation Club Pulse, New York City. See Footnote No. 13, “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 Asia Pacific segment, contingent upon completion of construction to agreed-upon standards within specified timeframes. As of December 31, 2017, we expected to complete the acquisition in 2019 and to make payments with respect to these units when specific construction milestones were completed, as follows: $13.7 million in 2018 and $25.4 million in 2019. During the first quarter of 2018, we amended the terms of this commitment and, as a result, we expect to make payments of $5.8 million in 2018, $30.9 million in 2019 and $1.9 million in 2020.

We have a remaining commitment to purchase vacation ownership units located at our resort in Marco Island, Florida for $108.2 million, which we expect will be paid as follows: $23.7 million in 2018 and $84.5 million in 2019. See Footnote No. 5, “Acquisitions and Dispositions,” for additional information on this transaction and Footnote No. 13, “Variable Interest Entities,” for additional information on our activities relating to the variable interest involved in this transaction.

During the first quarter of 2018, we assigned a commitment to purchase an operating property located in San Francisco, California, that we had as of December 31, 2017, to a third-party developer in a capital efficient inventory arrangement. We expect to acquire the operating property in 2020 and to pay the purchase price of $163.5 million as follows: $100.0 million in 2020 and $63.5 million in 2021. We are required to purchase the operating property from the third-party developer unless it has been sold 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 will not consolidate the variable interest entity.

Surety bonds issued as of December 31, 2017 totaled $34.6 million, the majority of which were requested by federal, state or local governments in connection with our operations.

Additionally, as of December 31, 2017, we had $4.6 million of letters of credit outstanding under our $250.0 million revolving credit facility (the “Revolving Corporate Credit Facility”).

Loss Contingencies

In April 2013, Krishna and Sherrie Narayan and other owners of 12 residential units (owners of two of which subsequently agreed to release their claims) at the resort formerly known as The Ritz-Carlton Club & Residences, Kapalua Bay (“Kapalua Bay”) filed an amended complaint in Circuit Court for Maui County, Hawaii against us, certain of our subsidiaries, Marriott International, certain of its subsidiaries, and the joint venture in which we have an equity investment that developed and marketed vacation ownership and residential products at Kapalua Bay (the “Joint Venture”). In the original complaint, the plaintiffs alleged that defendants mismanaged funds of the residential owners association (the “Kapalua Bay Association”), created a conflict of interest by permitting their employees to serve on the Kapalua Bay Association’s board, and failed to disclose documents to which the plaintiffs were allegedly entitled. The amended complaint alleges breach of fiduciary duty, violations of the Hawaii Unfair and Deceptive Trade Practices Act and the Hawaii condominium statute, intentional misrepresentation and concealment, unjust enrichment and civil conspiracy. The relief sought in the amended complaint includes injunctive relief, repayment of all sums paid to us and our subsidiaries and Marriott International and its subsidiaries, compensatory and punitive damages, and treble damages under the Hawaii Unfair and Deceptive Trade Practices Act. We filed a motion in the Circuit Court to compel arbitration of plaintiffs’ claims. That motion was denied, but on appeal the Hawaii Intermediate Court of Appeals reversed. The Hawaii Supreme Court reversed the decision of the Intermediate Court of Appeals and reinstated the action in Circuit Court, which set the case for trial. We filed a petition with the United States Supreme Court

seeking review of the Hawaii Supreme Court’s decision. In January 2016, the U.S. Supreme Court issued an order vacating the Hawaii Supreme Court’s decision and remanding the case with instructions to reconsider its ruling in light of a U.S. Supreme Court decision reiterating the obligation of courts to enforce arbitration agreements. In July 2017, the Hawaii Supreme Court issued a decision reaffirming its prior ruling and remanding the case to the Circuit Court for trial. In November 2017, we filed a petition with the U.S. Supreme Court seeking review of the Hawaii Supreme Court’s July 2017 decision, which the U.S. Supreme Court denied in February 2018. We dispute the material allegations in the amended complaint and continue to defend against the action vigorously. Given the inherent uncertainties of litigation, we cannot estimate a range of the potential liability, if any, at this time.

In June 2013, Earl C. and Patricia A. Charles, owners of a fractional interest at Kapalua Bay, together with owners of 38 other fractional interests (owners of two of which subsequently agreed to release their claims) at Kapalua Bay, filed an amended complaint in the Circuit Court of the Second Circuit for the State of Hawaii against us, certain of our subsidiaries, Marriott International, certain of its subsidiaries, the Joint Venture, and other entities that have equity investments in the Joint Venture. The plaintiffs allege that the defendants failed to disclose the financial condition of the Joint Venture and the commitment of the defendants to the Joint Venture, and that defendants’ actions constituted fraud and violated the Hawaii Unfair and Deceptive Trade Practices Act, the Hawaii Condominium Property Act and the Hawaii Time Sharing Plans statute. The relief sought includes compensatory and punitive damages, attorneys’ fees, pre-judgment interest, declaratory relief, rescission and treble damages under the Hawaii Unfair and Deceptive Trade Practices Act. The complaint was subsequently further amended to add owners of two additional fractional interests as plaintiffs. The Circuit Court granted our motion to compel arbitration of the claims asserted by the plaintiffs. Plaintiffs appealed that decision to the Hawaii Intermediate Court of Appeals and also initiated arbitration. In July 2015, the Intermediate Court of Appeals reversed the decision of the Circuit Court and directed that the action be reinstated in the Circuit Court, based on the Hawaii Supreme Court’s decision in the Narayan case discussed above. In October 2017, following the August 2017 action of the Hawaii Supreme Court in the Narayan case, the Circuit Court set the Charles case for trial beginning in January 2019. In December 2017, we filed a motion with the Circuit Court to compel arbitration, which the Circuit Court denied in February 2018. We dispute the material allegations in the amended complaint and continue to defend against the action vigorously. Given the inherent uncertainties of litigation, we cannot estimate a range of the potential liability, if any, at this time.

In May 2015, we and certain of our subsidiaries were named as defendants in an action filed in the Superior Court of San Francisco County, California, by William and Sharon Petrick and certain other present and former owners of 69 fractional interests at the RCC San Francisco. The plaintiffs allege that the affiliation of the RCC San Francisco with our points-based Marriott Vacation Club Destinations (“MVCD”) program, certain alleged sales practices, and other acts we and the other defendants allegedly took caused an actionable decrease in the value of their fractional interests. The relief sought includes, among other things, compensatory and punitive damages, rescission, and pre- and post-judgment interest. Plaintiffs filed an amended complaint in April 2016. We filed a motion to dismiss, which the Court granted in part and denied in part in September 2017. The Court also granted leave to plaintiffs to file a second amended complaint, which plaintiffs filed in October 2017. In November 2017, we filed a motion to dismiss the second amended complaint. In February 2018, the Court granted our motion to dismiss and dismissed with prejudice plaintiffs’ claims regarding the existence of a fiduciary duty and breach of that duty. The Court also dismissed plaintiffs’ fraud claims but permitted plaintiffs to reassert those claims no later than March 10, 2018. We dispute the plaintiffs’ material allegations and continue to defend against the action vigorously. Given the early stages of the action and the inherent uncertainties of litigation, we cannot estimate a range of the potential liability, if any, at this time.

In March 2017, RCHFU, L.L.C. and other owners of 232 fractional interests at The Ritz-Carlton Club, Aspen Highlands (“RCC Aspen Highlands”) served an amended complaint in an action pending in the court against us, certain of our subsidiaries, and other third party defendants. The U.S. District Court for the District of Colorado has ordered that no further amendments will be permitted. The amended complaint alleges that the plaintiffs’ fractional interests were devalued by the affiliation of RCC Aspen Highlands and other Ritz-Carlton Clubs with our points-based MVCD program. The relief sought includes, among other things, unspecified damages, pre- and post-judgment interest, and attorneys’ fees. We filed a motion to dismiss the amended complaint, which remains pending. In February 2018, plaintiffs filed a motion seeking to add a claim for punitive damages to their complaint. We dispute the plaintiffs’ material allegations and continue to defend against the action vigorously. Given the early stages of the action and the inherent uncertainties of litigation, we cannot estimate a range of the potential liability, if any, at this time.

In May 2016, we, certain of our subsidiaries, and certain third parties were named as defendants in an action filed in the U.S. District Court for the Middle District of Florida by Anthony and Beth Lennen. The case is filed as a putative class action; the plaintiffs seek to represent a class consisting of themselves and all other purchasers of MVCD points, from inception of the MVCD program in June 2010 to the present, as well as all individuals who own or have owned weeks in any resorts for which weeks have been added to the MVCD program. Plaintiffs challenge the characterization of the beneficial interests in the MVCD trust that are sold to customers as real estate interests under Florida law. They also challenge the structure of the trust and associated operational aspects of the trust product. The relief sought includes, among other things, declaratory relief, an

unwinding of the MVCD product, and punitive damages. In September 2016, we filed a motion to dismiss the complaint and a motion to stay the case pending referral of certain questions to Florida state regulators, and the Court granted the motion to dismiss and denied the motion to stay. The Court granted leave to plaintiffs to file an amended complaint, which plaintiffs filed in October 2017. In November 2017, we filed a motion to dismiss the amended complaint, which remains pending. We dispute the plaintiffs’ material allegations and continue to defend against the action vigorously. Given the early stages of the action and the inherent uncertainties of litigation, we cannot estimate a range of the potential liability, if any, at this time.

Other

In September 2017, over 20 of our properties were impacted by Hurricane Irma and Hurricane Maria and, as a result, as of December 31, 2017, we have accrued $1.3 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 the Income Statement for the year ended December 31, 2017.

During 2016, our properties in Hilton Head and Myrtle Beach, South Carolina were temporarily closed as a result of damage from Hurricane Matthew. In the 2017 third quarter, we received $8.7 million in net insurance proceeds related to the settlement of business interruption insurance claims arising from Hurricane Matthew, which were recorded in the Gains and other income line on the Income Statement for the year ended December 31, 2017.

Leases

We have various land, corporate facilities, real estate and equipment operating leases. The land lease consists of a long-term golf course land lease with a term of 30 years. The corporate facilities leases are for our corporate headquarters and have lease terms of approximately six years. The other operating leases are primarily for office and retail space as well as equipment supporting our operations and have lease terms of between three and ten years. Certain of these leases provide for minimum rental payments and additional rental payments based on our operations of the leased property. We have summarized our future obligations under operating leases at December 31, 2017 below:



($ in thousands)	Land Lease		Corporate Facilities Leases		Other Operating Leases		Total
2018	$	1,157	$	3,628	$	12,666	$	17,451
2019	1,157		3,739		9,636		14,532
2020	1,157		3,850		7,710		12,717
2021	1,157		2,646		5,621		9,424
2022	1,157		—		5,455		6,612
Thereafter	6,939		—		28,547		35,486
Total minimum lease payments	$	12,724	$	13,863	$	69,635	$	96,222

The following table details the composition of rent expense associated with operating leases, net of sublease income, for the last three years:



($ in thousands)	2017		2016		2015
Minimum rentals	$	9,390	$	8,639	$	9,401
Additional rentals	3,905		3,845		3,876
	$	13,295	$	12,484	$	13,277

10. DEBT

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



($ in thousands)	At Year-End 2017			At Year-End 2016
Vacation ownership notes receivable securitizations, gross⁽¹⁾	$	845,131		$	738,362
Unamortized debt issuance costs	(10,242		)	(9,174		)
	834,889			729,188

Convertible notes, gross⁽²⁾	230,000			—
Unamortized debt discount and issuance costs	(37,482		)	—
	192,518			—

Non-interest bearing note payable	63,558			—
Unamortized debt discount⁽³⁾	(2,998		)	—
	60,560			—

Other debt, gross	27			834
Unamortized debt issuance costs	(2		)	(19		)
	25			815

Capital leases	7,221			7,221
	$	1,095,213		$	737,224

_________________________


⁽¹⁾	Interest rates as of December 31, 2017 range from 2.2% to 6.3% with a weighted average interest rate of 2.5%.


⁽²⁾	The effective interest rate as of December 31, 2017 was 4.7%.


⁽³⁾	Debt discount based on imputed interest rate of 6.0%.

See Footnote No. 13, “Variable Interest Entities,” for a discussion of the collateral for the non-recourse debt associated with the securitized vacation ownership notes receivable and the Warehouse Credit Facility.

The following table shows scheduled future principal payments for our debt as of December 31, 2017:



($ in thousands)	Vacation Ownership Notes Receivable Securitizations⁽¹⁾		Convertible Notes		Non-Interest Bearing Note Payable		Other Debt		Capital Leases		Total
Debt Principal Payments Year
2018	$	95,768	$	—	$	32,680	$	—	$	—	$	128,448
2019	92,273		—		30,878		—		7,221		130,372
2020	93,553		—		—		—		—		93,553
2021	94,503		—		—		—		—		94,503
2022	93,808		230,000		—		—		—		323,808
Thereafter	375,226		—		—		27		—		375,253
	$	845,131	$	230,000	$	63,558	$	27	$	7,221	$	1,145,937

_________________________


⁽¹⁾	The debt associated with our vacation ownership notes receivable securitizations is non-recourse to us.

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 above due to prepayments by the vacation ownership notes receivable obligors.

We paid cash for interest, net of amounts capitalized, of $21.6 million in 2017, $23.2 million in 2016 and $30.2 million in 2015.

Debt Associated with Vacation Ownership Notes Receivable Securitizations

During the 2017 third quarter, we completed the securitization of a pool of $360.8 million of vacation ownership notes receivable. In connection with the securitization, investors purchased in a private placement $350.0 million in vacation ownership loan backed notes from the MVW Owner Trust 2017-1 (the “2017-1 Trust”). Three classes of vacation ownership loan backed notes were issued by the 2017-1 Trust: $276.0 million of Class A Notes, $46.9 million of Class B Notes and $27.1 million of Class C Notes. The Class A Notes have an interest rate of 2.42 percent, the Class B Notes have an interest rate of 2.75 percent and the Class C Notes have an interest rate of 2.99 percent, for an overall weighted average interest rate of 2.51 percent.

Each of the transactions in which we have securitized vacation ownership notes receivable 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 2017, and as of December 31, 2017, no securitized vacation ownership notes receivable pools were out of compliance with their respective established parameters. As of December 31, 2017, we had 8 securitized vacation ownership notes receivable pools outstanding.

Convertible Notes

During the 2017 third quarter, we issued $230.0 million aggregate principal amount of Convertible Notes, which included the exercise in full of the over-allotment option we granted to the initial purchasers of the Convertible Notes to purchase up to an additional $30.0 million aggregate principal amount of Convertible Notes. The Convertible Notes are governed by an indenture dated September 25, 2017 (the “Indenture”) between us and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). We received net proceeds from the offering of approximately $223.7 million after adjusting for debt issuance costs, including the discount to the initial purchasers.

The Convertible Notes bear interest at a rate of 1.50 percent, payable in cash semi-annually on March 15 and September 15 of each year beginning on March 15, 2018. The Convertible Notes mature on September 15, 2022, unless repurchased or converted in accordance with their terms prior to that date. On or after June 15, 2022, and until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Convertible Notes at their option. The Convertible Notes are 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.

The conversion rate was adjusted during the 2017 fourth quarter to 6.7508 shares of common stock per $1,000 principal amount of Convertible Notes (equivalent to a conversion price of approximately $148.13 per share of our common stock) when we declared a quarterly dividend of $0.40 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.

Holders may convert their Convertible Notes prior to June 15, 2022 only under the following circumstances:

during any calendar quarter commencing after the calendar quarter ending on December 31, 2017 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 percent of the conversion price on each applicable trading day;

during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Convertible Notes for each trading day of that five consecutive trading day period was less than 98 percent of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; or

upon the occurrence of specified corporate events as described in the Indenture.

We may not redeem the Convertible Notes prior to their maturity date, and no sinking fund is provided for them. If we undergo a fundamental change, as described in the Indenture, subject to certain conditions, holders may require us to repurchase for cash all or any portion of their Convertible Notes. The repurchase price as a result of a fundamental change is equal to 100 percent of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to,

but excluding, the repurchase date. If certain fundamental changes referred to in the Indenture as make-whole fundamental changes occur, the conversion rate applicable to the Convertible Notes may increase.

The Convertible Notes are our general senior unsecured obligations, ranking senior in right of payment to any future debt that is expressly subordinated in right of payment to the Convertible Notes and equally in right of payment with all of our existing and future liabilities that are not so subordinated. The Convertible Notes are effectively subordinated to all of our existing and future secured debt to the extent of the value of the assets securing such debt. The Convertible Notes are structurally subordinated to all of the existing and future liabilities and obligations of our subsidiaries. The Convertible Notes are not guaranteed by any of our subsidiaries.

There are no financial or operating covenants related to the Convertible Notes. The Indenture contains customary events of default with respect to the Convertible Notes and provides that upon the occurrence and continuation of certain events of default, the Trustee or the holders of at least 25 percent in aggregate principal amount of the Convertible Notes then outstanding, may declare all principal of, and accrued and any unpaid interest on, the Convertible Notes then outstanding to be immediately due and payable. In case of certain events of bankruptcy or insolvency involving the Company or certain of its subsidiaries, all of the principal of and accrued and unpaid interest on the Convertible Notes will automatically become immediately due and payable.

In accounting for the issuance of the Convertible Notes, we separated the Convertible Notes into liability and equity components, and allocated $196.8 million to the liability component and $33.2 million to the equity component. The resulting debt discount is amortized as interest expense. As of December 31, 2017, the remaining debt discount amortization period was 4.7 years. We also incurred issuance costs of $7.3 million related to the Convertible Notes.

The following table shows the net carrying value of the Convertible Notes at December 31, 2017:



($ in thousands)
Liability component
Principal amount	$	230,000
Unamortized debt discount	(31,596		)
Unamortized debt issuance costs	(5,886		)
	$	192,518

Equity component, net of issuance costs	$	32,573

The following table shows the total interest expense related to the Convertible Notes for the year ended December 31, 2017:



($ in thousands)
Contractual interest expense	$	920
Amortization of debt discount	1,629
Amortization of debt issuance costs	325
	$	2,874

Convertible Note Hedges and Warrants

In connection with the offering of the Convertible Notes, we entered into privately-negotiated convertible note hedge transactions with respect to our common stock with two counterparties on each of September 20, 2017 and September 21, 2017 (“Convertible Note Hedges”), covering a total of approximately 1.55 million shares of our common stock at a cost of $33.2 million. The Convertible Note Hedges are subject to anti-dilution provisions substantially similar to those of the Convertible Notes, have a strike price that initially corresponds to the initial conversion price of the Convertible Notes, are exercisable by us upon any conversion under the Convertible Notes, and expire when the Convertible Notes mature. The cost of the Convertible Note Hedges is expected to be tax deductible as an original issue discount over the life of the Convertible Notes, as the Convertible Notes and the Convertible Note Hedges represent an integrated debt instrument for tax purposes. The cost of the Convertible Note Hedges was recorded as a reduction of Additional paid-in capital on our Balance Sheet as of December 31, 2017.

Concurrently with the entry into the Convertible Note Hedges, we separately entered into privately-negotiated warrant transactions (the “Warrants”), whereby we sold to the counterparties to the Convertible Note Hedges warrants to acquire, collectively, subject to anti-dilution adjustments, approximately 1.55 million shares of our common stock at an initial strike price of $176.68 per share. We received aggregate proceeds of approximately $20.3 million from the sale of the Warrants to the counterparties. Taken together, the Convertible Note Hedges and the Warrants are generally expected to reduce the potential

dilution to our common stock (or, in the event the conversion of the Convertible Notes is settled in cash, to reduce our cash payment obligation) in the event that at the time of conversion our stock price exceeds the conversion price under the Convertible Notes and to effectively increase the overall conversion price from $148.19 (or a conversion premium of 30 percent) to $176.68 per share (or a conversion premium of 55 percent). The Warrants will expire in ratable portions on a series of expiration dates commencing on December 15, 2022. The proceeds from the issuance of the Warrants were recorded as an increase to Additional paid-in capital on our Balance Sheet as of December 31, 2017.

The Convertible Notes, the Convertible Note Hedges and the Warrants are transactions that are separate from each other. Holders of any such instrument have no rights with respect to the other instruments. As of December 31, 2017, no Convertible Note Hedges or Warrants have been exercised.

Revolving Corporate Credit Facility

During the 2017 third quarter, we terminated our $200.0 million revolving credit facility (the “Previous Revolving Corporate Credit Facility”) and entered into a new Revolving Corporate Credit Facility with a borrowing capacity of $250.0 million, including a letter of credit sub-facility of $30.0 million, that terminates on August 16, 2022. All outstanding cash borrowings under our Previous Revolving Corporate Credit Facility were repaid in full prior to termination. The Revolving Corporate Credit Facility provides support for our business, including ongoing liquidity and letters of credit. Borrowings under this 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 basis points per annum to 40 basis points per annum, also depending on our credit rating.

No cash borrowings were outstanding as of December 31, 2017 under our Revolving Corporate Credit Facility. Any amounts borrowed under that 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 borrower under, and guarantors of, that facility (which include Marriott Vacations Worldwide and each 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. As of December 31, 2017, we were in compliance with the applicable financial and operating covenants under the Revolving Credit Facility.

Warehouse Credit Facility

The Warehouse Credit Facility, which has a borrowing capacity of $250.0 million, allows for the securitization of vacation ownership notes receivable on a non-recourse basis. During the 2017 third quarter, we amended certain agreements associated with this facility (the “Warehouse Amendment”). The Warehouse Amendment requires us to comply with the financial covenants in the Revolving Corporate Credit Facility and eliminates the requirement to comply with the covenants contained in the Previous Revolving Corporate Credit Facility. The Warehouse Amendment did not modify the borrowing capacity or the term of the Warehouse Credit Facility. The Warehouse Credit Facility terminates on March 7, 2019 and if not renewed, any amounts outstanding thereunder would become due and payable 13 months after termination, at which time all principal and interest collected with respect to the vacation ownership notes receivable held in the Warehouse Credit Facility would be redirected to the lenders to pay down the outstanding debt under the facility. The advance rate for vacation ownership notes receivable securitized using the Warehouse Credit Facility varies based on the characteristics of the securitized vacation ownership notes receivable. We also pay unused facility and other fees under the Warehouse Credit Facility.

During the 2017 second quarter, we securitized vacation ownership notes receivable under our Warehouse Credit Facility. The carrying amount of the vacation ownership notes receivable securitized was $59.1 million. The advance rate was 85 percent, which resulted in gross proceeds of $50.3 million. Net proceeds were $50.0 million due to the funding of reserve accounts in the amount of $0.3 million.

As of December 31, 2017, there were no cash borrowings outstanding under our Warehouse Credit Facility. We generally expect to securitize our vacation ownership notes receivable, including any vacation ownership notes receivable held in the Warehouse Credit Facility, in the ABS market once per year.

Non-Interest Bearing Note Payable

During the 2017 second quarter, we issued a non-interest bearing note payable in connection with the acquisition of vacation ownership units located on the Big Island of Hawaii. See Footnote No. 5, “Acquisitions and Dispositions,” for additional information regarding this transaction.

Capital Leases

In 2016 we entered into a capital lease arrangement for ancillary and operations space in connection with the commitment to purchase an operating property located in New York, New York. See Footnote No. 9, “Contingencies and Commitments,” for additional information regarding this transaction.

11.SHAREHOLDERS’ EQUITY

Marriott Vacations Worldwide has 100,000,000 authorized shares of common stock, par value of $0.01 per share. At December 31, 2017, there were 36,861,843 shares of Marriott Vacations Worldwide common stock issued, of which 26,461,296 shares were outstanding and 10,400,547 shares were held as treasury stock. At December 30, 2016, there were 36,633,868 shares of Marriott Vacations Worldwide common stock issued, of which 26,990,306 shares were outstanding and 9,643,562 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 December 31, 2017 or December 30, 2016.

Share Repurchase Program

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



($ in thousands, except per share amounts)	Number of Shares Repurchased	Cost of Shares Repurchased		Average Price Paid per Share
As of December 30, 2016	9,672,629	$	608,439	$	62.90
For the year ended December 31, 2017	767,876	88,305		115.00
As of December 31, 2017	10,440,505	$	696,744	$	66.73

On August 1, 2017, our Board of Directors authorized the repurchase of up to 1.0 million additional shares of our common stock under our existing share repurchase program and extended the duration of the program through May 31, 2018. As of December 31, 2017, our Board of Directors had authorized the repurchase of an aggregate of up to 11.9 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 December 31, 2017, 1.5 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 year ended December 31, 2017 as follows:



Declaration Date	Shareholder Record Date	Distribution Date	Dividend per Share
February 9, 2017	February 23, 2017	March 9, 2017	$0.35
May 11, 2017	May 25, 2017	June 8, 2017	$0.35
September 7, 2017	September 21, 2017	October 5, 2017	$0.35
December 7, 2017	December 21, 2017	January 4, 2018	$0.40

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

12. SHARE-BASED COMPENSATION

We maintain the Stock Plan for the benefit of our officers, directors and employees. Under the Stock Plan, we award: (1) RSUs of our common stock, (2) SARs for 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 Stock Plan. As of December 31, 2017, 1.4 million shares were available for grants under the Stock Plan.

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



($ in thousands)	2017		2016		2015
Service based RSUs	$	10,147	$	9,372	$	8,879
Performance based RSUs	3,752		2,502		3,343
	13,899		11,874		12,222
SARs	2,387		2,075		1,920
Stock options	—		—		—
	$	16,286	$	13,949	$	14,142

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



($ in thousands)	At Year-End 2017⁽¹⁾		At Year-End 2016
Service based RSUs	$	8,918	$	9,000
Performance based RSUs	4,752		3,307
	13,670		12,307
SARs	999		1,146
Stock options	—		—
	$	14,669	$	13,453

_________________________


⁽¹⁾	As of December 31, 2017, the weighted average remaining term for RSU grants outstanding at year-end 2017 was 1.8 years and we expect that deferred compensation expense will be recognized over a weighted average period of 2.4 years.

Restricted Stock Units

We have issued RSUs that vest over time, which we refer to as service based RSUs, and RSUs that vest based on performance with respect to established criteria, which we refer to as performance based RSUs.

The following table shows the changes in our outstanding RSUs and the associated weighted average grant-date fair values:



	2017
	Service Based			Performance Based			Total
	Number of RSUs	Weighted Average Grant-Date Fair Value Per RSU		Number of RSUs	Weighted Average Grant-Date Fair Value Per RSU		Number of RSUs	Weighted Average Grant-Date Fair Value Per RSU
Outstanding at year-end 2016	514,947	$	49.36	279,284	$	61.30	794,231	$	53.56
Granted	115,334	$	96.53	94,436	$	93.41	209,770	$	95.12
Distributed	(152,783)	$	51.88	(50,978)	$	52.09	(203,761)	$	51.93
Forfeited	(6,491)	$	74.47	(11,230)	$	52.09	(17,721)	$	60.28
Outstanding at year-end 2017	471,007	$	59.49	311,512	$	72.89	782,519	$	64.83

The weighted average grant-date fair value per RSU granted in 2016 and 2015 was $53.56 and $75.61, respectively. The fair value of RSUs which vested in 2017, 2016 and 2015, was $18.2 million, $13.2 million and $30.0 million, respectively.

SARs

The following table shows the changes in our outstanding SARs and the associated weighted average exercise prices:



	2017
	Number of SARs	Weighted Average Exercise Price Per SAR
Outstanding at year-end 2016	781,903	$	34.97
Granted	81,977	97.53
Exercised	(205,427)	19.35
Forfeited or expired	—	—
Outstanding at year-end 2017⁽¹⁾⁽²⁾	658,453	$	47.63

_________________________


⁽¹⁾	As of December 31, 2017, outstanding SARs had a total intrinsic value of $58.3 million and a weighted average remaining term of 5.9 years.


⁽²⁾	As of December 31, 2017, 431,543 SARs with a weighted average exercise price of $32.62, an aggregate intrinsic value of $44.7 million and a weighted average remaining contractual term of 4.6 years were exercisable.

The weighted average grant-date fair value per SAR granted in 2017, 2016 and 2015 was $27.63, $16.12 and $29.75, respectively. The intrinsic value of SARs which vested in 2017, 2016 and 2015, was $6.2 million, $1.4 million and $4.7 million, respectively. The aggregate intrinsic value of SARs which were exercised in 2017, 2016 and 2015 was $18.7 million, $5.6 million and $4.3 million, respectively.

We use the Black-Scholes model to estimate the fair value of the SARs granted. For SARs granted under the Stock Plan subsequent to the Spin-Off, the expected stock price volatility was calculated based on the historical volatility from the stock prices of a group of identified peer companies. The average expected life was calculated using the simplified method. 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.

The following table outlines the assumptions used to estimate the fair value of grants in 2017, 2016 and 2015:



	2017	2016	2015
Expected volatility	30.41%	31.60%	42.74%
Dividend yield	1.44%	1.96%	1.26%
Risk-free rate	2.06%	1.41%	1.74%
Expected term (in years)	6.25	6.25	6.25

Stock Options

We may grant non-qualified stock options to employees and non-employee directors at exercise prices or strike prices equal to the market price of our common stock on the date of grant.

There were no outstanding or exercisable stock options held by our employees at year-end 2017 or 2016, and no stock options were granted to our employees in 2017, 2016 or 2015. At December 31, 2017, approximately 9,000 stock options were outstanding and exercisable with a weighted average exercise price per option of $18.36 and a weighted average remaining life of approximately two years.

Employee Stock Purchase Plan

During 2015, the Board of Directors adopted, and our shareholders subsequently approved, the Marriott Vacations Worldwide Corporation Employee Stock Purchase Plan (the “ESPP”), which became effective during 2015. A total of 500,000 shares of common stock may be purchased under the ESPP. The ESPP allows eligible employees to purchase shares of our common stock at a price per share not less than 95% of the fair market value per share of common stock on the purchase date, up to a maximum threshold established by the plan administrator for the offering period.

13. 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.

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 December 31, 2017:



($ in thousands)	Vacation Ownership Notes Receivable Securitizations		Warehouse Credit Facility		Total
Consolidated Assets
Vacation ownership notes receivable, net of reserves	$	815,331	$	—	$	815,331
Interest receivable	5,639		—		5,639
Restricted cash	32,317		4		32,321
Total	$	853,287	$	4	$	853,291
Consolidated Liabilities
Interest payable	$	651	$	50	$	701
Debt	845,131		—		845,131
Total	$	845,782	$	50	$	845,832

The noncontrolling interest balance was zero. The creditors of these entities do not have general recourse to us.

The following table shows the interest income and expense recognized as a result of our involvement with these variable interest entities during 2017:



($ in thousands)	Vacation Ownership Notes Receivable Securitizations		Warehouse Credit Facility		Total
Interest income	$	98,862	$	2,331	$	101,193
Interest expense to investors	$	18,872	$	1,676	$	20,548
Debt issuance cost amortization	$	3,731	$	938	$	4,669
Administrative expenses	$	409	$	153	$	562

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



($ in thousands)	2017			2016
Cash Inflows
Net proceeds from vacation ownership notes receivable securitizations	$	346,469		$	247,453
Principal receipts	228,723			174,830
Interest receipts	99,766			91,972
Reserve release	757			50,733
Total	675,715			564,988
Cash Outflows
Principal to investors	(214,907		)	(166,652		)
Voluntary repurchases of defaulted vacation ownership notes receivable	(28,324		)	(29,590		)
Interest to investors	(18,630		)	(17,449		)
Funding of restricted cash	(1,804		)	(51,770		)
Total	(263,665		)	(265,461		)
Net Cash Flows	$	412,050		$	299,527

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



($ in thousands)	2017			2016
Cash Inflows
Proceeds from vacation ownership notes receivable securitizations	$	50,260		$	126,622
Principal receipts	1,403			5,227
Interest receipts	2,093			5,048
Reserve release	296			909
Total	54,052			137,806
Cash Outflows
Principal to investors	(1,160		)	(3,771		)
Voluntary repurchases of defaulted vacation ownership notes receivable	—			(661		)
Repayment of Warehouse Credit Facility	(49,100		)	(122,190		)
Interest to investors	(1,672		)	(1,796		)
Funding of restricted cash	(296		)	(447		)
Total	(52,228		)	(128,865		)
Net Cash Flows	$	1,824		$	8,941

Under the terms of our vacation ownership notes receivable securitizations, we have the right at our option to repurchase defaulted vacation ownership notes receivable at the outstanding principal balance. The transaction documents typically limit such repurchases to 15 to 20 percent of the transaction’s initial vacation ownership notes receivable principal balance. We made voluntary repurchases of defaulted vacation ownership notes receivable of $28.3 million during 2017, $30.3 million during 2016 and $24.6 million during 2015. We also made voluntary repurchases of $57.4 million, $144.1 million and $146.2 million of other non-defaulted vacation ownership notes receivable during 2017, 2016 and 2015, respectively, to retire previous vacation ownership notes receivable securitizations. 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. In addition, we could be required to fund up to an aggregate of $5.0 million upon presentation of demand notes related to certain vacation ownership notes receivable securitization transactions outstanding at December 31, 2017.

Other Variable Interest Entities

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 No. 9, “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 December 31, 2017, our Balance Sheet reflected $8.3 million in

Property and equipment related to a capital lease and leasehold improvements and $7.2 million in Debt related to the capital lease liability for ancillary and operations space we lease from the variable interest entity. In addition, a note receivable of $0.5 million is included in the Accounts and contracts receivable line on the Balance Sheet as of December 31, 2017. We believe that our maximum exposure to loss as a result of our involvement with this variable interest entity is $2.3 million as of December 31, 2017.

Pursuant to a commitment to repurchase an operating property located in Marco Island, Florida that was previously sold to a third-party developer, we acquired 36 completed vacation ownership units during the 2017 second quarter. Refer to Footnote No. 5, “Acquisitions and Dispositions” for additional information on this transaction. We remain obligated to repurchase the remaining portion of the operating property if it meets our brand standards upon completion, provided that the third-party developer has not sold it to another party. Refer to Footnote No. 9, “Contingencies and Commitments” for additional information on our remaining commitment. The developer is a variable interest entity for which we are not the primary beneficiary as we do not control the variable interest entity’s development activities and 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 December 31, 2017, our Balance Sheet reflected $3.7 million of Inventory, $2.4 million of Other assets that relate to prepaid and other deposits, and $7.5 million of Other liabilities that relate to the deferral of gain recognition on the previous sale transaction and the deferral of revenue for development management services for the remaining purchase commitment, both of which will reduce our basis in the asset if we repurchase the property. In addition, a note receivable of $0.5 million is included in the Accounts and contracts receivable line on the Balance Sheet as of December 31, 2017. 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 December 31, 2017.

14. BUSINESS SEGMENTS

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

In our North America segment, we develop, market, sell and manage vacation ownership and related products under the Marriott Vacation Club and Grand Residences by Marriott brands, as well as under Marriott Vacation Club Pulse, an extension to the Marriott Vacation Club brand. We also develop, market and sell vacation ownership and related products under The Ritz-Carlton Destination Club brand, as well as whole ownership residential products under The Ritz-Carlton Residences brand.

In our Asia Pacific segment, we develop, market, sell and manage two points-based programs that we specifically designed to appeal to the vacation preferences of the market, Marriott Vacation Club, Asia Pacific and Marriott Vacation Club Destinations, Australia, as well as a weeks-based right-to-use product.

In our Europe segment, we are focusing on selling our existing projects and managing existing resorts. We do not have any current plans for new development in this segment.

We evaluate 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, consumer financing interest expense, other financing expenses or general and administrative expenses to our segments. We include interest income specific to segment activities within the appropriate segment. We allocate other gains and losses and equity in earnings or losses from our joint ventures to each of our segments as appropriate. Corporate and other represents that portion of our revenues and other gains or losses that are not allocable to our segments.

Revenues



($ in thousands)	2017		2016⁽¹⁾		2015⁽¹⁾
North America	$	1,777,345	$	1,627,916	$	1,605,102
Asia Pacific	67,773		74,949		93,632
Europe	106,827		105,621		112,061
Total segment revenues	1,951,945		1,808,486		1,810,795
Corporate and other	—		—		—
	$	1,951,945	$	1,808,486	$	1,810,795

_________________________


⁽¹⁾	Results have been reclassified to conform to our 2017 financial statement presentation.

Net Income



($ in thousands)	2017			2016⁽¹⁾			2015⁽¹⁾
North America	$	427,873		$	423,334		$	409,596
Asia Pacific	(968		)	1,278			7,263
Europe	14,678			12,067			13,874
Total segment financial results	441,583			436,679			430,733
Corporate and other	(215,700		)	(213,751		)	(224,236		)
Benefit (provision) for income taxes	895			(85,580		)	(83,698		)
	$	226,778		$	137,348		$	122,799

_________________________


⁽¹⁾	Results have been reclassified to conform to our 2017 financial statement presentation.

Depreciation



($ in thousands)	2017		2016		2015
North America	$	12,869	$	12,046	$	12,935
Asia Pacific	880		1,235		2,424
Europe	1,308		1,462		1,601
Total segment depreciation	15,057		14,743		16,960
Corporate and other	6,437		6,301		5,257
	$	21,494	$	21,044	$	22,217

Assets



($ in thousands)	At Year-End 2017		At Year-End 2016
North America	$	2,143,664	$	1,968,021
Asia Pacific	134,939		102,348
Europe	64,535		62,245
Total segment assets	2,343,138		2,132,614
Corporate and other	563,055		258,805
	$	2,906,193	$	2,391,419

Capital Expenditures (including inventory)



($ in thousands)	2017		2016		2015
North America	$	142,897	$	136,889	$	179,696
Asia Pacific	26,475		21,276		72,097
Europe	5,047		6,153		2,807
Total segment capital expenditures	174,419		164,318		254,600
Corporate and other	7,068		8,412		10,260
	$	181,487	$	172,730	$	264,860

Our Financial Statements include the following items related to operations located outside the United States (which are predominately related to our Asia Pacific and Europe segments):

Revenues, excluding cost reimbursements, of $191.8 million in 2017, $195.4 million in 2016 and $218.3 million in 2015; and

Fixed assets of $77.3 million in 2017 and $60.0 million in 2016. For year-end 2017 and year-end 2016, fixed assets located outside the United States are included within the “Property and equipment” caption on our Balance Sheets.

15. QUARTERLY RESULTS (UNAUDITED)



	2017⁽¹⁾⁽²⁾
($ in thousands, except per share data)	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Fiscal Year
Revenues	$	486,119		$	497,620		$	486,990		$	481,216		$	1,951,945
Expenses	$	(432,555	)	$	(430,204	)	$	(428,300	)	$	(429,604	)	$	(1,720,663	)
Net income	$	33,700		$	44,276		$	40,762		$	108,040		$	226,778
Basic earnings per share	$	1.24		$	1.62		$	1.50		$	4.05		$	8.38
Diluted earnings per share	$	1.21		$	1.58		$	1.47		$	3.95		$	8.18


	2016^(2)(3)(4)
($ in thousands, except per share data)	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Fiscal Year
Revenues	$	419,122		$	423,171		$	401,637		$	564,556		$	1,808,486
Expenses	$	(374,440	)	$	(368,674	)	$	(358,906	)	$	(481,195	)	$	(1,583,215	)
Net income	$	24,408		$	36,309		$	26,807		$	49,824		$	137,348
Basic earnings per share	$	0.84		$	1.28		$	0.99		$	1.83		$	4.93
Diluted earnings per share	$	0.82		$	1.26		$	0.97		$	1.80		$	4.83

_______________________

⁽¹⁾

Beginning with our 2017 fiscal year, we changed our financial reporting cycle to a calendar year-end and end-of-month quarterly reporting cycle. Accordingly our 2017 first quarter included the period from December 31, 2016 (the day after the end of the 2016 fiscal year) through March 31, 2017, and our 2017 second, third and fourth quarters included the three month periods ended June 30, September 30, and December 31, respectively.


⁽²⁾	The sum of the earnings per share for the four quarters differs from annual earnings per share due to the required method of computing the weighted average shares in interim periods.


⁽³⁾	The 2016 quarters consisted of 12 weeks, except for the fourth quarter of 2016, which consisted of 16 weeks.


⁽⁴⁾	The quarterly results have been reclassified to conform to our 2017 financial statement presentation.

16. SUBSEQUENT EVENTS

Dividends

On February 16, 2018, our Board of Directors declared a quarterly dividend of $0.40 per share to be paid on March 15, 2018 to shareholders of record as of March 1, 2018.

Amendments to Agreements with Marriott International

In February 2018, we amended several of the agreements governing our ongoing relationship with Marriott International, including the agreements that provide for our license arrangements with Marriott International and The Ritz-Carlton Hotel Company and our participation in the Marriott Rewards programs. Pursuant to these amendments, in exchange for agreeing to a limited exception to our exclusive rights with respect to access to the Marriott Rewards program and member lists and Marriott International’s reservation system and marriott.com website, we received a number of benefits, including a reduction in the annual royalty fee we pay to Marriott International, increased annual co-marketing funds associated with Marriott International’s new credit card arrangements and reduced costs of Marriott Rewards points under our existing agreements with Marriott International resulting from planned system-wide reductions in the rates Marriott International charges its loyalty program partners, and certain expanded marketing rights.

17.ADOPTION OF ASC 606 EFFECTIVE JANUARY 1, 2018

As discussed in Footnote No. 1, “Summary of Significant Accounting Policies,” the FASB issued ASU 2014-09 in 2014, which, as amended, created ASC 606. The core principle of ASC 606 is that an entity shall recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also contains significant new disclosure requirements regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. We will adopt ASC 606 effective January 1, 2018, on a retrospective basis.

Upon adoption of ASC 606, recognition of revenue from the sale of vacation ownership products that is deemed collectible will be deferred from the point in time at which the statutory rescission period expires to closing, when control of the vacation ownership product is transferred to the customer. In addition, we will align our assessment of collectibility of the transaction price for sales of vacation ownership products with our credit granting policies. We have elected the practical expedient to expense all marketing and sales costs as they are incurred. Our consolidated cost reimbursements revenues and cost reimbursements expenses will increase significantly, as all costs reimbursed to us by property owners’ associations will be reported on a gross basis upon adoption of ASC 606. In conjunction with the adoption of ASC 606 we will reclassify certain revenues and expenses.

The following tables summarize the impact of the aforementioned adjustments on select financial statement line items for the periods presented:



	2017
($ in thousands, except per share amounts)	As Reported			Adjustments			As Adjusted
REVENUES
Sale of vacation ownership products	$	727,940		$	29,498		$	757,438
Resort management and other services	306,196			(27,358		)	278,838
Financing	134,906			—			134,906
Rental	322,902			(60,863		)	262,039
Cost reimbursements	460,001			289,601			749,602
TOTAL REVENUES	1,951,945			230,878			2,182,823
EXPENSES
Cost of vacation ownership products	177,813			17,034			194,847
Marketing and sales	408,715			(13,825		)	394,890
Resort management and other services	172,137			(17,913		)	154,224
Financing	17,951			—			17,951
Rental	281,352			(57,970		)	223,382
General and administrative	110,225			—			110,225
Litigation settlement	4,231			—			4,231
Consumer financing interest	25,217			—			25,217
Royalty fee	63,021			—			63,021
Cost reimbursements	460,001			289,601			749,602
TOTAL EXPENSES	1,720,663			216,927			1,937,590
Gains and other income, net	5,772			—			5,772
Interest expense	(9,572		)	—			(9,572		)
Other	(1,599		)	—			(1,599		)
INCOME BEFORE INCOME TAXES	225,883			13,951			239,834
Benefit (provision) for income taxes	895			(5,405		)	(4,510		)
NET INCOME	$	226,778		$	8,546		$	235,324

EARNINGS PER SHARE
Earnings per share - Basic	$	8.38		$	0.32		$	8.70
Earnings per share - Diluted	$	8.18		$	0.31		$	8.49



	2016
($ in thousands, except per share amounts)	As Reported			Adjustments			As Adjusted
REVENUES
Sale of vacation ownership products	$	637,503		$	(15,078	)	$	622,425
Resort management and other services	300,821			(23,285		)	277,536
Financing	126,126			881			127,007
Rental	312,071			(59,707		)	252,364
Cost reimbursements	431,965			288,507			720,472
TOTAL REVENUES	1,808,486			191,318			1,999,804
EXPENSES
Cost of vacation ownership products	155,093			7,850			162,943
Marketing and sales	353,295			(13,682		)	339,613
Resort management and other services	174,311			(17,576		)	156,735
Financing	18,631			135			18,766
Rental	260,752			(49,186		)	211,566
General and administrative	104,833			—			104,833
Litigation settlement	(303		)	—			(303		)
Consumer financing interest	23,685			—			23,685
Royalty fee	60,953			—			60,953
Cost reimbursements	431,965			288,507			720,472
TOTAL EXPENSES	1,583,215			216,048			1,799,263
Gains and other income, net	11,201			—			11,201
Interest expense	(8,912		)	—			(8,912		)
Other	(4,632		)	—			(4,632		)
INCOME BEFORE INCOME TAXES	222,928			(24,730		)	198,198
(Provision) benefit for income taxes	(85,580		)	9,320			(76,260		)
NET INCOME	$	137,348		$	(15,410	)	$	121,938

EARNINGS PER SHARE
Earnings per share - Basic	$	4.93		$	(0.56	)	$	4.37
Earnings per share - Diluted	$	4.83		$	(0.54	)	$	4.29



Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.



Item 9A.	Controls and Procedures

Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report, 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 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.

Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). ~~Management’s~~We have set forth management’s annual report on internal control over financial reporting and the independent registered public accounting firm’s report on the effectiveness of our internal control over financial reporting ~~are incorporated by reference to pages F-2 and F-3~~in Part II, Item 8 of this Annual ~~Report.~~

Report, and we incorporate those reports by reference.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the fourth quarter of ~~2014~~2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



Item 9B.	Other Information

~~None.~~

As discussed above in “Business - Our History,” on February 26, 2018, we and Marriott International amended several of the agreements governing our ongoing relationship. We entered into, among other agreements, the following:

a First Amendment to License, Services, and Development Agreement (the “Marriott License Amendment”) among Marriott International, its subsidiary Marriott Worldwide Corporation and Marriott Vacations Worldwide, which amends the Marriott License Agreement;

a First Amendment to License, Services, and Development Agreement (the “Ritz-Carlton License Amendment”) between The Ritz-Carlton Hotel Company and Marriott Vacations Worldwide, which amends the Ritz-Carlton License Agreement;

a First Amendment to Marriott Rewards Affiliation Agreement (the “Marriott Rewards Amendment”) among Marriott International, its subsidiary Marriott Rewards, LLC, Marriott Vacations Worldwide and our subsidiary Marriott Ownership Resorts, Inc., which amends the Marriott Rewards Agreement;

an Amended and Restated Side Letter Agreement (the “Amended Program Affiliation Side Letter”) among Marriott International, Marriott Worldwide Corporation, Marriott Rewards, LLC, Marriott Vacations Worldwide and Marriott Ownership Resorts, Inc., which amends and restates the Side Letter Agreement - Program Affiliation dated September 21, 2016; and

a Termination of Noncompetition Agreement (the “Noncompetition Termination Agreement”) between Marriott International and Marriott Vacations Worldwide.

The following summary of the terms of Marriott License Amendment, the Ritz-Carlton License Amendment, the Marriott Rewards Amendment, the Amended Program Affiliation Side Letter and the Noncompetition Termination Agreement is qualified in its entirety by reference to the full text of the foregoing agreements, which are filed as exhibits to this Annual Report.

Marriott License Amendment

Pursuant to the Marriott License Amendment, we agreed to a limited exception to our exclusive rights with respect to Marriott International’s customer loyalty programs, reservation system, marriott.com website and customer loyalty program member lists that permits their use in the business of Marriott International’s other timeshare licensee, Vistana Signature Experiences, Inc. (“Vistana”). For so long as this “Vistana Exclusive Rights Exception” is in effect, the fixed portion of the royalty fee that we pay to Marriott International, which is currently $51.9 million per year, will be reduced by $3 million per year.

The Marriott License Amendment extends our exclusive rights that relate to the Marriott Hotels, Resorts and Suites (including Marriott Marquis Hotels), JW Marriott Hotels and Resorts (including JW Marriott Marquis Hotels), Renaissance Hotels and Resorts, Courtyard by Marriott Hotels, and Ritz-Carlton Hotels and Resorts brands to the Autograph Collection Hotels, Gaylord Hotels, Delta Hotels & Resorts, Le Méridien Hotels, Tribute Portfolio Hotels, W Hotels and The Luxury Collection Hotels brands, as well as the Sheraton Hotels, Westin Hotels and St. Regis Hotels and Resorts brands, with certain exceptions with respect to these three brands as described below related to the Vistana business.

Pursuant to the Vistana Exclusive Rights Exception, Vistana may access Sheraton Hotels, Westin Hotels and St. Regis Hotels to market vacation ownership products and as an ancillary benefit exchange option for vacation ownership products. Marriott International agreed, however, not to enter into arrangements with Vistana that would preclude us from accessing properties operating under legacy Starwood brands (St. Regis Hotels and Resorts, Luxury Collection Hotels, Le Méridien Hotels, Sheraton Hotels, Westin Hotels, W Hotels, Tribute Portfolio Hotels, Aloft Hotels, Element Hotels, Four Points by Sheraton Hotels, and Design Hotels) to market vacation ownership products, except for certain existing arrangements. In markets where Vistana both operates a vacation ownership property under the Sheraton or Westin brands and actively conducts sales operations in a physical location, we will be able to access those Sheraton and Westin hotels where we operate a vacation ownership property that is co-located with such hotel; in markets where Vistana both operates a vacation ownership property under the St. Regis brand and actively conducts sales operations in a physical location, we will be able to access those St. Regis hotels where we operate a vacation ownership property that is co-located with such hotel. Marriott International also agreed not to enter into arrangements that would permit the marketing of vacation ownership products by others in markets in which we operate resorts and are actively conducting sales operations at a physical location, except that Vistana may market vacation ownership products in a Sheraton or Westin branded hotel in any market in which it operates a Sheraton or Westin vacation ownership project and may market vacation ownership products in a St. Regis branded hotel in any market in which it operates a St. Regis vacation ownership project. Any such arrangements not subject to the exceptions described in the preceding sentence that are already in effect will continue only until the expiration of their current terms.

The Marriott License Amendment provides that Marriott International may not permit any other party to brand, co-brand, sponsor, market, promote, or otherwise affiliate with a vacation ownership branded credit, charge or debit card, in each case if the branding of the card uses the marks Marriott International licenses to us, except that such cards may be used in connection with the Vistana business.

The Marriott License Amendment also permits Marriott International to offer and operate clubs or programs in connection with an all-inclusive hotel business under which a customer prepays for the right to receive discounts for future hotel stays, enhanced hotel accommodations and services, and other hotel-stay related benefits, in each case in which the benefits the customer receives extend for a term of not more than five years. Certain restrictions will apply to Marriott International’s operation of such a program.

Ritz-Carlton License Amendment

Pursuant to the Ritz-Carlton License Amendment, we agreed to a limited exception to our exclusive rights with respect to The Ritz-Carlton Hotel Company’s customer loyalty programs, reservation system and customer loyalty program member lists (but not to the ritz-carlton.com website) that permits their use in the Vistana business on substantially similar terms as the exception we agreed to pursuant to the Marriott License Agreement Amendment.

The Ritz-Carlton License Amendment provides that The Ritz-Carlton Hotel Company may not permit any other party to brand, co-brand, sponsor, market, promote, or otherwise affiliate with a vacation ownership branded credit, charge or debit card, in each case if the branding of the card uses Ritz-Carlton marks licensed to us, except that such cards may be used in connection with the Vistana business.

The Ritz-Carlton License Amendment also permits The Ritz-Carlton Hotel Company to offer and operate clubs or programs in connection with an all-inclusive hotel business under which a customer prepays for the right to receive discounts for future hotel stays, enhanced hotel accommodations and services, and other hotel-stay related benefits, in each case in which the benefits the customer receives extend for a term of not more than five years. Certain restrictions will apply to The Ritz-Carlton Hotel Company’s operation of such a program.

Marriott Rewards Amendment

The Marriott Rewards Amendment provides that, from and after the time that the first step and/or phase of the combination of the Marriott Rewards, Ritz-Carlton Rewards and Starwood Preferred Guest (“SPG”) program into a single customer loyalty program (the “Combination Date”), the terms of the Marriott Rewards Agreement applicable to the Marriott Rewards program, which allows us to offer Marriott Rewards points to our owners or potential owners as sales, tour and financing incentives, in exchange for vacation ownership usage rights, for customer referrals, and to resolve customer service issues, will apply to the combined program and the hotels, resorts, vacation ownership resorts and other properties participating in the combined program, subject to certain exceptions that will permit Vistana to use the combined loyalty program. Marriott International also agreed not to grant Vistana marketing access to Marriott Rewards members who were members of Marriott Rewards but not SPG immediately prior to the Combination Date or who joined Marriott Rewards prior to joining SPG unless and until it has granted us marketing access to both Marriott Rewards members who were members of SPG but not Marriott Rewards immediately prior to the Combination Date or who joined SPG prior to joining Marriott Rewards. Vistana will not be permitted to issue points in the Marriott Rewards program (or non-SPG points in the combined loyalty program) until the combined loyalty program operates with a single points currency that incorporates points that were formerly SPG points, and we will not be permitted to issue SPG points or non-Marriott Rewards points in the combined loyalty program) until the combined loyalty program operates with a single points currency that incorporates points that were formerly Marriott Rewards points.

The Marriott Rewards Amendment also provides that to the extent that the uses for which we are allowed to offer Marriott Rewards points (or points in the combined loyalty program) are less favorable or more restrictive than the permitted uses for which Vistana may offer SPG points (or points in the combined loyalty program), then the Marriott Rewards Agreement will be amended so that our uses are not materially less favorable or materially more restrictive than Vistana’s permitted uses of SPG (or the combined loyalty program).

The Marriott Rewards Amendment also extends to 2021 our ability to defer payment for Marriott Rewards points issued for exchanges in our fourth calendar quarter until 120 days after the end of such quarter. It also provides us with the right to purchase silver, gold and platinum Rewards Elite status for certain existing and future owners of our vacation ownership products at agreed upon pricing terms. The Marriott Rewards Amendment provides that following the combination of the loyalty programs, the provisions of the Marriott Rewards Agreement that limit Marriott International’s right to make certain changes to the Marriott Rewards program without our consent will continue to apply to the combined loyalty program.

Amended Program Affiliation Side Letter

The Amended Program Affiliation Side Letter contemplates the combination of the loyalty programs as described above and provides that loyalty program points earned by owners of our vacation ownership products through their status as owners will not be permitted to be used at properties operated under specified legacy Starwood brands, and that loyalty program points earned by owners of Vistana vacation ownership products through their status as owners will not be permitted to be used at properties operated under specified Marriott brands. These restrictions will be eliminated upon the earlier of September 23, 2019 or such date as both we and ILG, Inc. (the owner of Vistana) may mutually agree.

Noncompetition Termination Agreement

Pursuant to the Noncompetition Termination Agreement, we terminated the Noncompetition Agreement, which generally prohibited Marriott International and its subsidiaries from engaging in the vacation ownership business and prohibited us and our subsidiaries from engaging in the hotel business until the earlier of November 21, 2021 or the termination of the Marriott License Agreement.

PART III

As described below, we incorporate certain information appearing in the Proxy Statement we will furnish to our shareholders in connection with our ~~2015~~2018 Annual Meeting of Shareholders (the “Proxy Statement”) by reference in this Annual Report.



Item 10.	Directors, Executive Officers and Corporate Governance

We incorporate this information by reference to the “Our Board of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Committees of our Board,” “Transactions with Related Persons” and “Selection of Director Nominees” sections of our Proxy Statement. We have included information regarding our executive officers and our Code of Conduct below.

Executive Officers

Set forth below is certain information with respect to our executive officers. The information set forth below is as of February ~~13, 2015,~~23, 2018, except where indicated.



Name and Title	Age	Business Experience
Stephen P. Weisz President and Chief Executive Officer	6467	Stephen P. Weisz has served as our President since 1996 and as our Chief Executive Officer since 2011; he has also been a member of our Board of Directors since 2011. Mr. Weisz joined Marriott International in 1972. Over his 39-year career with Marriott International, he held a number of leadership positions in the Lodging division, including Regional Vice President of the Mid-Atlantic Region, Senior Vice President of Rooms Operations, and Vice President of the Revenue Management Group. Mr. Weisz became Senior Vice President of Sales and Marketing for Marriott Hotels, Resorts & Suites in 1992 and Executive Vice President-Lodging Brands in 1994 before being named to lead ~~our company~~the Company in 1996. He ~~currently serves as a member~~is the Immediate Past Chairman of the Board of Directors of the American Resort Development ~~Association and is its Chair-elect.~~Association. Mr. Weisz is also the Immediate Past Chairman of the Board of Trustees of Children’s Miracle Network.

R. Lee Cunningham Executive Vice President and Chief Operating Officer	5558	R. Lee Cunningham has served as our Executive Vice President and Chief Operating Officer since December 2012. From 2007 to December 2012, he served as our Executive Vice President and Chief Operating Officer – North America and Caribbean. Mr. Cunningham joined Marriott International in 1982 and held various front office assignments at Marriott hotels in Atlanta, Scottsdale, Miami, Kansas City, and Washington, D.C. In 1990, he became one of Marriott International’s first revenue management-focused associates and held roles at property, regional and corporate levels. Mr. Cunningham joined our company in 1997 as Vice President of Revenue Management and Owner Service Operations.

~~Name and Title~~
~~Age~~
~~Business Experience~~
Clifford M. Delorey
Executive Vice President and
Chief Resort Experience Officer
5457 Clifford M. Delorey has served as our Executive Vice President and Chief Resort Experience Officer since October 2012. From May 2011 to October 2012, Mr. Delorey served as Vice President of Operations for the Middle East and Africa region for Marriott International. From April 2006 to May 2011, he served as our Vice President of Operations for the East region. Mr. Delorey joined Marriott International in 1981 and served in a number of operational roles, including Director of International Operations.



Name and Title	Age	Business Experience
John E. Geller, Jr. Executive Vice President and Chief Financial and Administrative Officer	4750	John E. Geller, Jr. has served as our Executive Vice President and Chief Financial and Administrative Officer since ~~2009.~~January 2018. From 2009 to December 2017, he served as our Executive Vice President and Chief Financial Officer. Mr. Geller joined Marriott International in 2005 as Senior Vice President and Chief Audit Executive and Information Security Officer. In 2008, he led finance and accounting for Marriott International’s North American Lodging Operation’s West region as Chief Financial Officer. Mr. Geller began his professional career at Arthur Andersen, where he was promoted to audit partner in its real estate and hospitality practice in 2000. During 2002 and 2003, he was an audit partner with Ernst & Young in its real estate and hospitality practice. Mr. Geller served as Chief Financial Officer at AutoStar Realty in 2004.

James H Hunter, IV Executive Vice President and General Counsel	5255	James H Hunter, IV has served as our Executive Vice President and General Counsel since November 2011. Prior to that time, he had served as Senior Vice President and General Counsel since 2006. Mr. Hunter joined Marriott International in 1994 as Corporate Counsel and was promoted to Senior Counsel in 1996 and Assistant General Counsel in 1998. While at Marriott International, he held several leadership positions supporting development of Marriott’s lodging brands in all regions worldwide. Prior to joining Marriott International, Mr. Hunter was an associate at the law firm of Davis, Graham & Stubbs in Washington, D.C.

Lizabeth Kane-Hanan Executive Vice President and Chief Growth and Inventory Officer	4851	Lizabeth Kane-Hanan has served as our Executive Vice President and Chief Growth and Inventory Officer since November 2011. Prior to that time, she had served as our Senior Vice President, Resort Development and Planning, Inventory and Revenue Management and Product Innovation since 2009. Ms. Kane-Hanan joined our company in 2000, and has ~~nearly~~over 25 years of hospitality industry experience. Before joining Marriott International, she spent 14 years in public accounting and advisory firms, including Arthur Andersen and Horwath Hospitality, where she specialized in real estate strategic planning, acquisitions and development. At our company, she has held several leadership positions of increasing responsibility.

~~Name and Title~~
~~Age~~
~~Business Experience~~
Brian E. Miller

Executive Vice President and
Chief Sales and Marketing Officer
5154 Brian E. Miller has served as our Executive Vice President and Chief Sales and Marketing Officer since November 2011. Prior to that time, he had served as our Senior Vice President, Sales and Marketing and Service Operations since 2007. Mr. Miller joined our company in 1991 as National Director of Marketing Operations and has more than 25 years of vacation ownership marketing and sales expertise. In 1994, he was promoted to Vice President of Marketing. From 1995 to 2000, he served as Regional Vice President of Sales and Marketing for the Europe and Middle East region based in London. He left our company briefly, but returned in 2001 to assume the role of Senior Vice President, Sales and Marketing.
Dwight D. Smith

Executive Vice President and
Chief Information Officer
5457 Dwight D. Smith has served as our Executive Vice President and Chief Information Officer since December 2011. Prior to that time, he served as our Senior Vice President and Chief Information Officer since 2006. Mr. Smith joined Marriott International in 1988 as Senior Manager and then Director of Information Resources for Roy Rogers Restaurants. He worked from 1982 to 1988 at Andersen Consulting as Staff Consultant and then Consulting Manager in the advanced technology group. Mr. Smith moved to our corporate headquarters in 1990.



Name and Title	Age	Business Experience
Michael E. Yonker Executive Vice President and Chief Human Resources Officer	5659	Michael E. Yonker has served as our Executive Vice President and Chief Human Resources Officer since December 2011. Prior to that time, he served as our Chief Human Resources Officer since 2010. Mr. Yonker joined Marriott International in 1983 as Assistant Controller at the Lincolnshire Marriott Resort in Chicago. While at Marriott International, he held a number of positions with increasing responsibility in both the finance and human resources areas. From 1996 to 1998, he was the Area Director of Human Resources, supporting the mid-central region at Sodexho Marriott. He returned to Marriott International in 1998 as Vice President, Human Resources supporting the Midwest Region and was named our Vice President, Human Resources in 2007 supporting global operations.

Code of Conduct

Our Board of Directors has adopted a code of conduct, our Business Conduct Guide, that applies to all of our directors, officers and associates, including our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer. Our Business Conduct Guide is available in the Investor Relations section of our website (www.marriottvacationsworldwide.com) and is accessible by clicking on “Corporate Governance.” Any amendments to our Business Conduct Guide and any grant of a waiver from a provision of our Business Conduct Guide requiring disclosure under applicable SEC rules will be disclosed at the same location as the Business Conduct Guide in the Investor Relations section of our website located at www.marriottvacationsworldwide.com.



Item 11.	Executive Compensation

We incorporate this information by reference to the “Executive and Director Compensation” and “Compensation Committee Interlocks and Insider Participation” sections of our Proxy Statement.



Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

We incorporate this information by reference to the “Securities Authorized for Issuance Under Equity Compensation Plans” and ~~the~~ “Stock Ownership” sections of our Proxy Statement.



Item 13.	Certain Relationships and Related Transactions, and Director Independence

We incorporate this information by reference to the “Transactions with Related Persons,” and “Director Independence” sections of our Proxy Statement.



Item 14.	Principal Accounting Fees and Services

We incorporate this information by reference to the “Independent Registered Public Accounting Firm Fee Disclosure” and ~~the~~ “Pre-Approval of Independent Auditor Fees and Services Policy” sections of our Proxy Statement.

PART IV



Item 15.	Exhibits and Financial Statement Schedules

~~(a)(1)-(2) Financial Statements and Schedules~~

The ~~financial statements and schedules listed in the accompanying Index to Consolidated Financial Statements~~following are filed as part of this Annual Report:

(1) Financial Statements

We include this portion of Item 15 under Part II, Item 8 of this Annual Report.

(2) Financial Statement Schedules

We include the financial statement schedules required by the applicable accounting regulations of the SEC in the notes to our consolidated financial statements and incorporate that information in this Item 15 by reference.

~~(a)~~

(3) Exhibits

~~See “Index~~

A shareholder who wants a copy of any of the following Exhibits may obtain one from us, without charge, upon written request. Written requests to ~~Exhibits” beginning on page 83, which is incorporated by reference herein. The Index~~obtain any exhibit should be sent to ~~Exhibits lists all exhibits~~Marriott Vacations Worldwide Corporation, 6649 Westwood Blvd., Orlando, Florida 32821, Attention: Corporate Secretary. All documents referenced below are being filed ~~with~~as a part of this Annual Report, unless otherwise noted.



Exhibit Number	Description	Filed Herewith	Incorporation By Reference From
Exhibit Number	Description	Filed Herewith	Form	Exhibit	Date Filed
2.1	Separation and Distribution Agreement, entered into on November 17, 2011, among Marriott International, Inc., Marriott Vacations Worldwide Corporation, Marriott Ownership Resorts, Inc., Marriott Resorts Hospitality Corporation, MVCI Asia Pacific Pte. Ltd. and MVCO Series LLC		8-K	2.1	11/22/2011
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 in Exhibit 4.2)		10-Q	4.1	11/2/2017
10.1	License, Services, and Development Agreement, entered into on November 17, 2011, among Marriott International, Inc., Marriott Worldwide Corporation, Marriott Vacations Worldwide Corporation and the other signatories thereto		8-K	10.1	11/22/2011
10.2	Letter Agreement, dated as of February 21, 2013, between Marriott International, Inc. and Marriott Vacations Worldwide Corporation, supplementing the License, Services, and Development Agreement		10-Q	10.1	4/25/2013
10.3	Letter Agreement, dated May 9, 2016, among Marriott Vacations Worldwide Corporation, Marriott Worldwide Corporation and Marriott International, Inc. relating to the License, Services, and Development Agreement		10-Q	10.3	7/21/2016
10.4	First Amendment to License, Services, and Development Agreement, dated as of February 26, 2018, among Marriott International, Inc., Marriott Worldwide Corporation, Marriott Vacations Worldwide Corporation and the other signatories thereto	X
10.5	Amended and Restated Side Letter Agreement, dated as of February 26, 2018 by among Marriott International, Inc., Marriott Worldwide Corporation, Marriott Rewards, LLC, Marriott Vacations Worldwide Corporation and Marriott Ownership Resorts, Inc.†	X
10.6	License, Services, and Development Agreement, entered into on November 17, 2011, among The Ritz-Carlton Hotel Company, L.L.C., Marriott Vacations Worldwide Corporation and the other signatories thereto		8-K	10.2	11/22/2011



Exhibit Number	Description	Filed Herewith	Incorporation By Reference From
Exhibit Number	Description	Filed Herewith	Form	Exhibit	Date Filed
10.7	First Amendment to License, Services, and Development Agreement, dated as of February 26, 2018, among The Ritz-Carlton Hotel Company, L.L.C., Marriott Vacations Worldwide Corporation and the other signatures thereto	X
10.8	Employee Benefits and Other Employment Matters Allocation Agreement, entered into on November 17, 2011, between Marriott International, Inc. and Marriott Vacations Worldwide Corporation		8-K	10.3	11/22/2011
10.9	Tax Sharing and Indemnification Agreement, entered into on November 17, 2011, between Marriott International, Inc. and Marriott Vacations Worldwide Corporation		8-K	10.4	11/22/2011
10.10	Amendment, dated August 2, 2012, between Marriott International, Inc. and Marriott Vacations Worldwide Corporation, to the Tax Sharing and Indemnification Agreement		10-Q	10.1	10/18/2012
10.11	Marriott Rewards Affiliation Agreement, entered into on November 17, 2011, among Marriott International, Inc., Marriott Rewards, LLC, Marriott Vacations Worldwide Corporation, Marriott Ownership Resorts, Inc. and the other signatories thereto		8-K	10.5	11/22/2011
10.12	First Amendment to Marriott Rewards Affiliation Agreement, dated as of February 26, 2018, among Marriott International, Inc., Marriott Rewards, LLC, Marriott Vacations Worldwide Corporation and Marriott Ownership Resorts, Inc.	X
10.13	Noncompetition Agreement, entered into on November 17, 2011, between Marriott International, Inc. and Marriott Vacations Worldwide Corporation		8-K	10.6	11/22/2011
10.14	Termination of Noncompetition Agreement, dated as of February 26, 2018, between Marriott International, Inc. and Marriott Vacations Worldwide Corporation	X
10.15	Marriott Vacations Worldwide Corporation Amended and Restated Stock and Cash Incentive Plan*		10-K	10.14	2/23/2017
10.16	Form of Restricted Stock Unit Agreement – Marriott Vacations Worldwide Corporation Stock and Cash Incentive Plan*		8-K	10.1	12/9/2011
10.17	Form of Stock Appreciation Right Agreement – Marriott Vacations Worldwide Corporation Stock and Cash Incentive Plan*		8-K	10.2	12/9/2011
10.18	Form of Performance Unit Award Agreement – Marriott Vacations Worldwide Corporation Stock and Cash Incentive Plan*		8-K	10.1	3/16/2012
10.19	Form of Non-Employee Director Share Award Confirmation*		10-K	10.17	2/25/2016
10.20	Form of Non-Employee Director Stock Appreciation Right Award Agreement*		10-K	10.16	3/21/2012
10.21	Form of Director Stock Unit Agreement*		10-Q	10.1	4/30/2015
10.22	Marriott Vacations Worldwide Corporation Change in Control Severance Plan*		8-K	10.2	3/16/2012
10.23	Form of Participation Agreement for Change in Control Severance Plan – Marriott Vacations Worldwide Corporation Change in Control Severance Plan*		8-K	10.3	3/16/2012
10.24	Marriott Vacations Worldwide Corporation Deferred Compensation Plan*		8-K	10.3	6/13/2013
10.25	Marriott Vacations Worldwide Corporation Executive Long Term Disability Plan*		10-K	10.21	2/26/2015
10.26	Marriott Vacations Worldwide Corporation Employee Stock Purchase Plan*		8-K	10.1	6/11/2015
10.27	Third Amended and Restated Indenture and Servicing Agreement, entered into September 15, 2014 and dated as of September 1, 2014, among Marriott Vacations Worldwide Owner Trust 2011-1, Marriott Ownership Resorts, Inc., and Wells Fargo Bank, National Association		8-K	10.2	9/16/2014



Exhibit Number	Description	Filed Herewith	Incorporation By Reference From
Exhibit Number	Description	Filed Herewith	Form	Exhibit	Date Filed
10.28	Indenture Supplement, dated June 24, 2015, among Marriott Vacations Worldwide Owner Trust 2011-1, Marriott Ownership Resorts, Inc., and Wells Fargo Bank, National Association, Deutsche Bank AG, New York Branch, and the Conduits, Alternate Purchasers, Funding Agents and Non-Conduit Committed Purchasers signatory thereto		10-Q	10.2	7/23/2015
10.29	Second Amended and Restated Sale Agreement, entered into September 15, 2014 and dated as of September 1, 2014, between MORI SPC Series Corp. and Marriott Vacations Worldwide Owner Trust 2011-1		8-K	10.1	9/16/2014
10.30	Omnibus Amendment No. 3, dated November 23, 2015, relating to, among other agreements, the Third Amended and Restated Indenture and the Second Amended and Restated Sale Agreement, by and among Marriott Vacations Worldwide Owner Trust 2011-1, Marriott Ownership Resorts, Inc., Wells Fargo Bank, National Association, MORI SPC Series Corp., Marriott Vacations Worldwide Corporation, the Purchasers signatory thereto, Deutsche Bank AG, New York Branch, Wilmington Trust, National Association, and MVCO Series LLC		8-K	10.1	11/25/2015
10.31	Omnibus Amendment No. 4, dated May 20, 2016, relating to, among other agreements, the Third Amended and Restated Indenture and the Second Amended and Restated Sale Agreement, by and among Marriott Vacations Worldwide Owner Trust 2011-1, Marriott Ownership Resorts, Inc., Wells Fargo Bank, National Association, MORI SPC Series Corp., Marriott Vacations Worldwide Corporation, the Purchasers signatory thereto, Deutsche Bank AG, New York Branch, Wilmington Trust, National Association, and MVCO Series LLC		10-Q	10.2	7/21/2016
10.32	Indenture Supplement, dated June 16, 2016, by and among Marriott Vacations Worldwide Owner Trust 2011-1, as issuer, Marriott Ownership Resorts, Inc., Wells Fargo Bank, National Association, Deutsche Bank AG, New York Branch, and the Conduits, Alternate Purchasers, Funding Agents and Non-Conduit Committed Purchasers signatory thereto		10-Q	10.1	7/21/2016
10.33	Omnibus Amendment No. 5, dated March 8, 2017, relating to, among other agreements, the Third Amended and Restated Indenture, by and among Marriott Vacations Worldwide Owner Trust 2011-1, Marriott Ownership Resorts, Inc., Wells Fargo Bank, National Association, MORI SPC Series Corp., Marriott Vacations Worldwide Corporation, the Purchasers signatory thereto, Deutsche Bank AG, New York Branch, Wilmington Trust, National Association, and MVCO Series LLC		8-K	10.1	3/14/2017
10.34	Omnibus Amendment No. 6, dated August 17, 2017, relating to, among other agreements, the Third Amended and Restated Indenture and the Second Amended and Restated Sale Agreement, by and among Marriott Vacations Worldwide Owner Trust 2011-1, Marriott Ownership Resorts, Inc., Wells Fargo Bank, National Association, MORI SPC Series Corp., Marriott Vacations Worldwide Corporation, the Purchasers signatory thereto, Deutsche Bank AG, New York Branch, Wilmington Trust, National Association, and MVCO Series LLC		8-K	10.3	8/21/2017
10.35	Credit Agreement, dated as of August 16, 2017, among Marriott Vacations Worldwide Corporation, Marriott Ownership Resorts, Inc., the several banks and other financial institutions or entities from time to time parties thereto and JPMorgan Chase Bank, N.A., as administrative agent		8-K	10.1	8/21/2017



Exhibit Number	Description	Filed Herewith	Incorporation By Reference From
Exhibit Number	Description	Filed Herewith	Form	Exhibit	Date Filed
10.36	Guarantee and Collateral Agreement, dated as of August 16, 2017, made by Marriott Vacations Worldwide Corporation, Marriott Ownership Resorts, Inc. and certain other subsidiaries of Marriott Vacations Worldwide Corporation, in favor of JPMorgan Chase Bank, N.A., as Administrative Agent for the banks and other financial institutions or entities from time to time parties to the Credit Agreement		8-K	10.2	8/21/2017
10.37	Form of Call Option Transaction Confirmation		10-Q	10.1	11/2/2017
10.38	Form of Warrant Confirmation		10-Q	10.2	11/2/2017
21.1	Subsidiaries of Marriott Vacations Worldwide Corporation	X
23.1	Consent of Ernst & Young LLP	X
24.1	Powers of Attorney (included on the signature pages hereto)	X
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.INS	XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.	Electronically Submitted
101.SCH	XBRL Taxonomy Extension Schema Document	Electronically Submitted
101.CAL	XBRL Taxonomy Calculation Linkbase Document	Electronically Submitted
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Electronically Submitted
101.LAB	XBRL Taxonomy Label Linkbase Document	Electronically Submitted
101.PRE	XBRL Taxonomy Presentation Linkbase Document	Electronically Submitted



*	Management contract or compensatory plan or arrangement.



†	Portions of this exhibit were redacted pursuant to a confidential treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. The redacted portions of this exhibit have been filed with the Securities and Exchange Commission.

We have attached the following documents formatted in XBRL (Extensible Business Reporting Language) as Exhibit 101 to this Annual Report: (i) Consolidated Statements of Income for the fiscal years ended December 31, 2017, December 30, 2016 and ~~identifies which~~January 1, 2016; (ii) the Consolidated Statements of ~~those exhibits are management contracts~~Comprehensive Income for the fiscal years ended December 31, 2017, December 30, 2016 and ~~compensation plans.~~

January 1, 2016; (iii) the Consolidated Balance Sheets at December 31, 2017 and December 30, 2016; (iv) the Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2017, December 30, 2016 and January 1, 2016; and (v) the Consolidated Statements of Shareholders’ Equity for the fiscal years ended December 31, 2017, December 30, 2016 and January 1, 2016.



Item 16.	Form 10-K Summary

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, we have duly caused this Form 10-K to be signed on our behalf by the undersigned, thereunto duly authorized, on this 26^th27th day of February, ~~2015.~~

2018.




MARRIOTT VACATIONS WORLDWIDE CORPORATION

By:		/s/ Stephen P. Weisz
		Stephen P. Weisz
		President and Chief Executive Officer

POWER OF ATTORNEY

KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints jointly and severally, Stephen P. Weisz, John E. Geller, Jr. and James H Hunter, IV, and each one of them, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any and all amendments to this Annual Report and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed by the following persons on our behalf in the capacities indicated and on the date indicated above.

~~Principal Financial Officer:~~



Principal Executive Officer:
/s/ Stephen P. Weisz ~~Stephen P. Weisz~~		President, Chief Executive Officer and Director
Stephen P. Weisz

Principal Financial Officer:

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

Principal Accounting Officer:

/s/ Laurie A. Sullivan ~~Laurie A. Sullivan~~		Senior Vice President, Corporate Controller and Chief Accounting Officer

~~Directors:~~


~~/s/ William J. Shaw~~ ~~William J. Shaw, Chairman~~		~~/s/ Melquiades R. Martinez~~ ~~Melquiades R. Martinez, Director~~

~~/s/ C.E. Andrews~~ ~~C.E. Andrews, Director~~		~~/s/ William W. McCarten~~ ~~William W. McCarten, Director~~

~~/s/ Raymond L. Gellein, Jr.~~ ~~Raymond L. Gellein, Jr., Director~~		~~/s/ Dianna F. Morgan~~ ~~Dianna F. Morgan, Director~~

~~/s/ Thomas J. Hutchison III~~ ~~Thomas J. Hutchison III, Director~~

~~INDEX TO EXHIBITS~~

The Registrant will furnish you, without charge, a copy of any exhibit, upon written request. Written requests to obtain any exhibit should be sent to Marriott Vacations Worldwide Corporation, 6649 Westwood Blvd., Orlando, Florida 32821, Attention: Corporate Secretary.


~~Exhibit~~ ~~No.~~Laurie A. Sullivan		~~Description~~

~~2.1~~		Separation and Distribution Agreement, entered into on November 17, 2011, among Marriott International, Inc., Marriott Vacations Worldwide Corporation, Marriott Ownership Resorts, Inc., Marriott Resorts Hospitality Corporation, MVCI Asia Pacific Pte. Ltd. and MVCO Series LLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on November 22, 2011).

~~3.1~~		~~Restated Certificate of Incorporation of Marriott Vacations Worldwide Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 22, 2011).~~

~~3.2~~		~~Restated Bylaws of Marriott Vacations Worldwide Corporation (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on November 22, 2011).~~

~~4.1~~		Form of certificate representing shares of common stock, par value $0.01 per share, of Marriott Vacations Worldwide Corporation (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 10 filed on October 14, 2011).

~~10.1~~		License, Services, and Development Agreement, entered into on November 17, 2011, among Marriott International, Inc., Marriott Worldwide Corporation, Marriott Vacations Worldwide Corporation and the other signatories thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 22, 2011).

~~10.2~~		Letter Agreement, dated as of February 21, 2013, between Marriott International, Inc. and Marriott Vacations Worldwide Corporation, supplementing the License, Services, and Development Agreement filed as Exhibit 10.1 hereto (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on April 25, 2013).

~~10.3~~		License, Services, and Development Agreement, entered into on November 17, 2011, among The Ritz-Carlton Hotel Company, L.L.C., Marriott Vacations Worldwide Corporation and the other signatories thereto (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on November 22, 2011).

~~10.4~~		Employee Benefits and Other Employment Matters Allocation Agreement, entered into on November 17, 2011, between Marriott International, Inc. and Marriott Vacations Worldwide Corporation (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on~~Form 8-K~~ ~~filed on November 22, 2011).~~

~~10.5~~		Tax Sharing and Indemnification Agreement, entered into on November 17, 2011, between Marriott International, Inc. and Marriott Vacations Worldwide Corporation (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on November 22, 2011).

~~10.6~~		Amendment, dated August 2, 2012, between Marriott International, Inc. and Marriott Vacations Worldwide Corporation, to the Tax Sharing and Indemnification Agreement filed as Exhibit 10.5 hereto (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on October 18, 2012).

~~10.7~~		Marriott Rewards Affiliation Agreement, entered into on November 17, 2011, among Marriott International, Inc., Marriott Rewards, LLC, Marriott Vacations Worldwide Corporation, Marriott Ownership Resorts, Inc. and the other signatories thereto (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on November 22, 2011).

Directors:


~~Exhibit~~ ~~No.~~		~~Description~~

~~10.8~~		Non-Competition Agreement, entered into on November 17, 2011, between Marriott International, Inc. and Marriott Vacations Worldwide Corporation (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on November 22, 2011).

~~10.9~~		Omnibus Transition Services Agreement, entered into on November 17, 2011, between Marriott International, Inc. and Marriott Vacations Worldwide Corporation (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on November 22, 2011).

~~10.10~~		First Amendment to Services Exhibit, dated as of October 10, 2012, between Marriott International, Inc. and Marriott Vacations Worldwide Corporation to the Omnibus Transition Services Agreement filed as Exhibit 10.9 hereto (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K filed on February 22, 2013).

~~10.11~~		Information Resources Transition Services Agreement, entered into on November 17, 2011, between Marriott International, Inc. and Marriott Vacations Worldwide Corporation (incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed on November 22, 2011).

~~10.12~~		Marriott Vacations Worldwide Corporation Amended and Restated Stock and Cash Incentive Plan (incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K filed on February 27, 2014).*

~~10.13~~		Form of Restricted Stock Unit Agreement – Marriott Vacations Worldwide Corporation Stock and Cash Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 9, 2011).*

~~10.14~~		Form of Stock Appreciation Right Agreement – Marriott Vacations Worldwide Corporation Stock and Cash Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 9, 2011).*

~~10.15~~		Form of Performance Unit Award Agreement – Marriott Vacations Worldwide Corporation Stock and Cash Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 16, 2012).*

~~10.16~~		Form of Non-Employee Director Share Award Confirmation (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 9, 2011).*

~~10.17~~		Form of Non-Employee Director Stock Appreciation Right Award Agreement (incorporated by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K filed on March 21, 2012).*

~~10.18~~		Marriott Vacations Worldwide Corporation Change in Control Severance Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 16, 2012).*

~~10.19~~		Form of Participation Agreement for Change in Control Severance Plan – Marriott Vacations Worldwide Corporation Change in Control Severance Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on March 16, 2012).*

~~10.20~~		Marriott Vacations Worldwide Corporation Deferred Compensation Plan (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on June 13, 2013).*

~~10.21~~		Marriott Vacations Worldwide Corporation Executive Long Term Disability Plan.*

~~10.22~~		Non-Competition Agreement for Approved Retirees dated as of December 6, 2012 made by Robert A. Miller in favor of Marriott Vacations Worldwide Corporation (incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K filed on February 22, 2013).*

~~10.23~~		Independent Contractor Agreement dated as of January 2, 2013 between Marriott Ownership Resorts, Inc. and RAMCO Advisors, LLC (incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K filed on February 22, 2013).*

    ~~Exhibit~~
~~No.~~
~~Description~~
   ~~10.24~~ Third Amended and Restated Indenture and Servicing Agreement, entered into September 15, 2014 and dated as of September 1, 2014, among Marriott Vacations Worldwide Owner Trust 2011-1, Marriott Ownership Resorts, Inc., and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 16, 2014).
   ~~10.25~~ Second Amended and Restated Sale Agreement, entered into September 15, 2014 and dated as of September 1, 2014, between MORI SPC Series Corp. and Marriott Vacations Worldwide Owner Trust 2011-1 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on~~Form 8-K~~ ~~filed on September 16, 2014).~~
   ~~10.26~~ Second Amendment and Restatement Agreement, dated as of September 10, 2014, among Marriott Vacations Worldwide Corporation, Marriott Ownership Resorts, Inc., certain subsidiaries of Marriott Vacations Worldwide Corporation, JPMorgan Chase Bank, N.A., and the several banks and other financial institutions or entities from time to time parties thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 11, 2014).
   ~~10.27~~ Second Amended and Restated Credit Agreement, dated as of September 10, 2014, among Marriott Vacations Worldwide Corporation, Marriott Ownership Resorts, Inc., the several banks and other financial institutions or entities from time to time parties thereto, JPMorgan Chase Bank, N.A., as administrative agent, Bank of America, N.A. and Deutsche Bank Securities Inc., as co-syndication agents, and Bank of America, N.A. and Deutsche Bank Securities Inc., as co-documentation agents (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 11, 2014).
   ~~10.28~~ Second Amended and Restated Guarantee and Collateral Agreement, dated as of September 10, 2014, made by Marriott Vacations Worldwide Corporation, Marriott Ownership Resorts, Inc. and certain subsidiaries of Marriott Vacations Worldwide Corporation in favor of JPMorgan Chase Bank, N.A., as administrative agent for the banks and other financial institutions or entities from time to time parties to the Second Amended and Restated Credit Agreement filed as Exhibit 10.27 hereto (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on September 11, 2014).
   ~~10.29~~ Purchase and Sale Agreement dated as of April 25, 2014 among Tower Development Inc., Lifestyle Retail Properties LLC, Kauai Lagoons LLC and MORI Golf (Kauai), LLC (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on April 29, 2014).
   ~~10.30~~ ~~First Amendment to Purchase and Sale Agreement dated as of October 27, 2014 among Tower Development Inc., Lifestyle Retail Properties LLC, Kauai Lagoons LLC and MORI Golf (Kauai), LLC.~~
   ~~10.31~~ ~~Second Amendment to Purchase and Sale Agreement dated as of November 21, 2014 among Tower Development Inc., Lifestyle Retail Properties LLC, Kauai Lagoons LLC and MORI Golf (Kauai), LLC.~~
   ~~10.32~~ Third Amendment to Purchase and Sale Agreement and Assignment and Assumption of Purchase Agreement dated as of December 8, 2014 among Tower Development Inc., Lifestyle Retail Properties LLC, Kauai Lagoons LLC and MORI Golf (Kauai), LLC.
     ~~21.1~~ ~~Subsidiaries of Marriott Vacations Worldwide Corporation.~~
     ~~23.1~~ ~~Consent of Ernst & Young, LLP.~~
     ~~24.1~~ ~~Powers of Attorney (included on the signature pages hereto).~~
     ~~31.1~~ ~~Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.~~

    ~~Exhibit~~
~~No.~~
~~Description~~
        ~~31.2~~ ~~Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.~~
        ~~32.1~~ ~~Certification of Chief Executive Officer pursuant to Rule 13a-14(b) and Section 906 of theSarbanes-Oxley~~ ~~Act of 2002.~~
        ~~32.2~~ ~~Certification of Chief Financial Officer pursuant to Rule 13a-14(b) and Section 906 of theSarbanes-Oxley~~ ~~Act of 2002.~~
  ~~101.INS~~ ~~XBRL Instance Document.~~
~~101.SCH~~ ~~XBRL Taxonomy Extension Schema Document.~~
~~101.CAL~~ ~~XBRL Taxonomy Calculation Linkbase Document.~~
~~101.DEF~~ ~~XBRL Taxonomy Extension Definition Linkbase Document.~~
~~101.LAB~~ ~~XBRL Taxonomy Label Linkbase Document.~~
~~101.PRE~~ ~~XBRL Taxonomy Presentation Linkbase Document.~~

*	~~Management contract or compensatory plan or arrangement.~~

We have attached the following documents formatted in XBRL (Extensible Business Reporting Language) as Exhibit 101 to this Annual Report: (i) Consolidated Statements of Income for the fiscal years ended January 2, 2015, January 3, 2014 and December 28, 2012; (ii) the Consolidated Statements of Comprehensive Income for the fiscal years ended January 2, 2015, January 3, 2014 and December 28, 2012; (iii) the Consolidated Balance Sheets at January 2, 2015 and January 3, 2014; (iv) the Consolidated Statements of Cash Flows for the fiscal years ended January 2, 2015, January 3, 2014 and December 28, 2012; and (v) the Consolidated Statements of Shareholders’ Equity for the fiscal years ended January 2, 2015, January 3, 2014 and December 28, 2012.

~~INDEX TO FINANCIAL STATEMENTS~~

~~MARRIOTT VACATIONS WORLDWIDE CORPORATION~~


		~~Page~~
~~Audited Consolidated Financial Statements~~ /s/ William J. Shaw		/s/ Melquiades R. Martinez
~~Management’s Report on Internal Control Over Financial Reporting~~ William J. Shaw, Chairman		~~F-2~~Melquiades R. Martinez, Director
~~Report of Independent Registered Public Accounting Firm~~
/s/ C.E. Andrews		~~F-3~~/s/ William W. McCarten
~~Report of Independent Registered Public Accounting Firm~~ C.E. Andrews, Director		~~F-4~~William W. McCarten, Director
~~Consolidated Statements of Income~~
/s/ Raymond L. Gellein, Jr.		~~F-5~~/s/ Dianna F. Morgan
~~Consolidated Statements of Comprehensive Income~~ Raymond L. Gellein, Jr., Director		~~F-6~~Dianna F. Morgan, Director
~~Consolidated Balance Sheets~~
/s/ Thomas J. Hutchison III		~~F-7~~
~~Consolidated Statements of Cash Flows~~ Thomas J. Hutchison III, Director		~~F-8~~
~~Consolidated Statements of Shareholders’ Equity~~		~~F-9~~
~~Notes to Consolidated Financial Statements~~		~~F-10~~

~~MANAGEMENT’S REPORT ON~~

~~INTERNAL CONTROL OVER FINANCIAL REPORTING~~

Management of Marriott Vacations Worldwide Corporation (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurance on the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles.

In connection with the preparation of the Company’s annual consolidated financial statements, management has undertaken an assessment of the effectiveness of the Company’s internal control over financial reporting as of January 2, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”).

Based on this assessment, management has concluded that, applying the COSO criteria, as of January 2, 2015, the Company’s internal control over financial reporting was effective to provide reasonable assurance of the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements included in this report, has issued a report on the effectiveness of the Company’s internal control over financial reporting, a copy of which appears on the next page of this Annual Report on Form 10-K.

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~

~~To the Board of Directors and Shareholders of Marriott Vacations Worldwide Corporation:~~

We have audited Marriott Vacations Worldwide Corporation’s internal control over financial reporting as of January 2, 2015, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”). Marriott Vacations Worldwide Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

~~In our opinion, Marriott Vacations Worldwide Corporation maintained, in all material respects, effective internal control over financial reporting as of January 2, 2015, based on the COSO criteria.~~

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Marriott Vacations Worldwide Corporation as of January 2, 2015 and January 3, 2014, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three fiscal years in the period ended January 2, 2015 and our report dated February 26, 2015 expressed an unqualified opinion thereon.

~~/s/ Ernst & Young LLP~~

~~Certified Public Accountants~~

~~Miami, Florida~~

~~February 26, 2015~~

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~

~~To the Board of Directors and Shareholders of Marriott Vacations Worldwide Corporation:~~

We have audited the accompanying consolidated balance sheets of Marriott Vacations Worldwide Corporation as of January 2, 2015 and January 3, 2014, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three fiscal years in the period ended January 2, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Marriott Vacations Worldwide Corporation at January 2, 2015 and January 3, 2014 and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended January 2, 2015, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Marriott Vacations Worldwide Corporation’s internal control over financial reporting as of January 2, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2015 expressed an unqualified opinion thereon.

~~/s/ Ernst & Young LLP~~

~~Certified Public Accountants~~

~~Miami, Florida~~

~~February 26, 2015~~

~~MARRIOTT VACATIONS WORLDWIDE CORPORATION~~

~~CONSOLIDATED STATEMENTS OF INCOME~~

~~Fiscal Years 2014, 2013 and 2012~~

~~(In millions, except per share amounts)~~

2014 2013 2012
REVENUES

Sale of vacation ownership products
$ 648 $ 672 $ 618
Resort management and other services
298 290 283
Financing
129 141 151
Rental
264 262 225
Cost reimbursements
397 385 362

TOTAL REVENUES
    1,736     1,750     1,639

EXPENSES
Cost of vacation ownership products
197 214 203
Marketing and sales
315 316 329
Resort management and other services
199 206 213
Financing
24 25 26
Rental
238 251 225
General and administrative
99 99 86
Litigation settlement
19 4 41
Organizational and separation related
3 12 16
Consumer financing interest
26 31 41
Royalty fee
60 62 61
Impairment
1 1 —
Cost reimbursements
397 385 362

TOTAL EXPENSES
1,578 1,606 1,603

Gains and other income
5 1 9
Interest expense
(12 ) (13 ) (17 )
Equity in earnings
—   —   1
Impairment (charges) reversals on equity investment
—   (1 ) 2

INCOME BEFORE INCOME TAXES
151 131 31
Provision for income taxes
(70 ) (51 ) (24 )

NET INCOME
$ 81 $ 80 $ 7

Basic earnings per share
$ 2.40 $ 2.25 $ 0.19

Shares used in computing basic earnings per share
33.7 35.4 34.4

Diluted earnings per share
$ 2.33 $ 2.18 $ 0.18

Shares used in computing diluted earnings per share
34.6 36.6 36.2

~~See Notes to Consolidated Financial Statements~~

~~MARRIOTT VACATIONS WORLDWIDE CORPORATION~~

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

~~Fiscal Years 2014, 2013 and 2012~~

~~(In millions)~~

2014 2013 2012
Net income
$ 81    $ 80    $ 7
Other comprehensive (loss) income, net of tax:

Foreign currency translation adjustments
(6 ) 2    2

Total other comprehensive (loss) income, net of tax
(6 ) 2    2

COMPREHENSIVE INCOME
$     75    $     82    $       9

~~See Notes to Consolidated Financial Statements~~

~~MARRIOTT VACATIONS WORLDWIDE CORPORATION~~

~~CONSOLIDATED BALANCE SHEETS~~

~~Fiscal Year-End 2014 and 2013~~

~~(In millions, except share and per share data)~~

2014 2013
ASSETS

Cash and cash equivalents
$ 347    $ 200
Restricted cash (including $35 and $34 from VIEs, respectively)
110    86
Accounts and contracts receivable, net (including $5 and $5 from VIEs, respectively)
110    109
Vacation ownership notes receivable, net (including $751 and $719 from VIEs, respectively)
917    970
Inventory
773    870
Property and equipment
147    254
Other
136    143

Total Assets
$ 2,540    $ 2,632

LIABILITIES AND EQUITY
Accounts payable
$ 114    $ 129
Advance deposits
60    48
Accrued liabilities (including $1 and $1 from VIEs, respectively)
166    185
Deferred revenue
39    19
Payroll and benefits liability
93    82
Liability for Marriott Rewards customer loyalty program
89    114
Deferred compensation liability
42    37
Mandatorily redeemable preferred stock of consolidated subsidiary
40    40
Debt (including $708 and $674 from VIEs, respectively)
711    678
Other
27    31
Deferred taxes
79    60

Total Liabilities
1,460    1,423

Contingencies and Commitments (Note 9)
Preferred stock — $.01 par value; 2,000,000 shares authorized; none issued or outstanding
—   —
Common stock — $.01 par value; 100,000,000 shares authorized; 36,089,513 and 35,637,765 shares issued, respectively
—   —
Treasury stock — at cost; 3,996,725 and 505,023 shares, respectively
(229 ) (26 )
Additional paid-in capital
1,137    1,130
Accumulated other comprehensive income
17    23
Retained earnings
155    82

Total Equity
1,080    1,209

Total Liabilities and Equity
$     2,540    $     2,632

~~The abbreviation VIEs above means Variable Interest Entities.~~

~~See Notes to Consolidated Financial Statements~~

~~MARRIOTT VACATIONS WORLDWIDE CORPORATION~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~Fiscal Years 2014, 2013 and 2012~~

~~(In millions)~~

2014 2013 2012
OPERATING ACTIVITIES

Net income
$ 81 $ 80 $ 7
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation
19 23 30
Amortization of debt issuance costs
5 6 7
Provision for loan losses
30 36 42
Share-based compensation
13 12 12
Gain on disposal of property and equipment, net
(5 ) (1 ) (8 )
Non-cash litigation settlement
24 — —
Deferred income taxes
19 18 (47 )
Equity method income
— — (1 )
Impairment charges
1 1 —
Impairment charges (reversals) on equity investment
— 1 (2 )
Net change in assets and liabilities:

Accounts and contracts receivable
(1 ) (8 ) (3 )
Notes receivable originations
(268 ) (260 ) (262 )
Notes receivable collections
287 310 311
Inventory
82 34 66
Other assets
9 (7 ) 23
Accounts payable, advance deposits and accrued liabilities
(11 ) (16 ) 27
Liability for Marriott Rewards customer loyalty program
(25 ) (45 ) (64 )
Deferred revenue
18 (13 ) 4
Payroll and benefit liabilities
9 — 27
Deferred compensation liability
5 (8 ) (2 )
Other liabilities
(3 ) (3 ) (5 )
Other, net
2 2 1

Net cash provided by operating activities
291 162 163

INVESTING ACTIVITIES
Capital expenditures for property and equipment (excluding inventory)
(15 ) (22 ) (17 )
(Increase) decrease in restricted cash
(24 ) (17 ) 12
Dispositions, net
82 3 8

Net cash provided by (used in) investing activities
43 (36 ) 3

FINANCING ACTIVITIES
Borrowings from securitization transactions
263 361 238
Repayment of debt related to securitization transactions
(230 ) (361 ) (411 )
Borrowings on Revolving Corporate Credit Facility
— 25 15
Repayments on Revolving Corporate Credit Facility
— (25 ) (15 )
Debt issuance costs
(7 ) (5 ) (7 )
Repurchase of common stock
(203 ) (26 ) —
Payment of dividends
(8 ) — —
Proceeds from stock option exercises
3 4 9
Excess tax benefits from share-based compensation
5 3 3
Payment of withholding taxes on vesting of restricted stock units
(8 ) (5 ) (4 )

Net cash used in financing activities
(185 ) (29 ) (172 )

Effect of changes in exchange rates on cash and cash equivalents
(2 ) — (1 )
INCREASE (DECREASE) IN CASH AND EQUIVALENTS
147 97 (7 )
CASH AND CASH EQUIVALENTS, beginning of year
200 103 110

CASH AND CASH EQUIVALENTS, end of year
$           347 $           200 $             103

SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES
Non-cash impact on Additional paid-in capital for changes in Deferred tax liabilities distributed to Marriott Vacations Worldwide at Spin-Off
$ (4 ) $ — $ (16 )
Non-cash impact on Additional paid-in capital to correct an immaterial error in Deferred revenue at Spin-Off
(1 ) —    —
Non-cash impact on Additional paid-in capital for elimination of a receivable from Marriott International at Spin-Off
—   — (5 )
Non-cash assumption of other debt
—   — 1

~~See Notes to Consolidated Financial Statements~~

~~MARRIOTT VACATIONS WORLDWIDE CORPORATION~~

~~CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY~~

~~Fiscal Years 2014, 2013 and 2012~~

~~(In millions)~~

Common
Shares
  Outstanding   Common
    Stock     Treasury
    Stock     Additional
Paid-In
    Capital     Accumulated
Other
Comprehensive
        Income         Retained
(Deficit)
  Earnings   Total
  Equity
Balance at year-end 2011
34 $ —      $         —   $ 1,117 $ 19 $ (5 ) $ 1,131
Net income
—   —   —   —   —   7 7
Foreign currency translation adjustments
—   —   —   —   2 —   2
Adjustment to reclassification of Marriott International investment to Additional paid-in capital⁽¹⁾
—   —   —   (21 ) —   —   (21 )
Amounts related to share-based compensation
1 —   —   20 —   —   20

Balance at year-end 2012
35 —   —   1,116 21 2 1,139
Net income
—   —   —   —   —   80 80
Foreign currency translation adjustments
—   —   —   —   2 —   2
Amounts related to share-based compensation
1 —   —   14 —   —   14
Repurchase of common stock
(1 ) —   (26 ) —   —   —   (26 )

Balance at year-end 2013
35 —      (26 ) 1,130 23 82 1,209
Net income
—   —   —   —   —   81 81
Foreign currency translation adjustments
—   —   —   —   (6 ) —   (6 )
Amounts related to share-based compensation
—   —   —   12 —   —   12
Adjustment to reclassification of Marriott International investment to Additional paid-in capital⁽²⁾
—   —   —   (4 ) —   —   (4 )
Adjustment to Additional paid-in capital⁽³⁾
—   —   —   (1 ) —   —   (1 )
Repurchase of common stock
(3 ) —   (203 ) —   —   —   (203 )
Dividends
—   —   —   —   —   (8 ) (8 )

Balance at year-end 2014
            32 $     —      $ (229 ) $         1,137 $                     17 $         155 $     1,080

⁽¹⁾	Primarily consists of an adjustment to Deferred tax liabilities for changes in the valuation of Marriott Vacations Worldwide at the time of the Spin-Off, an adjustment to a receivable from Marriott International and other adjustments to the Deferred tax liabilities at the time of the Spin-Off.

⁽²⁾	~~Consists of an adjustment to Deferred tax liabilities for changes in the valuation of Marriott Vacations Worldwide at the time of the Spin-Off.~~

⁽³⁾	~~Consists of an adjustment to correct an immaterial error in Deferred revenue at the time of the Spin-Off.~~

~~See Notes to Consolidated Financial Statements~~

~~MARRIOTT VACATIONS WORLDWIDE CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~

~~Our Business~~

Marriott Vacations Worldwide Corporation (“Marriott Vacations Worldwide,” “we” or “us,” which includes our consolidated subsidiaries except where the context of the reference is to a single corporate entity) is the exclusive worldwide developer, marketer, seller and manager of vacation ownership and related products under the Marriott Vacation Club and Grand Residences by Marriott brands. We are also the exclusive worldwide developer, marketer and seller of vacation ownership and related products under The Ritz-Carlton Destination Club brand, and we have the non-exclusive right to develop, market and sell whole ownership residential products under The Ritz-Carlton Residences brand. The Ritz-Carlton Hotel Company, L.L.C. (“The Ritz-Carlton Hotel Company”), a subsidiary of Marriott International, Inc. (“Marriott International”), generally provides on-site management for Ritz-Carlton branded properties.

Our business is grouped into three reportable segments: North America, Europe and Asia Pacific. As of January 2, 2015, we operated 58 properties in the United States and seven other countries and territories. We generate most of our revenues from four primary sources: selling vacation ownership products; managing our resorts; financing consumer purchases; and renting vacation ownership inventory.

~~Our Spin-Off from Marriott International, Inc.~~

~~Principles of Consolidation and Basis of Presentation~~

In order to make this report easier to read, we refer throughout to (i) our Consolidated Financial Statements as our “Financial Statements,” (ii) our Consolidated Statements of Income as our “Statements of Income,” (iii) our Consolidated Balance Sheets as our “Balance Sheets,” and (iv) our 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 Consolidated Financial Statements, unless otherwise noted.

Our fiscal year ends on the Friday nearest to December 31. The fiscal years in the following table included 52 weeks, except for 2013, which included 53 weeks. Unless otherwise specified, each reference to a particular year in these Financial Statements means the fiscal year ended on the date shown in the following table, rather than the corresponding calendar year:


~~Fiscal Year~~		~~Fiscal Year-End Date~~
~~2014~~		~~January 2, 2015~~
~~2013~~		~~January 3, 2014~~
~~2012~~		~~December 28, 2012~~

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, cost of vacation ownership products, inventory valuation, property and equipment valuation, loan loss reserves, Marriott Rewards customer loyalty program liability, self-insured medical plan reserves, equity-based compensation, income taxes, loss contingencies and exit and disposal activities reserves. Accordingly, actual amounts may differ from these estimated amounts.

~~We have reclassified certain prior year amounts to conform to our 2014 presentation.~~

~~Revenue Recognition~~

~~Sale of Vacation Ownership Products~~

Vacation ownership products may be sold for cash or we may provide financing. We are not providing financing on sales of whole ownership products. Except for revenue from the sale of residential stand-alone structures, which we recognize upon transfer of title to a third party, we recognize revenue under the percentage-of-completion method when all of the following exist or are true: the customer has executed a binding sales contract, the statutory rescission period has expired (after which time the purchasers are not entitled to a refund except for non-delivery by us), we have deemed the receivable collectible and the remainder of our obligations are substantially completed. In addition, before we recognize any revenues, the purchaser must have met the initial investment criteria and, as applicable, the continuing investment criteria. A purchaser has met the initial investment criteria when we receive a minimum down payment. In accordance with the authoritative guidance for accounting for real estate time-sharing transactions, we must also take into consideration the fair value of certain incentives provided to the purchaser when assessing the adequacy of the purchaser’s initial investment. In those cases where we provide financing to the purchaser, the purchaser must be obligated to remit monthly payments under financing contracts that represent the purchaser’s continuing investment.

~~Resort Management and Other Services Revenues~~

Resort management and other services revenues consist primarily of ancillary revenues and management fees. Ancillary revenues consist of goods and services that are sold or provided by us at restaurants, golf courses and other retail and service outlets located at developed resorts. We recognize ancillary revenue when goods have been provided and/or services have been rendered.

We provide day-to-day-management services, including housekeeping services, operation of a reservation system, maintenance and certain accounting and administrative services for property owners’ associations. We receive compensation for such management services which is generally based on either a percentage of the budgeted cost to operate such resorts or a fixed fee arrangement. We recognize revenues when earned in accordance with the terms of the contract and record them as a component of Resort management and other services revenues on our Statements of Income. Management fee revenues were $74 million, $70 million and $67 million during 2014, 2013 and 2012, respectively.

Resort management and other services revenues include additional fees for services we provide to our property owners’ associations, as well as annual fees, club dues, settlement fees from the sale of vacation ownership products and certain transaction-based fees from owners and other third parties, including external exchange service providers with which we are associated. We recognize fee revenues when services have been rendered. Fee revenues included in Resort management and other services revenues were $47 million in 2014, $44 million in 2013 and $39 million in 2012, as reflected on our Statements of Income.

~~Financing Revenues~~

We offer consumer financing as an option to qualifying customers purchasing vacation ownership products, which is collateralized by the underlying vacation ownership products. We recognize interest income on an accrual basis. The contractual terms of the financing agreements require that the contractual level of annual principal payments be sufficient to amortize the loan over a customary period for the vacation ownership product being financed, which is generally ten years. Generally, payments commence under the financing contracts 30 to 60 days after closing. We record an estimate of uncollectible amounts at the time of the sale with a charge to the provision for loan losses, which we classify as a reduction of Sale of vacation ownership products on our Statements of Income. Revisions to estimates of uncollectible amounts also impact the provision for loan losses and can increase or decrease revenue. We earn interest income from the financing arrangements on the principal balance outstanding over the life of the arrangement and record that interest income in Financing revenues on our Statements of Income.

Financing revenues include certain annual and transaction based fees we charge to owners and other third parties for services. We recognize fee revenues when services have been rendered. Fee revenues included in Financing revenues were $6 million in each of 2014, 2013 and 2012, as reflected on our Statements of Income.

~~Rental Revenues~~

We record rental revenues when occupancy has occurred or, in the case of unused prepaid rentals, upon forfeiture. We also recognize rental revenue from the utilization of plus points under the Marriott Vacation Club Destinations^TM ~~(“MVCD”) program when those points are redeemed for rental stays at one of our resorts or upon expiration of the points.~~

~~Cost Reimbursements~~

Cost reimbursements include direct and indirect costs that property owners’ associations reimburse to us. In accordance with the accounting guidance for “gross versus net” presentation, we record these revenues on a gross basis. These costs primarily consist of payroll and payroll related costs for management of the property owners’ associations and other services we provide where we are the employer. We recognize cost reimbursements when we incur the related reimbursable costs. Cost reimbursements consist of actual expenses with no added margin.

~~Multiple-Element Transactions~~

From time to time, we enter into transactions involving multiple elements. We analyze contracts with multiple elements under the accounting guidance for revenue recognition in multiple-element arrangements. If we enter into transactions for the sale of multiple products or services, we evaluate whether the delivered elements have value to the customer on a stand-alone basis, and whether there is objective and reliable evidence of fair value for each undelivered element in the transaction. If these criteria are met, then we account for each deliverable in the transaction separately. We generally recognize revenue for undelivered elements on a straight-line basis over the contractual performance period for time-based elements or upon delivery to the customer. If we are unable to determine the fair value of one or more undelivered elements in the transaction, we recognize the revenue on a straight-line basis over the period in which the last deliverable is provided to the customer.

Multiple-element transactions require judgment to determine the selling price or fair value of the different elements. The judgments impact the amount of revenue and expenses recognized over the term of the contract, as well as the period in which they are recognized.

~~Inventory~~

We account for vacation ownership inventory and cost of vacation ownership products in accordance with the authoritative guidance for accounting for real estate time-sharing transactions, which define a specific application of the relative sales value method for reducing vacation ownership inventory and recording cost of sales as described in our policy for revenue recognition for vacation ownership products. Also, pursuant to the guidance for accounting for real estate time-sharing transactions, we do not reduce inventory for cost of vacation ownership products related to anticipated credit losses (accordingly, no adjustment is made when inventory is reacquired upon default of the related receivable). These standards provide for changes in estimates within the relative sales value calculations to be accounted for as real estate inventory true-ups, which we refer to as product cost true-ups, and are recorded in Cost of vacation ownership product expenses on the Statements of Income to retrospectively adjust the margin previously recorded subject to those estimates. For 2014, 2013 and 2012, product cost true-ups relating to vacation ownership products increased carrying values of inventory by $7 million, $18 million and $30 million, respectively.

~~For residential real estate projects, we allocate costs to individual residences in the projects based on the relative estimated sales value of each residence in accordance with ASC 970, “~~~~Real Estate—General~~,” which defines the accounting for costs of real estate projects. Under this method, we reduce the allocated cost of a unit from inventory and recognize that cost as cost of sales when we recognize the related sale. Changes in estimates within the relative sales value calculations for residential products (similar to condominiums) are accounted for as prospective adjustments to cost of vacation ownership products.

~~Capitalization of Costs~~

We capitalize interest and certain salaries and related costs incurred in connection with the following: (1) development and construction of sales centers; (2) internally developed software; and (3) development and construction projects for our real estate inventory. We capitalize costs clearly associated with the acquisition, development and construction of a real estate project when it is probable that we will acquire a property. We capitalize salary and related costs only to the extent they directly relate to the project. We capitalize interest expense, taxes and insurance costs when activities that are necessary to get the property ready for its intended use are underway. We cease capitalization of costs during prolonged gaps in development when substantially all activities are suspended or when projects are considered substantially complete. Capitalized salaries and related costs totaled $5 million, $7 million and $8 million for 2014, 2013 and 2012, respectively.

~~Defined Contribution Plan~~

We administer and maintain a defined contribution plan for the benefit of all employees meeting certain eligibility requirements who elect to participate in the plan. Contributions are determined based on a specified percentage of salary deferrals by participating employees. We recognized compensation expense (net of cost reimbursements from property owners’ associations) for our participating employees totaling $7 million in 2014, $6 million in 2013 and $5 million in 2012.

~~Deferred Compensation Plan~~

Prior to the Spin-Off, certain members of our senior management had the opportunity to participate in the Marriott International, Inc. Executive Deferred Compensation Plan (the “Marriott International EDC”), which Marriott International maintains and administers. Under the Marriott International EDC, participating employees may defer payment and income taxation of a portion of their salary and bonus. It also gives participants the opportunity for long-term capital appreciation by crediting their accounts with notional earnings (at a fixed annual rate of return of 5.2 percent for 2014 and 5.4 percent for 2013). Although additional discretionary contributions to the participant’s accounts under the Marriott International EDC may be made, no additional discretionary contributions were made for our employees in 2014, 2013 and 2012. Subsequent to the Spin-Off, we remain liable to reimburse Marriott International for distributions for participants that were employees of Marriott Vacations Worldwide at the time of the Spin-Off including earnings thereon.

maintain and administer. Under the Deferred Compensation Plan, participating employees may defer payment and income taxation of a portion of their salary and bonus. It also gives participants the opportunity for long-term capital appreciation by crediting their accounts with notional earnings (at a fixed annual rate of return of 5.6 percent for 2014). As permitted by the Deferred Compensation Plan, additional discretionary contributions of less than $1 million were made for our employees in 2014.

~~Property and Equipment~~

Property and equipment includes our sales centers, golf courses, information technology and other assets used in the normal course of business, as well as undeveloped and partially developed land parcels that are not part of our approved development plan. We record property and equipment at cost, including interest and real estate taxes incurred during active development. We capitalize the cost of improvements that extend the useful life of property and equipment when incurred. These capitalized costs may include structural costs, equipment, fixtures, floor and decorative items and signage. We expense all repair and maintenance costs as incurred. We compute depreciation using the straight-line method over the estimated useful lives of the assets (three to forty years), and we amortize leasehold improvements over the shorter of the asset life or lease term.

~~Marriott Rewards Customer Loyalty Program~~

We participate in the Marriott Rewards customer loyalty program and we offer Marriott Rewards Points, or “points,” which we purchase from Marriott International, as incentives to purchase vacation ownership products and/or through exchange and other activities. Marriott International maintains and administers this program. The associated expense is classified on the Statements of Income based on the source of the expense and related revenue stream. For Marriott Rewards Points issued prior to 2012, we pay Marriott International for Marriott Rewards Points when the points are redeemed by program members. Our liability for Marriott Rewards Points issued prior to 2012 represents the net present value of future cash outlays that we are obligated to pay Marriott International based on actual point redemptions. We base the carrying value of this liability on a statistical model that projects the dollar value and timing of future point redemptions. The most significant estimates involve the future cost of redeemed points, the breakage for points that will never be redeemed, and the pace at which points are redeemed. We base our estimates for these items on our historical experience, current trends and other considerations. Actual results could differ from our projections so the actual discounted future cash outlays associated with our Marriott Rewards customer loyalty program liability could differ from the amounts currently recorded.

Our liability for Marriott Rewards Points issued prior to 2012 represents the amount that we are obligated to pay to Marriott International based on future redemptions. These future redemptions consist of actual redemptions incurred through 2015, with a final lump sum payment in 2016. The lump sum payment represents an estimate of the present value of anticipated future redemptions of any remaining Marriott Rewards Points issued in connection with our business prior to 2012. Our liability for these Marriott Rewards Points is included in Liability for Marriott Rewards customer loyalty program on the Balance Sheets. See Footnote No. 12, “Other Liabilities” for more information.

We generally pay Marriott International for Marriott Rewards Points within 30 days of issuance. For Marriott Rewards Points issued for exchanges as an alternative usage option for owners who elect to exchange their inventory in the calendar fourth quarter, payment is due within 120 days of year-end. The rates we pay for the Marriott Rewards Points are based upon historical redemption costs with no future adjustment for actual costs incurred by Marriott International upon fulfillment. Our liability for these Marriott Rewards Points is included in Accrued liabilities on the Balance Sheets.

~~Guarantees~~

We record a liability for the fair value of a guarantee on the date we issue or modify the guarantee. The offsetting entry depends on the circumstances in which the guarantee was issued. Funding under the guarantee reduces the recorded liability. On a quarterly basis, we evaluate all material estimated liabilities based on the operating results and the terms of the guarantee. If we conclude that it is probable that we will be required to fund a greater amount than previously estimated, we will record a loss.

~~Cash and Cash Equivalents~~

~~We consider all highly liquid investments with an initial purchase maturity of three months or less at the date of purchase to be cash equivalents.~~

~~Restricted Cash~~

~~Accounts and Contracts Receivable~~

~~Accounts and contracts receivable are presented net of allowances of $1 million at the end of both 2014 and 2013.~~

~~Loan Loss Reserves~~

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. 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 uncollectible vacation ownership notes receivable against the reserve once we receive title of the vacation ownership products through the foreclosure or deed-in-lieu process or, in Europe or Asia Pacific, when revocation is complete. For both non-securitized and securitized vacation ownership notes receivable, we estimated average remaining default rates of 6.95 percent and 7.13 percent as of January 2, 2015 and January 3, 2014, respectively. A 0.5 percentage point increase in the estimated default rate would have resulted in an increase in our allowance for loan losses of $5 million as of both January 2, 2015 and January 3, 2014.

~~For additional information on our vacation ownership notes receivable, including information on the related reserves, see Footnote No. 3, “Vacation Ownership Notes Receivable.”~~

~~Costs Incurred to Sell Vacation Ownership Products~~

We charge the majority of marketing and sales costs we incur to sell vacation ownership products to expense when incurred. Deferred marketing and selling expenses, which are direct marketing and selling costs related either to an unclosed contract or a contract for which 100 percent of revenue has not yet been recognized, were $5 million at year-end 2014 and $4 million at year-end 2013 and are included on the accompanying Balance Sheets in the Other caption within Assets.

~~Valuation of Property and Equipment~~

Property and equipment includes our sales centers, golf courses, information technology and other assets used in the normal course of business, as well as undeveloped and partially developed land parcels that are not part of an approved development plan and do not meet the criteria to be classified as held for sale. We test long-lived asset groups for recoverability when changes in circumstances indicate the carrying value may not be recoverable, for example, when there are material adverse changes in projected revenues or expenses, significant underperformance relative to historical or projected operating results, or significant negative industry or economic trends. We evaluate recoverability of an asset group by comparing its carrying value to the future net undiscounted cash flows that we expect will be generated by the asset group. If the comparison indicates that the carrying value of an asset group is not recoverable, we recognize an impairment loss for the excess of carrying value over the estimated fair value. When we recognize an impairment loss for assets to be held and used, we depreciate the adjusted carrying amount of those assets over their remaining useful life.

~~Investments~~

We consolidate entities that we control. We account for investments in joint ventures which are not consolidated variable interest entities using the equity method of accounting when we exercise significant influence over the venture. If we do not exercise significant influence, we account for the investment using the cost method of accounting. We account for investments in limited partnerships and limited liability companies using the equity method of accounting when we own more than a minimal investment. Our ownership interest in these equity method investments generally varies from 34 percent to 50 percent.

~~Valuation of Investments in Ventures~~

We evaluate an investment in a venture for impairment when circumstances indicate that the carrying value may not be recoverable due to loan defaults, significant under-performance relative to historical or projected performance, significant negative industry or economic trends, or otherwise.

We impair investments we have accounted for using the equity and cost methods of accounting when we determine that the venture has had an “other than temporary” decline in its estimated fair value as compared to its carrying value. Additionally, a change in business plans or strategies of a venture could cause us to evaluate the recoverability for the individual long-lived assets in the venture and possibly the venture itself.

We calculate the estimated fair value of an investment in a venture using the income approach. We use internally developed discounted cash flow models that include the following assumptions, among others: projections of revenues and expenses and related cash flows based on assumed long-term growth rates and demand trends; expected future investments; and estimated discount rates. We base these assumptions on our historical data and experience, third-party appraisals, industry projections, micro and macro general economic condition projections, and our expectations.

~~Fair Value Measurements~~

~~Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.~~

observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

~~Derivative Instruments~~

From time to time, we may use derivative instruments to reduce market risk due to changes in interest rates and currency exchange rates, including interest rate derivatives that we may be required to enter into as a condition of our $250 million non-recourse warehouse credit facility (the “Warehouse Credit Facility”). As of January 2, 2015, we were not party to any material derivative instruments or hedges.

~~Non-U.S. Operations~~

The U.S. dollar is the functional currency of our consolidated entities operating in the United States. The functional currency for our consolidated entities operating outside of the United States is generally the currency of the economic environment in which the entity primarily generates and expends cash. For consolidated entities whose functional currency is not the U.S. dollar, we translate their financial statements into U.S. dollars. We translate assets and liabilities at the exchange rate in effect as of the financial statement date and translate Statement of Income accounts using the weighted average exchange rate for the period. We include translation adjustments from currency exchange and the effect of exchange rate changes on intercompany transactions of a long-term investment nature as a separate component of equity. We report gains and losses from currency exchange rate changes related to intercompany receivables and payables that are not of a long-term investment nature, as well as gains and losses from non-U.S. currency transactions, currently in operating costs and expenses.

~~Loss Contingencies~~

~~Share-Based Compensation Costs~~

We established the Marriott Vacations Worldwide Corporation Stock and Cash Incentive Plan (the “Stock Plan”) in order to compensate our employees and directors by issuing equity awards such as stock options, stock appreciation rights (“SARs”) and restricted stock units (“RSUs”) to them. Prior to the Spin-Off, certain of our

employees received equity awards under the Marriott International, Inc. Stock and Cash Incentive Plan (the “Marriott International Stock Plan”). For all fiscal years presented, our Statements of Income include expenses related to our employees’ participation in both the Stock Plan and the Marriott International Stock Plan.

~~We follow the provisions of ASC 718, “~~~~Compensation—Stock Compensation,~~” which requires that a company measure the expense of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. Generally, share-based awards granted to our employees vest ratably over a four-year period, and we recognize the expense associated with these awards on our Statements of Income on a straight-line basis over the period during which an employee is required to provide service in exchange for the award. We measure the amount of compensation expense for share-based awards based on the fair value of the awards as of the date that the share-based awards are granted and adjust that expense to the estimated number of awards that we expect will vest. We generally determine the fair value of stock options and SARs using the Black-Scholes option valuation model which incorporates assumptions about expected volatility, risk free interest rate, dividend yield and expected term. The fair value of RSUs represents the number of awards granted multiplied by the average of the high and low market price of our common stock on the date the awards are granted. For awards granted after 2005, we recognize compensation cost for share-based awards ratably over the vesting period. We will issue shares from authorized shares upon the exercise of stock options or SARs held by our employees and directors. See Footnote No. 14, “Share-Based Compensation,” for more information.

~~Advertising Costs~~

~~We expensed advertising costs as incurred of $2 million in each of 2014, 2013 and 2012. These costs are included in the Marketing and sales expense caption on our Statements of Income.~~

~~Income Taxes~~

We file U.S. consolidated federal and state tax returns, as well as separate tax filings for non-U.S. jurisdictions. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

~~For information about income taxes and deferred tax assets and liabilities, see Footnote No. 2, “Income Taxes.”~~

~~Earnings Per Common Share~~

~~New Accounting Standards~~

~~Accounting Standards Update No. 2013-11 – “~~~~Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists~~~~” (“ASU No. 2013-11”)~~

ASU No. 2013-11, which we adopted in the first quarter of 2014, provides financial statement presentation guidance on when an unrecognized tax benefit must be presented as either a reduction to a deferred tax asset or separately as a liability. Our adoption of this update did not have a material impact on our Financial Statements.

~~Accounting Standards Update No. 2014-08 – “~~~~Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity~~~~” (“ASU No. 2014-08”)~~

ASU No. 2014-08, which we adopted in the first quarter of 2014, raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. ASU No. 2014-08 is effective for annual periods beginning after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015, with early adoption permitted. Our adoption of this update did not have a material impact on our Financial Statements.

~~Future Adoption of Accounting Standards~~

~~Accounting Standards Update No. 2014-09 – “~~~~Revenue from Contracts with Customers (Topic 606)~~~~” (“ASU No. 2014-09”)~~

~~In May 2014, the Financial Accounting Standards Board issued ASU No. 2014-09. ASU No. 2014-09 supersedes the revenue recognition requirements in Topic 605,~~~~Revenue Recognition~~, as well as most industry-specific guidance, and significantly enhances comparability of revenue recognition practices across entities and industries by providing a principles-based, comprehensive framework for addressing revenue recognition issues. In order for a provider of promised goods or services to recognize as revenue the consideration that it expects to receive in exchange for the promised goods or services, the provider should apply the following five steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU No. 2014-09 will be effective for financial statements issued for the first interim period within annual periods beginning after December 15, 2016, and does not permit early adoption. We are permitted to use the retrospective or modified retrospective method when adopting ASU No. 2014-09. We will adopt ASU No. 2014-09 in the first quarter of 2017 and are still assessing the impact that ASU No. 2014-09 will have on our financial statements and disclosures.

~~2. INCOME TAXES~~

We file U.S. consolidated federal and state tax returns, as well as consolidated and separate tax filings for non-U.S. jurisdictions. We entered into a Tax Sharing and Indemnification Agreement with Marriott International effective November 21, 2011 (as subsequently amended, the “Tax Sharing and Indemnification Agreement”), which governs the allocation between Marriott International and Marriott Vacations Worldwide of

responsibility for federal, state, local and foreign income and other taxes related to taxable periods prior to and subsequent to the Spin-Off. Under this agreement, if any part of the Spin-Off fails to qualify for the tax treatment stated in the ruling Marriott International received from the U.S. Internal Revenue Service (the “IRS”) in connection with the Spin-Off, taxes imposed will be allocated between Marriott International and Marriott Vacations Worldwide as set forth in the agreement, and each will indemnify and hold harmless the other from and against the taxes so allocated. In addition, under the Tax Sharing and Indemnification Agreement, Marriott International is allocated the responsibility for payment of taxes for our taxable income prior to Spin-Off and we are allocated the responsibility for payment of taxes for our taxable income subsequent to Spin-Off.

During 2012, Marriott International completed the valuation of the assets distributed to Marriott Vacations Worldwide at the time of the Spin-Off, which resulted in an increase in our Deferred tax liabilities of $12 million and a corresponding reduction of Additional paid-in capital. Based upon the completed valuations, we re-allocated tax basis among our consolidated subsidiaries and recorded a decrease to our Deferred tax liabilities of $8 million and a corresponding increase to Additional paid-in capital. Further, in 2012 we increased our Deferred tax liabilities by $12 million for adjustments to the Deferred tax liabilities at the time of Spin-Off with a corresponding reduction of Additional paid-in capital.

During 2014, we increased our Deferred tax liabilities by $4 million for adjustments to the Deferred tax liabilities at the time of the Spin-Off with a corresponding reduction to Additional paid-in capital.

~~The income (loss) before provision for income taxes by geographic region is as follows:~~

($ in millions) 2014 2013 2012
United States
$ 179    $         125    $         44
Non-U.S. jurisdictions
      (28)    6    (13 )

$ 151    $ 131    $ 31

~~Our current tax provision does not reflect the benefits attributable to us for the exercise or vesting of employee share-based awards of $5 million in 2014, $3 million in 2013 and $3 million in 2012.~~

~~Our provision for income taxes consists of:~~

($ in millions) 2014 2013 2012
Current – U.S. Federal
$ (43)    $         (37)    $         (61)
– U.S. State
(9)    (5)    (9)
– Non-U.S.
—    (2)    (4)

(52)    (44)    (74)

Deferred – U.S. Federal
      (16)    (5)    43
– U.S. State
1    (1)    6
– Non-U.S.
(3)    (1)    1

(18)    (7)    50

$ (70)    $ (51)    $ (24)

The deferred tax assets and related valuation allowances in these Financial Statements have been determined on a separate return basis. The assessment of the valuation allowances requires considerable judgment on the part of management with respect to benefits that could be realized from future taxable income, as well as other positive and negative factors. Valuation allowances are recorded against the deferred tax assets of certain foreign operations for which historical losses, restructuring and impairment charges have been incurred. The change in the valuation allowances established were ($7) million in 2014, $2 million in 2013 and $2 million in 2012.

We have made no provision for U.S. income taxes or additional non-U.S. taxes on the cumulative unremitted earnings of non-U.S. subsidiaries ($151 million at January 2, 2015) because we consider these earnings to be permanently invested. These earnings could become subject to additional taxes if remitted as

dividends, loaned to us or a U.S. affiliate or if we sold our interests in the affiliates. We cannot practically estimate the amount of additional taxes that might be payable on the unremitted earnings.

We conduct business in countries that grant “holidays” from income taxes for five to thirty year periods. These holidays expire through 2034. Without these tax “holidays,” we would have incurred the following aggregate additional income taxes: $3 million in 2014, $2 million in 2013 and $3 million in 2012.

We have joined in the Marriott International U.S. federal tax consolidated filing for periods up to the date of the Spin-Off. The IRS has examined Marriott International’s federal income tax returns, and it has settled all issues related to the timeshare business for the tax years through the Spin-Off. Our tax years subsequent to the Spin-Off are subject to examination by relevant tax authorities, and our returns are currently being audited by the IRS and authorities in other foreign jurisdictions. Although we do not anticipate that a significant impact to our unrecognized tax benefit balance will occur during the next fiscal year as a result of these audits, the amount of our liability for unrecognized tax benefits could change as a result of these audits. Pursuant to the Tax Sharing and Indemnification Agreement, Marriott International is liable and shall pay the relevant tax authority for all taxes related to our taxable income prior to the Spin-Off.

Our total unrecognized tax benefit balance that, if recognized, would impact our effective tax rate was $1 million at January 2, 2015 and less than $1 million at January 3, 2014 and December 28, 2012. Our unrecognized tax benefit reflects an increase of $1 million in 2014, an increase of less than $1 million in 2013 and a decrease of $2 million in 2012, representing U.S. activity in 2014 and 2013 and primarily non-U.S. audit activity in 2012.

~~The following table reconciles our unrecognized tax benefit balance for each year from the beginning of 2012 to the end of 2014:~~

($ in millions) 2014 2013 2012
Unrecognized tax benefit at beginning of year
$          — $          — $         2
Change attributable to tax positions taken during a prior period
1 — —
Decrease attributable to settlements with taxing authorities
— — (2 )

Unrecognized tax benefit at end of year
$ 1 $ — $ —

In accordance with our accounting policies, we recognize accrued interest and penalties related to our unrecognized tax benefits as a component of tax expense. Related interest expense and accrued interest expense each totaled less than $1 million in each of 2014, 2013 and 2012.

~~Deferred Income Taxes~~

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases, as well as from net operating loss and tax credit carry-forwards. We state those balances at the enacted tax rates we expect will be in effect when we actually pay or recover taxes. Deferred income tax assets represent amounts available to reduce income taxes we will pay on taxable income in future years. We evaluate our ability to realize these future tax deductions and credits by assessing whether we expect to have sufficient future taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies to utilize these future deductions and credits. We establish a valuation allowance when we no longer consider it more likely than not that a deferred tax asset will be realized.

~~Total deferred tax assets and liabilities at January 2, 2015 and January 3, 2014 were as follows:~~

($ in millions) At Year-End
2014 At Year-End
2013
Deferred tax assets
$ 167 $ 153
Deferred tax liabilities
(246) (213 )

Net deferred tax liability
$ (79 ) $ (60 )

The tax effect of each type of temporary difference and carry-forward that gives rise to a significant portion of our deferred tax assets and liabilities at January 2, 2015 and January 3, 2014 was as follows:

($ in millions) At Year-End
2014 At Year-End
2013
Inventory
(24)    $ (28 )
Reserves
35 26
Property and equipment
(9)    (20 )
Marriott Rewards customer loyalty program
17 15
Deferred sales of vacation ownership interests
        (160 )         (109 )
Long lived intangible assets
29    35
Net operating loss carry-forwards
44    50
Other, net
39    28

Deferred tax liability
(29 ) (3 )
Less: Valuation allowance
(50 ) (57 )

Net deferred tax liability
$ (79 ) $ (60 )

At January 2, 2015, we had approximately $201 million of foreign net operating losses (excluding valuation allowances) some of which begin expiring in 2018. However, a significant portion of these tax net operating losses have an indefinite carry forward period. We have no federal net operating losses and net operating losses of $1 million for state tax purposes which begin expiring in 2032.

~~Reconciliation of U.S. Federal Statutory Income Tax Rate to Actual Income Tax Rate~~

~~The following table reconciles the expense related to the U.S. statutory income tax rate to our effective income tax rate:~~

          2014                     2013                     2012
U.S. statutory income tax rate expense
35.00 % 35.00 % 35.00 %
U.S. state income taxes, net of U.S. federal tax benefit
2.96 3.48 4.63
Permanent differences⁽¹⁾
0.18    0.24 10.73
Non-U.S. income⁽²⁾
6.27    0.97 7.26
Other items
0.17    (2.28 ) 5.41
Change in valuation allowance⁽³⁾
1.79    1.82 17.05

Effective rate expense
46.37 % 39.23 % 80.08 %

⁽¹⁾	For 2014 and 2013, attributed to interest on mandatorily redeemable preferred stock of a consolidated subsidiary. For 2012, attributed to interest on mandatorily redeemable preferred stock of a consolidated subsidiary and foreign income subject to U.S. tax.

⁽²⁾	~~Attributed to the difference between U.S. and foreign income tax rates, partially offset by the benefit of tax holidays in certain jurisdictions.~~

⁽³⁾	~~Attributed to establishment of valuation allowances in foreign jurisdictions for losses that cannot be benefited in the U.S. income tax provision as discussed above.~~

~~Cash Taxes Paid~~

~~Cash taxes paid in 2014, 2013 and 2012 were $65 million, $29 million and $68 million, respectively.~~

~~3. VACATION OWNERSHIP NOTES RECEIVABLE~~

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

($ in millions) At Year-End
2014 At Year-End
2013
Vacation ownership notes receivable – securitized
$         751    $         719
Vacation ownership notes receivable – non-securitized

Eligible for securitization⁽¹⁾
24    73
Not eligible for securitization⁽¹⁾
142    178

Subtotal
166    251

Total vacation ownership notes receivable
$ 917    $ 970

⁽¹⁾

~~Refer to Footnote No. 4, “Financial Instruments,” for discussion of eligibility of our vacation ownership notes receivable.~~

~~The following tables show future principal payments, net of reserves, as well as interest rates for our securitized and non-securitized vacation ownership notes receivable:~~

($ in millions) Non-Securitized
Vacation Ownership
Notes Receivable Securitized
Vacation Ownership
Notes Receivable Total
2015
$ 47    $ 112    $               159
2016
25    109    134
2017
20    102    122
2018
14    87    101
2019
11    77    88
Thereafter
49    264    313

Balance at year-end 2014
$ 166    $ 751    $ 917

Weighted average stated interest rate at year-end 2014
11.6%    12.8%    12.5%
Range of stated interest rates at year-end 2014
0.0% to 19.5%    4.9% to 19.5%    0.0% to 19.5%

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

($ in millions) 2014 2013 2012
Interest income associated with vacation ownership notes receivable – securitized
$         92    $         104    $         114
Interest income associated with vacation ownership notes receivable – non-securitized
31    31    31

Total interest income associated with vacation ownership notes receivable
$ 123    $ 135    $ 145

~~The following table summarizes the activity related to our vacation ownership notes receivable reserve for 2014, 2013 and 2012:~~

($ in millions) Non-Securitized
Vacation Ownership
Notes Receivable
Reserve Securitized
Vacation Ownership
Notes Receivable
Reserve Total
Balance at year-end 2011
$ 104 $ 67 $ 171
Provision for loan losses
19 23 42
Securitizations
(21 ) 21 —
Clean-up calls⁽¹⁾
18 (18 ) —
Write-offs
(66 ) — (66 )
Defaulted vacation ownership notes receivable repurchase activity⁽²⁾
39 (39 ) —

Balance at year-end 2012
93 54 147
Provision for loan losses
28 8 36
Securitizations
(31 ) 31 —
Clean-up calls⁽¹⁾
14 (14 ) —
Write-offs
(49 ) — (49 )
Defaulted vacation ownership notes receivable repurchase activity⁽²⁾
27 (27 ) —

Balance at year-end 2013
82 52 134
Provision for loan losses
21 9 30
Securitizations
(20 ) 20 —
Clean-up calls⁽¹⁾
2 (2 ) —
Write-offs
(45 ) — (45 )
Defaulted vacation ownership notes receivable repurchase activity⁽²⁾
25 (25 ) —

Balance at year-end 2014
$ 65 $ 54 $ 119

⁽¹⁾

~~Refers to our voluntary repurchase of previously securitized non-defaulted vacation ownership notes receivable to retire outstanding vacation ownership notes receivable securitizations.~~

⁽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 the vacation ownership notes receivable.

($ in millions) Non-Securitized
Vacation Ownership
Notes Receivable Securitized
Vacation Ownership
Notes Receivable Total
Investment in notes receivable on non-accrual status at year-end 2014
$ 60 $ 7 $ 67
Investment in notes receivable on non-accrual status at year-end 2013
$ 69 $ 8 $ 77

~~The following table shows the aging of the recorded investment in principal, before reserves, in vacation ownership notes receivable as of January 2, 2015:~~

($ in millions) Non-Securitized
Vacation Ownership
    Notes Receivable     Securitized
Vacation Ownership
    Notes Receivable     Total
31 – 90 days past due
$ 8    $ 23    $ 31
91 – 150 days past due
6    7    13
Greater than 150 days past due
54    —    54

Total past due
68    30    98
Current
163    775    938

Total vacation ownership notes receivable
$ 231    $ 805    $ 1,036

~~The following table shows the aging of the recorded investment in principal, before reserves, in vacation ownership notes receivable as of January 3, 2014:~~

($ in millions) Non-Securitized
Vacation Ownership
    Notes Receivable     Securitized
Vacation Ownership
    Notes Receivable     Total
31 – 90 days past due
$ 12    $ 22    $ 34
91 – 150 days past due
7    8    15
Greater than 150 days past due
62    —    62

Total past due
81    30    111
Current
252    741    993

Total vacation ownership notes receivable
$ 333    $ 771    $ 1,104

~~4. 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 and contracts receivable, Accounts payable and Accrued liabilities, all of which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments.

At Year-End
2014 At Year-End
2013
($ in millions) Carrying
Amount Fair
Value⁽¹⁾ Carrying
Amount Fair
Value⁽¹⁾
Vacation ownership notes receivable – securitized
$ 751 $ 909 $ 719 $ 865
Vacation ownership notes receivable – non-securitized
166 172 251 267

Total financial assets
$ 917 $ 1,081 $ 970 $ 1,132

Non-recourse debt associated with vacation ownership notes receivable securitizations
$ (708 ) $ (713 ) $ (674 ) $ (695 )
Other debt
(3 ) (3 ) (4 ) (4 )
Mandatorily redeemable preferred stock of consolidated subsidiary
(40 ) (44 ) (40 ) (44 )
Liability for Marriott Rewards customer loyalty program
(89 ) (80 ) (114 ) (110 )
Other liabilities
(4 ) (4 ) (6 ) (6 )

Total financial liabilities
$ (844 ) $ (844 ) $ (838 ) $ (859 )

⁽¹⁾

~~Fair value of financial instruments has been determined using Level 3 inputs.~~

~~See the “Fair Value Measurements” caption of Footnote No. 1, “Summary of Significant Accounting Policies” for additional information.~~

~~Vacation Ownership Notes Receivable~~

We estimate the fair value of our securitized vacation ownership notes receivable using a discounted cash flow model. We believe this is comparable to the model that an independent third party would use in the current market. Our model 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, that when applied in combination with pricing parameters, determine the fair value of the underlying vacation ownership notes receivable.

At Year-End
2014 At Year-End
2013
($ in millions) Carrying
Amount Fair
Value Carrying
Amount Fair
Value
Vacation ownership notes receivable — eligible for securitization
$ 24    $ 30    $ 73    $ 89
Vacation ownership notes receivable — not eligible for securitization
142    142    178    178

Total vacation ownership notes receivable — non-securitized
$ 166    $ 172    $ 251    $ 267

~~Non-Recourse Debt Associated with Securitized Vacation Ownership Notes Receivable~~

~~Mandatorily Redeemable Preferred Stock of Consolidated Subsidiary~~

We estimate the fair value of the mandatorily redeemable preferred stock of our consolidated subsidiary 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 includes an assessment of our subsidiary’s credit risk and the instrument’s contractual dividend rate.

~~Liability for Marriott Rewards Customer Loyalty Program~~

We determine the carrying value of the future redemption obligation of our liability for the Marriott Rewards customer loyalty program based on statistical formulas that project the timing of future redemption of Marriott Rewards Points based on historical levels, including estimates of the number of Marriott Rewards Points that will eventually be redeemed and the “breakage” for points that will never be redeemed, as discussed in Footnote No. 12, “Other Liabilities.” We estimate the fair value of the future redemption obligation by adjusting the contractual discount rate to an estimate of that of a market participant with similar nonperformance risk.

~~Other Liabilities~~

We estimate the fair value of our other liabilities that are financial instruments using expected future payments discounted at risk-adjusted rates. These liabilities represent guarantee costs and reserves and other structured payments. The carrying values of our financial instruments within Other liabilities approximate their fair values.

~~5. ACQUISITIONS AND DISPOSITIONS~~

~~2014 Acquisitions and Dispositions~~

~~In 2014, we entered into the following disposition transactions in furtherance of our initiative to dispose of excess undeveloped and partially developed land.~~

During the third quarter of 2014, we entered into a purchase and sale agreement to dispose of undeveloped and partially developed land, an operating golf course, spa and clubhouse and related facilities at The Abaco Club on Winding Bay (“The Abaco Club”) in the Bahamas. During the fourth quarter of 2014, we completed the sale of The Abaco Club for gross cash proceeds of $10 million. We accounted for the sale under the full accrual method in accordance with the authoritative guidance on accounting for sales of real estate and recorded a non-cash loss of $24 million, which is included in the Litigation settlement line on the Statement of Income for the year ended January 2, 2015. See Footnote No. 9, “Contingencies and Commitments,” for additional discussion of this transaction.

During the second quarter of 2014, we entered into a purchase and sale agreement to dispose of undeveloped and partially developed land, an operating golf course and related assets, in Kauai, Hawaii (the “Kauai Property”) for $60 million in gross cash proceeds. During the fourth quarter of 2014, pursuant to a subsequent modification to the purchase and sale agreement, we completed the sale of a portion of the Kauai Property for gross cash proceeds of $40 million and the buyer agreed to purchase the remaining portion of the Kauai Property for gross cash proceeds of $20 million no later than April 30, 2015, unless we and the buyer mutually agree prior to March 31, 2015 to enter into an “alternative arrangement” regarding the remaining portion of the Kauai Property. If we and the buyer fail to enter into an “alternative arrangement” on or before March 31, 2015, then the buyer will be obligated to acquire the remaining portion of the Kauai Property. An “alternative arrangement” means any arrangement in lieu of the acquisition of the remaining portion of the Kauai Property by the buyer, including, without limitation, an arrangement under which the buyer would develop timeshare units on the remaining portion of the Kauai Property and we would purchase the completed timeshare units on a turn-key basis at agreed upon terms. We accounted for the sale of the portion of the transaction closed in 2014 under the full accrual method in accordance with the authoritative guidance on accounting for sales of real estate and recorded a gain of $3 million, which is included in the Gains and other income line on the Statement of Income for the year ended January 2, 2015.

During the second quarter of 2014, we completed the sale of a parcel of undeveloped land on Singer Island, Florida for gross cash proceeds of $11 million. We accounted for the sale under the full accrual method in accordance with the authoritative guidance on accounting for sales of real estate and recorded a gain of less than $1 million, which is included in the Gains and other income line on the Statement of Income for the year ended January 2, 2015.

During the first quarter of 2014, we disposed of a golf course and adjacent undeveloped land in Orlando, Florida for $24 million in gross cash proceeds. As a condition of the sale, we will continue to operate the golf course until the end of the first quarter of 2015 at our own risk. We will utilize the performance of services method to record a gain from the sale, which we estimate will be between $2 million and $3 million over the period during which we will operate the golf course, of which approximately $2 million is included in the Gains and other income line on the Statement of Income for the year ended January 2, 2015.

~~We made no significant acquisitions in 2014.~~

~~2013 Acquisitions and Dispositions~~

In 2013, we acquired a parcel of land adjacent to one of our existing resorts in Phuket, Thailand for $2 million. In 2013, we completed the sale of a multi-family parcel in St. Thomas, U.S. Virgin Islands. Net cash proceeds from the sale totaled $2 million and we recorded a net gain of less than $1 million. We accounted for the sale under the full accrual method in accordance with the authoritative guidance on accounting for sales of real estate.

~~2012 Acquisitions and Dispositions~~

In 2012, we paid into escrow the remaining $7 million of the $18 million purchase price for certain vacation ownership units and we completed the acquisition during 2013. We previously paid into escrow $11 million in conjunction with this transaction.

In 2012, we completed the sale of the golf course, clubhouse and spa formerly known as The Ritz-Carlton Golf Club and Spa, Jupiter, which was classified within our North America segment, for $34 million, including $5 million of cash and the assumption by the purchaser of liabilities with a book value of $29 million. We accounted for the sale under the full accrual method and recorded a net gain of $8 million in Gains and other income on our Statement of Income for the year ended December 28, 2012.

~~6. EARNINGS PER SHARE~~

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

(in millions, except per share amounts) January 2,
2015⁽¹⁾ January 3,
2014⁽²⁾ December 28,
2012⁽³⁾
Computation of Basic Earnings Per Share

Net income
$ 81    $ 80    $ 7
Weighted average shares outstanding
33.7    35.4    34.4

Basic earnings per share
$ 2.40    $ 2.25    $ 0.19

Computation of Diluted Earnings Per Share
Net income
$ 81    $ 80    $ 7

Weighted average shares outstanding
33.7    35.4    34.4
Effect of dilutive securities
Employee stock options and SARs
0.5    0.7    1.0
Restricted stock units
0.4    0.5    0.8

Shares for diluted earnings per share
34.6    36.6    36.2

Diluted earnings per share
$ 2.33    $ 2.18    $ 0.18

⁽¹⁾

The computations of diluted earnings per share exclude approximately 134,000 shares of common stock, the maximum number of shares issuable as of January 2, 2015 upon the vesting of certain performance-based awards, because the performance conditions required for the shares subject to such awards to vest were not achieved by the end of the reporting period.

⁽²⁾

The computations of diluted earnings per share exclude approximately 229,000 shares of common stock, the maximum number of shares issuable as of January 3, 2014 upon the vesting of certain performance-based awards, because the performance conditions required for the shares subject to such awards to vest were not achieved by the end of the reporting period.

⁽³⁾

The computations of diluted earnings per share exclude approximately 157,000 shares of common stock, the maximum number of shares issuable as of December 28, 2012 upon the vesting of certain performance-based awards, because the performance conditions required 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 years ended January 2, 2015 and January 3, 2014, we have not excluded any shares underlying stock options or SARs that may be settled in shares of common stock from our calculation of diluted earnings per share as no exercise prices were greater than the average market prices for the applicable period.

For the year ended December 28, 2012, we excluded 2,127 shares underlying stock options and SARs that may be settled in shares of common stock, with exercise prices ranging from $32.74 to $40.97, in our calculation of diluted earnings per share because these exercise prices were greater than the average market prices for the applicable period.

~~7. INVENTORY~~

~~The following table shows the composition of our inventory balances:~~

($ in millions) At Year-End
2014 At Year-End
2013
Finished goods⁽¹⁾
$             413    $             369
Work-in-progress⁽²⁾
—    151
Land and infrastructure⁽³⁾
355    344

Real estate inventory
768    864
Operating supplies and retail inventory
5    6

$ 773    $ 870

⁽¹⁾

~~Represents completed inventory that is either registered for sale as vacation ownership interests, or unregistered and available for sale in its current form.~~

⁽²⁾

~~Includes vacation ownership products under active construction for which a certificate of occupancy has not been received.~~

⁽³⁾

Includes $47 million of sales centers that are expected to be converted into vacation ownership products to be sold in the future and $87 million of inventory related to estimated future foreclosures at year-end 2014.

~~8. PROPERTY AND EQUIPMENT~~

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

($ in millions) At Year-End
2014 At Year-End
2013
Land
$ 64 $ 144
Buildings and leasehold improvements
168 204
Furniture and equipment
48 56
Information technology
181 181
Construction in progress
12 11

473 596
Accumulated depreciation
(326 ) (342 )

$ 147 $ 254

Interest capitalized as a cost of property and equipment totaled less than $1 million in each of 2014, 2013 and 2012. Depreciation expense totaled $19 million in 2014, $23 million in 2013 and $30 million in 2012.

~~9. CONTINGENCIES AND COMMITMENTS~~

~~Guarantees~~

We have historically issued guarantees to certain lenders in connection with the provision of third-party financing for our sale of vacation ownership products for the North America and Asia Pacific segments. The terms of these guarantees generally require us to fund if the purchaser fails to pay under the term of its note payable. Prior to the Spin-Off, Marriott International guaranteed our performance under these arrangements, and following the Spin-Off continues to hold a standby letter of credit related to the Asia Pacific segment guarantee. If Marriott International is required to fund any draws by lenders under this letter of credit it would seek recourse from us. Marriott International no longer guarantees our performance with respect to third-party financing for sales of products in the North America segment. We are entitled to recover any funding to third-party lenders related to these guarantees through reacquisition and resale of the financed vacation ownership product. Our commitments under these guarantees expire as notes mature or are repaid. The terms of the underlying notes extend to 2022.

The following table shows the maximum potential amount of future fundings for financing guarantees where we are the primary obligor and the carrying amount of the liability for expected future fundings.

($ in millions) Maximum Potential
Amount of Future Fundings
at Year-End 2014 Liability for Expected
Future Fundings at
Year-End 2014
Segment

Asia Pacific
$ 8    $ —
North America
3    —

Total guarantees where we are the primary obligor
$ 11    $ —

~~We included our liability of less than $1 million for expected future fundings for guarantees on our Balance Sheet at January 2, 2015 in the Other caption within Liabilities.~~

~~Commitments and Letters of Credit~~

~~In addition to the guarantees we describe in the preceding paragraphs, as of January 2, 2015, 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 $37 million, of which we expect $14 million, $8 million, $6 million, $3 million, $2 million and $4 million will be paid in 2015, 2016, 2017, 2018, 2019 and thereafter respectively.

~~We have commitments to subsidize vacation ownership associations of $5 million, which we expect to pay in 2015.~~

We have a commitment of $76 million to purchase vacation ownership units located in Miami, Florida, contingent upon completion of construction and receipt of a certificate of occupancy, for use in our MVCD program. We made a deposit of $4 million in connection with this commitment in 2014, and we are committed to make the remaining payment of $72 million upon acquisition of the units in 2015. We are currently evaluating the use of a capital efficient arrangement to delay the timing of this capital investment.

We have a commitment of $39 million to purchase vacation ownership units located on the Big Island of Hawaii, for use in our MVCD program, contingent upon the seller subjecting the units to a condominium regime prior to our purchase. We made a deposit of $2 million in connection with this commitment in 2014, and we are committed to make the remaining payment of $37 million in 2015. Upon acquisition, we are committed to renovate the units pursuant to a property improvement plan to be agreed upon at a later date, for which an additional $45 million to $55 million is required to be funded. We are currently evaluating the use of a capital efficient arrangement to delay the timing of this capital investment.

~~Surety bonds issued as of January 2, 2015 totaled $76 million, the majority of which were requested by federal, state or local governments related to our operations.~~

~~Additionally, as of January 2, 2015, we had $3 million of letters of credit outstanding under our $200 million revolving credit facility (as amended, the “Revolving Corporate Credit Facility”).~~

~~Loss Contingencies~~

In 2012, we agreed to settle two lawsuits in which certain of our subsidiaries were defendants. The plaintiffs in the lawsuits, residential unit owners at The Ritz-Carlton Club and Residences, San Francisco (the “RCC San Francisco”), a project within our North America segment, questioned the adequacy of disclosures made prior to 2008, when our business was part of Marriott International, regarding bonds issued for that project under California’s Mello-Roos Community Facilities Act of 1982 (the “Mello-Roos Act”) and their payment obligations with respect to such bonds. In 2013, we agreed to settle a third lawsuit in which another residential unit owner at the RCC San Francisco had asserted similar claims. As a result of these settlements, in 2013 we reversed $1 million of the $41 million previously recognized expense recorded in 2012 in connection with these matters.

On December 21, 2012, Jon Benner, an owner of fractional interests in the RCC San Francisco, filed suit in Superior Court for the State of California, County of San Francisco against us and certain of our subsidiaries on behalf of a putative class consisting of all owners of fractional interests at the RCC San Francisco who allegedly did not receive proper notice of their payment obligations under the Mello-Roos Act. The plaintiff alleges that the disclosures made about bonds issued for the project under this Act and the payment obligations of fractional interest purchasers with respect to such bonds were inadequate, and this and other alleged statutory violations constitute intentional and negligent misrepresentation, fraud and fraudulent concealment. The relief sought includes damages in an unspecified amount, rescission of the purchases, restitution and disgorgement of profits. This lawsuit is distinct from the other lawsuits described above relating to the RCC San Francisco because the disclosure process for the sale of fractional interests differs from that applicable to the sale of whole-ownership units. On September 5, 2014, we reached an agreement in principle to settle the Benner action, which agreement was subject to court approval because the case is a putative class action. As a result of the agreement in principle, we recorded a charge of $3 million, which is included in the Litigation settlement line on the Statement of Income for the year ended January 2, 2015. The court preliminarily approved the settlement on November 7, 2014, and a final hearing is scheduled for March 31, 2015.

On December 11, 2012, Steven B. Hoyt and Bradley A. Hoyt, purchasers of fractional interests in two of The Ritz-Carlton Destination Club projects, filed suit in the United States District Court for the District of Minnesota against us, certain of our subsidiaries and The Ritz-Carlton Hotel Company on behalf of a putative class consisting of all purchasers of fractional interests at The Ritz-Carlton Destination Club projects. The plaintiffs allege that program changes beginning in 2009 caused an actionable decrease in the value of the fractional interests purchased. The relief sought includes declaratory and injunctive relief, damages in an unspecified amount, rescission of the purchases, restitution, disgorgement of profits, interest and attorneys’ fees. In response to our motion to dismiss the original complaint, plaintiffs filed an amended complaint. In response, we filed a renewed motion to dismiss. On February 7, 2014, the court issued an order granting that motion in part and denying it in part. On November 6, 2014, the court granted our motion for partial judgment on the pleadings clarifying the scope of the single remaining claim in the case. We continue to dispute the material allegations remaining in the amended complaint and intend to continue to defend against this action vigorously. Given the early stages of the action and the inherent uncertainties of litigation, we cannot estimate a range of the potential liability, if any, at this time.

On January 30, 2013, Krishna and Sherrie Narayan and other owners of 12 residential units at the resort formerly known as The Ritz-Carlton Residences, Kapalua Bay (“Kapalua Bay”) were granted leave by the court to file, and subsequently did file, an amended complaint related to a suit originally filed in Circuit Court for Maui County, Hawaii in June 2012 against us, certain of our subsidiaries, Marriott International, certain of its subsidiaries, and the joint venture in which we have an equity investment that developed and marketed vacation ownership and residential products at Kapalua Bay (the “Joint Venture”). In the original complaint, the plaintiffs

alleged that defendants mismanaged funds of the residential owners association (the “Kapalua Bay Association”), created a conflict of interest by permitting their employees to serve on the Kapalua Bay Association’s board, and failed to disclose documents to which the plaintiffs were allegedly entitled. The amended complaint alleges breach of fiduciary duty, violations of the Hawaii Unfair and Deceptive Trade Practices Act and the Hawaii condominium statute, intentional misrepresentation and concealment, unjust enrichment and civil conspiracy. The relief sought in the amended complaint includes injunctive relief, repayment of all sums paid to us and our subsidiaries and Marriott International and its subsidiaries, compensatory and punitive damages, and treble damages under the Hawaii Unfair and Deceptive Trade Practices Act. We dispute the material allegations in the amended complaint and continue to defend against this action vigorously. On August 23, 2013, the Hawaii Intermediate Court of Appeals reversed the Maui Circuit Court’s denial of our motion to compel arbitration of the claims asserted by plaintiffs. The Circuit Court subsequently granted our renewed motion to compel arbitration and referred the matter to arbitration. The Hawaii Supreme Court thereafter agreed to review the decision of the Intermediate Court of Appeals and heard oral argument in the case on April 3, 2014, but has not yet taken any action to affirm or reverse that decision. Given the inherent uncertainties of litigation, we cannot estimate a range of the potential liability, if any, at this time. In the second quarter of 2014, we recorded a nominal charge as a result of the agreement by owners of two residential units to release their claims in this action.

In the fourth quarter of 2013, we reached an agreement with several parties involved in Kapalua Bay, including the foreclosure purchasers of the unsold interests in the project, other entities that have equity investments in the Joint Venture, the Kapalua Bay Association, and the Kapalua Bay Vacation Owners Association (the fractional owners’ association), to mutually settle pending and threatened claims relating to the project (the “Kapalua Bay Settlement”). In connection with the Kapalua Bay Settlement, owners of 132 of the 177 developer-sold fractional interests (including owners of two fractional interests who were plaintiffs in the Charles action described below) provided full releases to us and other parties associated with the project. In addition, one residential owner provided a full release to us and other parties associated with the project. As a result, we recorded a charge of $8 million in 2013, which was partially offset by $7 million of income recorded for partial repayment of our previously fully reserved receivables due from the Joint Venture. Both were included in Impairment charges on equity investment on the Statement of Income for the year ended January 3, 2014.

On June 19, 2013, Earl C. and Patricia A. Charles, owners of a fractional interest at Kapalua Bay, together with owners of 38 other fractional interests at Kapalua Bay, filed an amended complaint in the Circuit Court of the Second Circuit for the State of Hawaii against us, certain of our subsidiaries, Marriott International, certain of its subsidiaries, the Joint Venture, and other entities that have equity investments in the Joint Venture. The amended complaint supersedes a prior complaint that was not served on any defendant. The plaintiffs allege that the defendants failed to disclose the financial condition of the Joint Venture and the commitment of the defendants to the Joint Venture, and that defendants’ actions constituted fraud and violated the Hawaii Unfair and Deceptive Trade Practices Act, the Hawaii Condominium Property Act and the Hawaii Time Sharing Plans statute. The relief sought includes compensatory and punitive damages, attorneys’ fees, pre-judgment interest, declaratory relief, rescission and treble damages under the Hawaii Unfair and Deceptive Trade Practices Act. The complaint was subsequently further amended to add owners of two additional fractional interests as plaintiffs. The Circuit Court granted our motion to compel arbitration of the claims asserted by the plaintiffs, and the parties are currently engaged in arbitration. We dispute the material allegations in the amended complaint and in the statement of claim filed in the arbitration, and intend to defend against this action vigorously. Given the early stages of the action and the inherent uncertainties of litigation and arbitration, we cannot estimate a range of the potential liability, if any, at this time. Additionally, owners of two fractional interests have since agreed to release their claims in this action in connection with the Kapalua Bay Settlement described above, and the owners of another fractional interest, who are not parties to the Charles action, have reached an agreement in principle to release similar claims.

On June 28, 2013, owners of 35 residences and lots at The Abaco Club filed a complaint in Orange County, Florida Circuit Court against us, one of our subsidiaries, certain subsidiaries of Marriott International and the resort’s owners’ association, alleging that the defendants failed to maintain the golf course, golf clubhouse, roads, water supply system, and other facilities and equipment in a manner commensurate with a five-star luxury

resort, and certain deficiencies in the quality of services provided at the resort. Plaintiffs also alleged that the defendants failed to honor an obligation to extend a right of first offer to club owners in connection with plans to sell the club property. Plaintiffs alleged statutory and common law claims for breach of contract, breach of fiduciary duty, and fraud and seek compensatory and punitive damages. We filed a motion to dismiss the complaint. In April 2014, this action was abated for a period after we entered into a non-binding letter of intent to dispose of undeveloped and partially developed land, an operating golf course, spa and clubhouse and related facilities at The Abaco Club to an entity to be comprised of certain members of The Abaco Club, including certain of the plaintiffs, and others. See Footnote No. 5, “Acquisitions and Dispositions,” for information regarding the purchase and sale agreement subsequently executed by the parties to the letter of intent. Upon the closing of the sale on December 11, 2014, all claims asserted against us in this matter were dismissed with prejudice.

On March 27, 2014, Salvatore DeSantis, an owner of a one-week vacation ownership interest at Marriott’s Harbour Lake, a project within our North America segment, filed a complaint in Orange County, Florida, Circuit Court against us and certain of our subsidiaries on behalf of himself and a putative class consisting of all owners of weeks-based Marriott Vacation Club vacation ownership interests on June 20, 2010, the date of the launch of our North America points-based program, Marriott Vacation Club Destinations ™ (“MVCD”). The plaintiff alleges that the introduction of the MVCD program caused an actionable decrease in the value of his vacation ownership interest. The relief sought includes compensatory and exemplary damages, restitution, injunctive relief, interest and attorneys’ fees pursuant to the Florida Unfair and Deceptive Trade Practices Act and common-law theories of breach of contract and breach of an implied covenant of good faith and fair dealing. We removed the matter to the United States District Court for the Middle District of Florida. On May 30, 2014, we filed a motion to dismiss. In response, plaintiffs filed an amended complaint, to which we responded by filing a renewed motion to dismiss on July 31, 2014. On November 14, 2014, the court granted our motion and dismissed the case with prejudice.

On May 20, 2014, we received notices of intent to initiate litigation or arbitration from: Michael and Marla Flynn, owners of weeks-based Marriott Vacation Club vacation ownership products at two of our resorts in Hawaii; Norman and Carreen Abramson, owners of such products at one of our resorts in California; and William Sterman, an owner of such products at one of our resorts in Massachusetts. The claimants, all of whom are represented by a single law firm, make allegations similar to those alleged by Mr. DeSantis discussed above that the introduction of the MVCD program caused an actionable decrease in the value of their vacation ownership interests. The claimants stated that, if a satisfactory resolution of their concerns cannot be achieved, they would pursue their claims through litigation or arbitration, each on behalf of a putative class consisting of themselves and all others similarly situated. The notices indicated that the relief that would be sought would include compensatory and exemplary damages, restitution, injunctive relief, interest and attorneys’ fees pursuant to applicable timeshare and unfair trade practices acts and common-law theories of breach of contract and breach of an implied covenant of good faith and fair dealing. The Flynns and Mr. Sterman filed claims based on the allegations listed above with the American Arbitration Association on August 6, 2014, and August 19, 2014, respectively. We filed answering statements in each proceeding, and initiated declaratory judgment actions in the United States District Courts of Hawaii and the Middle District of Florida against the Flynns and Mr. Sterman, respectively, seeking to enjoin the arbitration proceedings. On December 11, 2014, the United States District Court for the District of Hawaii ruled that the arbitrability of the Flynns’ claims must be resolved by an arbitrator. We appealed that decision and on January 16, 2015, the United States Court of Appeals for the Ninth Circuit granted our motion to expedite the appeal. The Flynns’ moved to dismiss the appeal, and we have opposed that motion. Also on January 16, 2015, the United States District Court for the Middle District of Florida ruled that the arbitrability of Mr. Sterman’s claims must be resolved by an arbitrator. On January 29, 2015, the Abramsons filed an action in the United States District Court for the Central District of California based on the above allegations. We dispute the material allegations in the arbitration claims, as well as the allegations in the California action, and intend to defend against them vigorously. Given the early stages of the arbitration proceedings and the related litigation, we cannot estimate a range of potential liability, if any, at this time.

~~Other~~

We estimate the cash outflow associated with completing the phases of our existing portfolio of vacation ownership projects currently under development will be approximately $17 million, of which $5 million is included within liabilities on our Balance Sheet at January 2, 2015. 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 2017.

During 2014, we agreed to settle a dispute with a service provider relating to services provided to us prior to 2011. In connection with the settlement, we received a one-time payment of $8 million from the service provider, which no longer provides services to us. We recorded a gain of $8 million as a result of the settlement, which is included in the Litigation settlement line on the Statement of Income for the year ended January 2, 2015.

~~Leases~~

We have various land, real estate and equipment operating leases. The land lease consists of a long-term golf course land lease with a term of 30 years. The corporate facilities leases are for our corporate headquarters and have lease terms of approximately eight years. The other operating leases are primarily for office and retail space as well as equipment supporting our operations and have lease terms of between three and ten years. Certain of these leases provide for minimum rental payments and additional rental payments based on our operations of the leased property. We have summarized our future obligations under operating leases at January 2, 2015 below:

($ in millions) Land
Lease Corporate
Facilities
Leases Other
Operating
Leases Total
Fiscal Year

2015
$            1    $                 3    $               10    $       14
2016
1    3    8    12
2017
1    4    6    11
2018
1    4    3    8
2019
1    4    2    7
Thereafter
13    6    7    26

Total minimum lease payments
$ 18    $ 24    $ 36    $ 78

~~The following table details the composition of rent expense associated with operating leases, net of sublease income, for the last three years:~~

($ in millions) 2014 2013 2012
Minimum rentals
$         7    $         9    $       10
Additional rentals
5    5    5

$ 12    $ 14    $ 15

~~10. DEBT~~

~~The following table provides detail on our debt balances:~~

($ in millions) At Year-End
2014 At Year-End
2013
Vacation ownership notes receivable securitizations, interest rates ranging from 2.2% to 7.2% (weighted average interest rate of 3.1%) ⁽¹⁾
$ 708    $ 674
Other
3    4

$ 711    $ 678

⁽¹⁾

~~Interest rates are as of January 2, 2015.~~

See Footnote No. 15, “Variable Interest Entities,” for a discussion of the collateral for the non-recourse debt associated with the securitized vacation ownership notes receivable and the Warehouse Credit Facility. All of our other debt was, and to the extent currently outstanding is, recourse to us but unsecured. The Warehouse Credit Facility currently terminates on September 15, 2016 and if not renewed, any amounts outstanding thereunder would become due and payable 13 months after termination, at which time all principal and interest collected with respect to the vacation ownership notes receivable held in the Warehouse Credit Facility would be redirected to the lenders to pay down the outstanding debt under the facility. We generally expect to securitize our vacation ownership notes receivable, including any vacation ownership notes receivable held in the Warehouse Credit Facility, in the ABS market once per year.

During 2014, we completed two securitization transactions. On June 13, 2014, we completed the securitization of a pool of $24 million of primarily highly-seasoned vacation ownership notes receivable that we previously had classified as not being eligible for securitization. In connection with the securitization, investors purchased in a private placement $23 million in vacation ownership loan-backed notes from the Kyuka Owner Trust 2014-A with an interest rate of 6.25 percent. The securitized loans previously were classified as not eligible for securitization using criteria applicable to then current securitization transactions in the ABS market because they did not meet certain representation criteria required in such securitizations, or because of other factors that may have reflected investor demand in a securitization transaction.

On October 9, 2014, we completed the securitization of a pool of $250 million of vacation ownership notes receivable. In connection with the securitization, investors purchased in a private placement $240 million in vacation ownership loan backed notes from the MVW Owner Trust 2014-1 (the “2014-1 Trust”). Two classes of vacation ownership loan backed notes were issued by the 2014-1 Trust: $216 million of Class A Notes and $24 million of Class B Notes. The Class A Notes have an interest rate of 2.25 percent and the Class B Notes have an interest rate of 2.70 percent, for an overall weighted average interest rate of 2.29 percent.

Although no cash borrowings were outstanding as of January 2, 2015 under our Revolving Corporate Credit Facility, any amounts that are borrowed under that 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 borrower under, and guarantors of, that facility (which include Marriott Vacations Worldwide and each 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 following table shows scheduled future principal payments for our debt:~~

($ in millions) Vacation Ownership
Notes Receivable
Securitizations⁽¹⁾ Other Debt Total
Debt Principal Payments Year

2015
$ 116    $             — $           116
2016
109    — 109
2017
80    — 80
2018
72    — 72
2019
72    — 72
Thereafter
259    3    262

Balance at January 2, 2015
$ 708    $ 3    $ 711

⁽¹⁾

~~The debt associated with our vacation ownership notes receivable securitizations is non-recourse to us.~~

~~We paid cash for interest, net of amounts capitalized, of $31 million in 2014, $37 million in 2013 and $48 million in 2012.~~

~~Debt Associated with Vacation Ownership Notes Receivable Securitizations~~

Each of the transactions in which we have securitized vacation ownership notes receivable 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 2014 and 2013, and as of January 2, 2015 and January 3, 2014, no securitized vacation ownership notes receivable pools were out of compliance with the established parameters. For 2012, approximately $1 million of cash flows were redirected as a result of vacation ownership notes receivable pools failing to meet established performance parameters during that year. As of January 2, 2015, we had 8 securitized vacation ownership notes receivable pools outstanding.

~~Warehouse Credit Facility~~

~~Revolving Corporate Credit Facility~~

The Revolving Corporate Credit Facility has a borrowing capacity of $200 million, including a letter of credit sub-facility of $100 million, and provides support for our business, including ongoing liquidity and letters of credit. Borrowings under the Revolving Corporate Credit Facility generally bear interest at a floating rate at the Eurodollar rate plus an applicable margin that varies from 1.625 percent to 3.125 percent depending on our credit rating. In addition, we pay a commitment fee on the unused availability under the Revolving Corporate Credit Agreement at a rate that varies from 20 basis points per annum to 50 basis points per annum.

The Revolving Corporate Credit Facility contains affirmative and negative covenants and representations and warranties customary for financings of this type. In addition, the Revolving Corporate Credit Facility contains financial covenants, including covenants requiring us to maintain (1) a minimum consolidated tangible net worth (as defined in the Revolving Corporate Credit Facility); (2) a maximum ratio of consolidated debt to consolidated adjusted EBITDA (as defined in the Revolving Corporate Credit Facility) of 5.25 to 1; (3) a minimum consolidated adjusted EBITDA to interest expense ratio of not less than 3 to 1; and (4) a ratio of our borrowing base amount (as defined in the Revolving Corporate Credit Facility) to the sum of (a) total extensions of credit under the Revolving Corporate Credit Facility and (b) the excess (if any) of all unrealized losses over all unrealized profits of certain swap arrangements of at least 1.25 to 1.

The Revolving Corporate Credit Facility is guaranteed by Marriott Vacations Worldwide and by each of our direct and indirect, existing and future, domestic subsidiaries (excluding certain bankruptcy remote special purpose subsidiaries), and is secured by a perfected first priority security interest in substantially all of our assets and the assets of the guarantors, subject to certain exceptions. As of January 2, 2015, we were in compliance with the requirements of applicable financial and operating covenants.

~~11. MANDATORILY REDEEMABLE PREFERRED STOCK OF CONSOLIDATED SUBSIDIARY~~

In October 2011, our subsidiary, MVW US Holdings, Inc. (“MVW US Holdings”) issued $40 million of its mandatorily redeemable Series A (non-voting) preferred stock to Marriott International as part of Marriott International’s internal reorganization prior to the Spin-Off. Subsequently Marriott International sold all of this preferred stock to third-party investors. For the first five years after issuance, the Series A preferred stock will pay an annual cash dividend equal to the five-year U.S. Treasury Rate as of October 19, 2011, plus a spread of 10.958 percent, for a total annual cash dividend rate of 12 percent. On the fifth anniversary of issuance, if we do not elect to redeem the preferred stock, the annual cash dividend rate will be reset to the five-year U.S. Treasury Rate in effect on such date plus the same 10.958 percent spread. The Series A preferred stock is mandatorily redeemable by MVW US Holdings upon the tenth anniversary of the date of issuance but can be redeemed at our option after five years (i.e., beginning in October 2016) at par. The Series A preferred stock has an aggregate liquidation preference of $40 million plus any accrued and unpaid dividends and an additional premium if liquidation occurs during the first five years after the issuance of the preferred stock. As of January 2, 2015, 1,000 shares of Series A preferred stock were authorized, of which 40 shares were issued and outstanding. The dividends are recorded as a component of Interest expense as the Series A preferred stock is treated as a liability for accounting purposes.

~~12. OTHER LIABILITIES~~

~~Liability for Marriott Rewards Customer Loyalty Program~~

We participate in the Marriott Rewards customer loyalty program. Program members earn Marriott Rewards Points based on their purchases of vacation ownership products and/or through exchange and other activities related to our vacation ownership products, as well as through hotel stays and other activities that are not related to our business. Points are tracked on members’ behalf and can be redeemed for stays at most of Marriott International’s lodging properties, airline tickets, airline frequent flyer program miles, rental cars and a variety of other awards; however, points cannot be redeemed for cash.

Our Marriott Rewards customer loyalty program’s liability for those Marriott Rewards Points issued prior to 2012 totaled $89 million at January 2, 2015 and $114 million at January 3, 2014. We recorded changes in the estimates for our Marriott Rewards customer loyalty program liability of $6 million, $5 million and $9 million in 2014, 2013 and 2012, respectively.

We completed a stress test on the carrying value of our Marriott Rewards customer loyalty program liability for Marriott Rewards Points issued prior to 2012 to measure the change in obligation associated with independent changes in key estimates as described in Footnote No. 1, “Summary of Significant Accounting Policies.” We applied this methodology to unfavorable changes and concluded that each change to a variable shown in the table below would have the following impact on the valuation of our customer loyalty liability at January 2, 2015:

($ in millions)
5 percent change in the cost per point
$         4
10 percent change in the cost per point
$ 8
100 basis point change in the breakage rate
$ 9
200 basis point change in the breakage rate
$ 18

Although we did not specifically perform stress tests on the redemption curve because it is difficult to isolate a single quantitative measure against which to perform such a test, changes in the redemption curve could also have an impact on the valuation of our Marriott Rewards customer loyalty program liability for Marriott Rewards Points issued prior to 2012.

For periods subsequent to 2011, we generally pay Marriott International for Marriott Rewards Points upon issuance. The liability for Marriott Rewards Points issued after 2011 totaled $43 million at January 2, 2015 and $53 million at January 3, 2014, and is included within Accrued liabilities on the Balance Sheets and are generally payable within 120 days of year-end.

~~13. SHAREHOLDERS’ EQUITY~~

Marriott Vacations Worldwide has 100,000,000 authorized shares of common stock, par value of $.01 per share. At January 2, 2015, there were 36,089,513 shares of Marriott Vacations Worldwide common stock issued, of which 32,092,788 were outstanding and 3,996,725 were held as treasury stock. At January 3, 2014, there were 35,637,765 shares of Marriott Vacations Worldwide common stock issued, of which 35,132,742 shares were outstanding and 505,023 shares were held as treasury stock. Marriott Vacations Worldwide has 2,000,000 authorized shares of preferred stock, par value of $.01 per share, none of which were issued or outstanding as of January 2, 2015 or January 3, 2014.

~~Share Repurchase Program~~

On October 8, 2013, our Board of Directors authorized a share repurchase program under which we may purchase up to 3,500,000 shares of our common stock prior to March 28, 2015. On October 14, 2014, our Board of Directors approved the repurchase of up to an additional 3,400,000 shares of our common stock under our existing share repurchase program and extended the termination date of the program to March 26, 2016. 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 plans pursuant to the provisions of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.

On September 11, 2014, pursuant to our share repurchase program, we entered into an agreement with a financial institution to repurchase $25 million of our common stock pursuant to an accelerated share repurchase program. Upon completion of the program, the financial institution delivered 401,291 shares of common stock to us. As of year-end 2014, 3 million shares remained available for repurchase under the authorization approved by our Board of Directors.

~~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 January 3, 2014
505,023    $ 26    $ 50.76
For the year ended January 2, 2015
3,491,702    203    58.31

As of January 2, 2015
      3,996,725    $               229    $             57.35

~~Dividends~~

~~On October 14, 2014, our Board of Directors declared a quarterly dividend of $0.25 per share to shareholders of record as of October 28, 2014, which we paid on November 12, 2014.~~

~~On February 12, 2015 our Board of Directors declared a quarterly dividend of $0.25 per share to be paid on March 11, 2015, to shareholders of record as of February 26, 2015.~~

~~14. SHARE-BASED COMPENSATION~~

~~Marriott Vacations Worldwide Share-Based Compensation Plans~~

We maintain the Stock Plan for the benefit of our officers, directors and employees. Under the Stock Plan, we award to certain of our employees: (1) stock options to purchase Marriott Vacations Worldwide common stock (“Stock Option Program”); (2) SARs for Marriott Vacations Worldwide common stock (“SAR Program”); and (3) RSUs of Marriott Vacations Worldwide common stock. In addition, pursuant to the Separation and

Distribution Agreement, we agreed to issue awards under the Stock Plan to certain current and former directors, officers, and employees of Marriott International who held awards under the Marriott International Stock Plan relating to Marriott International common stock at November 10, 2011, the record date for the Spin-Off. A total of 6 million shares are authorized for issuance under the Stock Plan. As of January 2, 2015, approximately 2 million shares were available for grants under the Stock Plan.

Deferred compensation costs as of the date of the Spin-Off reflected the unamortized balance of the original grant date fair value of the equity awards held by Marriott Vacations Worldwide employees (regardless of whether those awards are linked to Marriott International stock or Marriott Vacations Worldwide stock).

For share-based awards with service-only vesting conditions, we measure compensation expense related to share-based payment transactions with our employees and non-employee directors at fair value on the grant date. With respect to our employees, we recognize this expense on the Statements of Income over the vesting period during which the employees provide service in exchange for the award; with respect to non-employee directors, we recognize this expense on the grant date. For share-based arrangements with performance vesting conditions, we recognize compensation expense once it is probable that the corresponding performance condition will be achieved. We recognize share-based compensation expense related to our employees and Marriott International recognizes compensation expense related to Marriott International employees, regardless of whether the underlying awards represent Marriott International or Marriott Vacations Worldwide awards.

We recorded share-based compensation expense related to award grants to our officers, directors and employees of $13 million in 2014, $12 million in 2013 and $12 million in 2012. Our deferred compensation liability related to unvested awards held by our employees totaled $12 million at January 2, 2015 and $13 million at January 3, 2014. As of January 2, 2015, we expect that deferred compensation expense for our employees will be recognized over a weighted average period of two years.

For Marriott International Stock Plan awards granted after 2005, we recognized share-based compensation expense over the period from the grant date to the date on which the award is no longer contingent on the employee providing additional service (the “substantive vesting period”). We continued to follow the stated vesting period for the unvested portion of Marriott International Stock Plan awards granted to our employees before 2006 and the adoption of the current guidance for share-based compensation and follow the substantive vesting period for Marriott International Stock Plan and Stock Plan awards granted to our employees after 2005.

In accordance with the authoritative guidance for share-based compensation, we presented the tax benefits and costs resulting from the exercise or vesting of Marriott International Stock Plan share-based awards related to our employees as financing cash flows. The exercise of share-based awards for our employees resulted in tax benefits of $5 million in 2014, $3 million in 2013 and $3 million in 2012.

Marriott International received $2 million in 2014, $2 million in 2013 and $3 million in 2012 in cash from our employees for the exercise of stock options granted under the Marriott International Stock Plan. We received less than $1 million in cash from our employees for the exercise of Marriott Vacations Worldwide stock options in each of 2014, 2013 and 2012.

~~RSUs~~

RSUs issued to our employees under the Marriott International Stock Plan and the Stock Plan generally vest over four years in annual installments commencing one year after the date of grant. RSUs issued to our non-employee directors under the Stock Plan vest in full on the date of grant. We recognize compensation expense for the RSUs over the service period equal to the fair market value of the stock units on the date of issuance. At year-end 2014 and 2013, we had $11 million and $12 million, respectively, in deferred compensation costs related to RSUs for our employees granted under the Marriott International Stock Plan and the Stock Plan. The weighted average remaining term for RSU grants outstanding at year-end 2014 for our employees was one to two years.

~~We granted 227,452 RSUs to our employees and non-employee directors during 2014. RSUs granted in 2014 had a weighted average grant-date fair value of $53.~~

During 2014, 2013 and 2012, we granted RSUs with performance vesting conditions to members of management. The number of RSUs earned, if any, is determined following the end of a three-year performance period based upon our cumulative achievement over that period of specific quantitative operating financial measures. The maximum number of RSUs that may be earned under the RSUs with performance-based vesting criteria granted during 2014, 2013 and 2012 was approximately 62,000, 72,000 and 157,000, respectively. During 2014, a total of 149,739 RSUs were earned under the RSUs with performance-based vesting criteria granted during 2012 and were distributed subsequent to January 2, 2015.

~~The following table provides additional information on outstanding RSUs issued to our employees for the last three fiscal years:~~

2014 2013 2012
Share-based compensation expense (in millions)⁽¹⁾
$             12        $             11        $             10
Weighted average grant-date fair value prior to Spin-Off (per RSU)
33        32        31
Weighted average grant-date fair value subsequent to Spin-Off (per RSU)⁽¹⁾
36        29        22
Aggregate intrinsic value of converted and distributed RSUs (in millions)
8        7        3

⁽¹⁾

~~Includes RSUs with performance based vesting criteria.~~

The following table shows the 2014 changes in Marriott Vacations Worldwide RSUs issued to Marriott International and Marriott Vacations Worldwide employees and the associated weighted average grant date fair values:

2014
Number of
RSUs Weighted Average
Grant Date Fair
Value Per RSU
Outstanding at year-end 2013⁽¹⁾
1,025,264                   $                   24
Granted during 2014⁽¹⁾
227,452           53
Distributed during 2014
(304,790)          22
Forfeited during 2014
(8,846)          39

Outstanding at year-end 2014⁽¹⁾ ⁽²⁾
            939,080           31

⁽¹⁾

~~Includes RSUs with performance based vesting criteria.~~

⁽²⁾

~~Includes 129,240 RSUs held by Marriott International employees.~~

~~Stock Options and SARs~~

We may grant employee non-qualified stock options to employees and non-employee directors at exercise prices or strike prices equal to the market price of our common stock on the date of grant. Non-qualified stock options generally expire ten years after the date of grant. Most stock options are exercisable in cumulative installments of one quarter at the end of each of the first four years following the date of grant. Stock options awarded under the Marriott International Stock Plan were granted at exercise prices or strike prices equal to the market price of Marriott International common stock on the date of grant.

We recognized no stock option compensation expense for our employees in each of 2014, 2013 and 2012, and there was no deferred compensation liability related to stock options held by our employees at both year-end 2014 and 2013. Additionally, no Marriott Vacations Worldwide stock options were granted to Marriott International or Marriott Vacations Worldwide employees in 2014, 2013 or 2012.

The following table shows the 2014 changes in outstanding Marriott Vacations Worldwide stock options for Marriott International and Marriott Vacations Worldwide employees and the associated weighted average exercise prices:

2014
Number of
          Stock Options          Weighted Average
Exercise Price Per Option
Outstanding at year-end 2013
        284,623                   $ 12
Granted during 2014
—          —
Exercised during 2014
(262,879)            12
Forfeited during 2014
—          —

Outstanding at year-end 2014⁽¹⁾
21,744                           17

⁽¹⁾

~~All outstanding stock options at year-end 2014 were held by Marriott International employees.~~

The following table shows the Marriott Vacations Worldwide stock options issued to Marriott International and Marriott Vacations Worldwide employees that were outstanding and exercisable at year-end 2014:

Outstanding Exercisable
Range of
Exercise Prices
Number of
Stock Options Weighted Average
Exercise Price
Per Option Weighted Average
Remaining Life
(in years) Number of
Stock Options Weighted Average
Exercise Price
Per Option Weighted Average
Remaining Life
(in years)
$ 8 to $12
1,830            $ 9            — 1,830            $ 9            —
$ 13 to $17
9,643        16            4 9,643        16            4
$ 18 to $22
8,264        19            1 8,264        19            1
$ 23 to $28
2,007        24            6 1,524        24            6

$ 8 to $28
    21,744        17            3     21,261        17            3

The intrinsic value of both the outstanding Marriott International stock options and exercisable stock options held by our employees was less than $1 million at year-end 2014 and $2 million at year-end 2013. The intrinsic value of both the outstanding Marriott Vacations Worldwide stock options and the exercisable stock options held by our employees was $0 at year-end 2014 and less than $1 million at year-end 2013.

The intrinsic value of stock options for Marriott International stock exercised by our employees was $3 million in 2014, $3 million in 2013 and $5 million in 2012. The intrinsic value of stock options for Marriott Vacations Worldwide stock exercised by our employees was less than $1 million in 2014, less than $1 million in 2013 and $1 million in 2012.

SARs awarded under the Marriott International Stock Plan were granted at exercise prices or strike prices equal to the market price of Marriott International common stock on the date of grant. SARs awarded under the Stock Plan are granted at exercise prices or strike prices equal to the market price of Marriott Vacations Worldwide common stock on the date of grant (this price is referred to as the “base value”). SARs generally expire ten years after the date of grant and both vest and become exercisable in cumulative installments of one quarter of the grant at the end of each of the first four years following the date of grant. Upon exercise of SARs, our employees and non-employee directors receive the number of shares of Marriott International common stock or Marriott Vacations Worldwide common stock, as applicable, equal to the number of SARs being exercised, multiplied by the quotient of (a) the market price of the common stock on the date of exercise (this price is referred to as the “final value”) minus the base value, divided by (b) the final value.

We recognized compensation expense associated with SARs held by our employees and non-employee directors of $1 million in 2014, $1 million in 2013 and $2 million in 2012. At both year-end 2014 and year-end 2013, we had $1 million in deferred compensation costs related to SARs held by our employees and non-employee directors.

~~The following table shows the 2014 changes in outstanding Marriott Vacations Worldwide SARs issued to both Marriott International and Marriott Vacations Worldwide employees and non-employee directors:~~

2014
Number of
SARs Weighted Average
Exercise Price Per SAR
Outstanding at year-end 2013
744,249 $ 20
Granted during 2014
57,906         52
Exercised during 2014
(27,490 ) 18
Forfeited during 2014
—   —

Outstanding at year-end 2014
        774,665 23

We use the Black-Scholes model to estimate the fair value of the SARs granted. For SARs granted under the Stock Plan subsequent to the Spin-Off, the expected stock price volatility was calculated based on the historical volatility from the stock prices of a group of identified peer companies. The average expected life was calculated using the simplified method. 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 expected annual dividend per share was $0 based on our expected dividend rate.

~~The following table outlines the assumptions used to estimate the fair value of grants for the fiscal years ended 2014 and 2013, all of which were issued in the first quarter of each respective year:~~

2014 2013
Expected volatility
    55.10%     57.55%
Dividend yield
0.00%    0.00%
Risk-free rate
1.84%    1.02%
Expected term (in years)
6.25    6.25

~~15. 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 loans to third parties. In a vacation ownership notes receivable securitization, various classes of debt securities issued by the special purpose entities are generally collateralized by a single tranche of transferred assets, which consist of vacation ownership notes receivable. We service the 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 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.

($ in millions) Vacation Ownership
Notes Receivable
Securitizations Warehouse
Credit
Facility Total
Consolidated Assets:

Vacation ownership notes receivable, net of reserves
$                     751    $                     —    $                     751
Interest receivable
5    — 5
Restricted cash
35    — 35

Total
$ 791    $ —    $ 791

Consolidated Liabilities:
Interest payable
$ 1    $ —    $ 1
Debt
708    — 708

Total
$ 709    $ —    $ 709

~~The noncontrolling interest balance was zero. The creditors of these entities do not have general recourse to us.~~

~~The following table shows the interest income and expense recognized as a result of our involvement with these variable interest entities during 2014:~~

($ in millions) Vacation Ownership
Notes Receivable
Securitizations Warehouse
Credit
Facility Total
Interest income
$                     92    $                     —    $                     92
Interest expense to investors
$ 21    $ 1    $ 22
Debt issuance cost amortization
$ 3    $ 1    $ 4

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

($ in millions) 2014 2013
Cash inflows:

Net proceeds from vacation ownership notes receivable securitization
$ 259 $ 246
Principal receipts
184 180
Interest receipts
91 97
Reserve release
2 —

Total
536 523

Cash outflows:
Principal to investors
(178 ) (172 )
Voluntary repurchases of defaulted vacation ownership notes receivable
(25 ) (27 )
Voluntary clean-up call
(27 ) (51 )
Interest to investors
(21 ) (26 )

Total
(251 ) (276 )

Net Cash Flows
$ 285 $ 247

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

($ in millions) 2014 2013
Cash inflows:

Net proceeds from vacation ownership notes receivable securitization
$ — $ 109
Principal receipts
— 16
Interest receipts
— 7
Reserve release
— 1

Total
— 133

Cash outflows:
Principal to investors
— (13 )
Repayment of Warehouse Credit Facility
— (98 )
Interest to investors
(1 ) (2 )

Total
(1 ) (113 )

Net Cash Flows
$ (1 ) $ 20

Under the terms of our vacation ownership notes receivable securitizations, we have the right at our option to repurchase defaulted vacation ownership notes receivable at the outstanding principal balance. The transaction documents typically limit such repurchases to 15 to 20 percent of the transaction’s initial vacation ownership notes receivable principal balance. We made voluntary repurchases of defaulted vacation ownership notes receivable of $25 million during 2014, $27 million during 2013 and $39 million during 2012. We also made voluntary repurchases of $31 million, $69 million and $86 million of other non-defaulted vacation ownership notes receivable during 2014, 2013 and 2012, respectively, to retire previous vacation ownership notes receivable securitizations. 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. In addition, we could be required to fund up to an aggregate of $20 million upon presentation of demand notes related to certain vacation ownership notes receivable securitization transactions outstanding at January 2, 2015.

~~Other Variable Interest Entities~~

We have an equity investment in the Joint Venture, a variable interest entity that previously developed and marketed vacation ownership and residential products in Hawaii. We concluded that the Joint Venture is a variable interest entity because the equity investment at risk is not sufficient to permit it to finance its activities without additional support from other venture parties. We determined that we are not the primary beneficiary of the Joint Venture, as power to direct the activities that most significantly impact its economic performance is shared among the variable interest holders and, therefore, we do not consolidate the Joint Venture. In 2009, we fully impaired our equity investment in the Joint Venture and in certain notes receivable due from the Joint Venture. In 2010, the continued application of equity losses to our investment in the remaining outstanding notes receivable balance reduced its carrying value to zero. In addition, the Joint Venture was unable to pay promissory notes that matured on December 31, 2010 and August 1, 2011. Subsequently, the lenders issued a notice of default to the Joint Venture. The lenders initiated foreclosure proceedings with respect to unsold interests in the project. A foreclosure auction was held and, on January 31, 2013, a bid was accepted and confirmed. The sale was completed, and on June 13, 2013, we received $7 million of cash as a partial repayment of our previously fully reserved receivables due from the Joint Venture. As a result of the Kapalua Bay Settlement discussed in Footnote No. 9, “Contingencies and Commitments,” the Joint Venture’s obligations with respect to the remaining receivables were terminated.

We gave notice of breach or termination of various agreements, including management agreements with the owners’ associations at the project, marketing and sales agreements with the Joint Venture, and other agreements pursuant to which we provided services to the Joint Venture and, as we were unable to reach agreement with the owners’ associations with respect to our continued provision of services, termination of these agreements was effective on December 31, 2012. During the year ended January 3, 2014, we recorded $8 million of expense to increase our accrual for remaining costs expected to be incurred relating to our interests in the Joint Venture exclusive of any costs that may be incurred pursuant to outstanding litigation matters, including those discussed in Footnote No. 9, “Contingencies and Commitments.” At January 2, 2015, we have an accrual of $6 million for potential future funding obligations, representing our remaining expected exposure to loss related to our involvement with the Joint Venture exclusive of any future costs that may be incurred pursuant to outstanding litigation matters, including those discussed in Footnote No. 9, “Contingencies and Commitments.”

~~16. ORGANIZATIONAL AND SEPARATION RELATED CHARGES~~

Subsequent to the Spin-Off, Marriott International continued to provide us with certain information technology, payroll, human resources and other administrative services pursuant to transition services agreements, most of which we had ceased using as of the end of 2013. In connection with our continued organizational and separation related activities, we have incurred certain expenses to complete our separation from Marriott International. These costs primarily relate to establishing our own information technology systems and services, independent payroll and accounts payable functions and reorganizing existing human resources, information technology and related finance and accounting organizations to support our stand-alone public company needs. We expect these efforts to be substantially completed by the end of 2015. Organizational and separation related charges as reflected in our Statements of Income, were $3 million for 2014, $12 million for 2013 and $16 million for 2012. In addition, $3 million and $7 million of additional separation related charges were capitalized to Property and equipment on our Balance Sheets during 2014 and 2013, respectively.

~~17. BUSINESS SEGMENTS~~

In our North America segment, we develop, market, sell and manage vacation ownership and related products under the Marriott Vacation Club and Grand Residences by Marriott brands. We also develop, market and sell vacation ownership and related products under The Ritz-Carlton Destination Club brand, as well as whole ownership residential products under The Ritz-Carlton Residences brand.

~~In our Europe segment, we are focusing on selling our existing projects and managing existing resorts. We do not have any current plans for new development in this segment.~~

In our Asia Pacific segment, we develop, market, sell and manage the Marriott Vacation Club, Asia Pacific, a right-to-use points program that we specifically designed to appeal to the vacation preferences of the Asian market, as well as a weeks-based right-to-use product.

We evaluate 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, consumer financing interest expense, other financing expenses or general and administrative expenses to our segments. We include interest income specific to segment activities within the appropriate segment. We allocate other gains and losses and equity in earnings or losses from our joint ventures to each of our segments as appropriate. Corporate and other represents that portion of our revenues, equity in earnings or losses, and other gains or losses that are not allocable to our segments.

~~Revenues~~

($ in millions) 2014 2013⁽¹⁾ 2012
North America
$ 1,549    $ 1,545    $ 1,444
Europe
132    148    112
Asia Pacific
55    57    83

Total segment revenues
1,736    1,750    1,639
Corporate and other
— — —

$       1,736    $       1,750    $       1,639

⁽¹⁾

~~Net Income~~

($ in millions) 2014 2013 2012
North America
$ 350 $ 342 $ 266
Europe
16 18 2
Asia Pacific
8 8 4

Total segment financial results
374 368 272
Corporate and other
(223 ) (237 ) (241 )
Provision for income taxes
(70 ) (51 ) (24 )

$ 81 $ 80 $ 7

~~Equity in Earnings of Equity Method Investees~~

($ in millions) 2014 2013 2012
Asia Pacific
$ — $ — $ 1

$ — $ — $ 1

~~Depreciation~~

($ in millions) 2014 2013 2012
North America
$                 9    $             10    $             12
Europe
2    2    2
Asia Pacific
— — —

Total segment depreciation
11    12    14
Corporate and other
8    11    16

$             19    $             23    $             30

~~Assets~~

($ in millions) At Year-End
2014 At Year-End
2013
North America
$       1,888    $       2,125
Europe
89    103
Asia Pacific
85    84

Total segment assets
2,062    2,312
Corporate and other
478    320

$       2,540    $       2,632

~~Equity Method Investments~~

($ in millions) At Year-End
2014 At Year-End
2013
Asia Pacific
$ 1 $ 1

~~Capital Expenditures (including inventory)~~

($ in millions) 2014 2013 2012
North America
$ 95    $ 167    $ 118
Europe
3    5    4
Asia Pacific
10    8    11

Total segment capital expenditures
108    180    133
Corporate and other
5    8    5

$           113    $           188    $           138

~~Our Financial Statements include the following items related to operations located outside the United States (which are predominately related to our Europe and Asia Pacific segments):~~

~~Revenues, excluding reimbursed costs, of $188 million in 2014, $207 million in 2013 and $236 million in 2012; and~~

Fixed assets of $62 million in 2014 and $100 million in 2013. For year-end 2014 and year-end 2013, fixed assets located outside the United States are included within the “Property and equipment” caption on our Balance Sheets.

~~18. QUARTERLY RESULTS (UNAUDITED)~~

Fiscal Year 2014⁽¹⁾⁽²⁾
($ in millions, except per share data) First
Quarter Second
Quarter Third
Quarter Fourth
Quarter Fiscal
Year
Revenues
$ 402 $ 410 $ 413 $ 511 $ 1,736

Expenses
$ (367 ) $ (352 ) $ (367 ) $ (492 ) $ (1,578 )

Net income
$ 19 $ 36 $ 25 $ 1 $ 81

Basic earnings per share
$ 0.55 $ 1.03 $ 0.77 $ 0.02 $ 2.40

Diluted earnings per share
$ 0.54 $ 1.00 $ 0.75 $ 0.01 $ 2.33

Fiscal Year 2013⁽¹⁾⁽²⁾
($ in millions, except per share data) First
Quarter Second
Quarter Third
Quarter Fourth
Quarter Fiscal
Year
Revenues
$ 390 $ 421 $ 412 $ 527 $ 1,750

Expenses
$ (358 ) $ (373 ) $ (370 ) $ (505 ) $ (1,606 )��

Net income
$ 19 $ 30 $ 25 $ 6 $ 80

Basic earnings per share
$ 0.53 $ 0.87 $ 0.70 $ 0.16 $ 2.25

Diluted earnings per share
$ 0.51 $ 0.85 $ 0.67 $ 0.15 $ 2.18

⁽¹⁾	~~The quarters consisted of 12 weeks, except for the fourth quarter of 2014, which consisted of 16 weeks and the fourth quarter of 2013, which consisted of 17 weeks.~~

⁽²⁾	~~The sum of the earnings per share for the four quarters differs from annual earnings per share due to the required method of computing the weighted average shares in interim periods.~~

~~19. SUBSEQUENT EVENTS~~

~~Disposition and Conditional Future Purchase Commitment~~

In the first quarter of 2015, we sold real property located in Marco Island, Florida, consisting of $3 million of vacation ownership inventory, to a third party developer. We received consideration consisting of $5 million of cash and a note receivable of less than $1 million. We did not recognize any gain or loss on this transaction.

In accordance with the agreement with the third party developer, we have an obligation to repurchase the completed property from the developer contingent upon the property meeting our brand standards and provided that the third party developer has not sold the property to another party. Under the sale of real estate accounting guidance, our conditional obligation to repurchase the property constitutes continuing involvement and thus we were unable to account for this transaction as a sale. The property was sold to a variable interest entity for which we are not the primary beneficiary as we do not control the variable interest entity’s development activities and cannot prevent the variable interest entity from selling the property to another party. Accordingly, we will not consolidate the variable interest entity at inception.

~~Acquisition~~

In the first quarter of 2015, subject to a commitment outstanding at January 2, 2015, we completed the acquisition of an operating hotel located in San Diego, California, for approximately $55 million. We intend to convert this hotel into vacation ownership interests for future use in our MVCD program.

~~F-49~~

THIS PAGE INTENTIONALLY LEFT BLANK



Delaware		45-2598330
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)



6649 Westwood Blvd., Orlando, FL		32821
(Address of Principal Executive Offices)		(Zip Code)



Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, $0.01 par value (~~32,141,788~~26,536,583 shares outstanding as of February ~~20, 2015)~~ 23, 2018)		New York Stock Exchange



Large accelerated filer		xý		Accelerated filer		¨o
Non-accelerated filer	o	¨ ~~(Do~~(Do not check if a smaller reporting company)		Smaller reporting company	o
	¨		Emerging growth company	o


	High		Low
2014
Quarter ended March 28, 2014	$	56.20	$	46.63
Quarter ended June 20, 2014	$	58.14	$	50.61
Quarter ended September 12, 2014	$	61.78	$	55.28
Quarter ended January 2, 2015	$	76.29	$	57.48
2013
Quarter ended March 22, 2013	$	47.33	$	38.30
Quarter ended June 14, 2013	$	47.21	$	41.25
Quarter ended September 6, 2013	$	47.92	$	40.43
Quarter ended January 3, 2014	$	53.71	$	43.16

x

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

¨

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



		Page
Part I.		~~Page~~
~~Part I.~~ Item 1.	Business				2
Item 1. 1A.	Risk Factors	~~Business~~17
Item 1B.	Unresolved Staff Comments	30
Item 2.	Properties	31
Item 3.	Legal Proceedings	31
Item 4.	Mine Safety Disclosures	31
Part II.			1
~~Item 1A.~~		~~Risk Factors~~		18
~~Item 1B.~~		~~Unresolved Staff Comments~~		32
~~Item 2.~~		~~Properties~~		32
~~Item 3.~~		~~Legal Proceedings~~		32
~~Item 4.~~		~~Mine Safety Disclosures~~		32
~~Part II.~~
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		33	31
Item 6.		Selected Financial Data		35	33
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		38	34
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk		75	72
Item 8.		Financial Statements and Supplementary Data		75	73
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	120
Item 9A.	Controls and Procedures	120
Item 9B.	Other Information	120
Part III.			76
~~Item 9A.~~		~~Controls and Procedures~~		76
~~Item 9B.~~		~~Other Information~~		76
~~Part III.~~
Item 10.		Directors, Executive Officers and Corporate Governance		77	123
Item 11.		Executive Compensation		80	125
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		80	125
Item 13.		Certain Relationships and Related Transactions, and Director Independence		80	125
Item 14.		Principal Accounting Fees and Services	125
Part IV.			80
~~Part IV.~~
Item 15.		Exhibits, Financial Statement Schedules	126
Item 16.	Form 10-K Summary	129
	Signatures	80
		~~Signatures~~130		81


~~Fiscal Year~~		~~Fiscal Year-End Date~~
~~2014~~		~~January 2, 2015~~
~~2013~~		~~January 3, 2014~~
~~2012~~		~~December 28, 2012~~
~~2011~~		~~December 30, 2011~~
~~2010~~		~~December 31, 2010~~


Revenue Source	North America		Europe		Asia Pacific		Total
Vacation ownership sales	$	578	$	35	$	35	$	648
Resort management and other services		263		31		4		298
Financing		120		4		5		129
Rental		234		22		8		264
Cost reimbursements		354		40		3		397

	$	1,549	$	132	$	55	$	1,736


⁽¹⁾	“Units Built” represents units with a certificate of occupancy that have been constructed or converted under one of our brands.


⁽²⁾	“Additional Planned Units” represents units that are being constructed or converted under one of our brands or that we expect to construct or convert in the future.


⁽³⁾	During 2016, we entered into a commitment to purchase an operating property located in New York, New York, and subsequently assumed management of this property. We expect to acquire the units in this property, in their current form, over time. See Footnote No. 9, “Contingencies and Commitments,” to our Financial Statements for additional information regarding this transaction.


⁽⁴⁾	“Units Available for Sale” represents units to be sold as vacation ownership interests; includes units that we reacquired through foreclosure or our repurchase program.



	Stock Price		Dividends Declared Per Share
	High	Low	Dividends Declared Per Share
2017
Quarter ended March 31, 2017	$100.12	$79.79	$0.35
Quarter ended June 30, 2017	$128.25	$96.42	$0.35
Quarter ended September 30, 2017	$125.90	$107.58	$0.35
Quarter ended December 31, 2017	$143.53	$122.07	$0.40
2016
Quarter ended March 25, 2016	$70.29	$45.95	$0.30
Quarter ended June 17, 2016	$69.97	$56.33	$0.30
Quarter ended September 9, 2016	$80.27	$61.87	$0.30
Quarter ended December 30, 2016	$89.94	$59.36	$0.35


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⁾
September 13, 2014 – October 10, 2014	401,291	$	62.30	401,291	135,689
October 11, 2014 – November 7, 2014	508,833	$	67.87	508,833	3,026,856
November 8, 2014 – December 5, 2014	—	$	—	—	3,026,856
December 6, 2014 – January 2, 2015	123,581	$	72.06	123,581	2,903,275



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⁾
October 1, 2017 – October 31, 2017	—	$—	—	1,498,986
November 1, 2017 – November 30, 2017	—	$—	—	1,498,986
December 1, 2017 – December 31, 2017	39,491	$132.64	39,491	1,459,495
Total	39,491	$132.64	39,491	1,459,495



	Fiscal Years⁽¹⁾
(in thousands, except per share amounts)	2017		2016⁽²⁾		2015⁽²⁾		2014		2013
Income Statement Data
Revenues	$	1,951,945	$	1,808,486	$	1,810,795	$	1,716,016	$	1,749,688
Revenues net of total expenses	231,282		225,271		218,003		156,498		143,920
Net income	226,778		137,348		122,799		80,756		79,730
Per Share Data
Earnings per share - Basic	$	8.38	$	4.93	$	3.90	$	2.40	$	2.25
Basic Shares	27,078		27,882		31,487		33,665		35,373
Earnings per share - Diluted	$	8.18	$	4.83	$	3.82	$	2.33	$	2.18
Diluted Shares	27,733		28,422		32,168		34,635		36,621
Cash dividends declared per share	$	1.45	$	1.25	$	1.05	$	0.25	$	—
Balance Sheet Data
Total assets	$	2,906,193	$	2,391,419	$	2,399,718	$	2,530,579	$	2,623,230
Debt, net	1,095,213		737,224		678,793		703,013		670,619
Mandatorily redeemable preferred stock of consolidated subsidiary, net	—		—		38,989		38,816		38,643
Total liabilities	1,861,173		1,483,600		1,423,451		1,450,876		1,414,493
Total equity	1,045,020		907,819		976,267		1,079,703		1,208,737
Other Data
Contract Sales⁽³⁾
Vacation ownership	$	802,890	$	723,634	$	699,884	$	698,765	$	679,089
Residential products	—		—		28,420		14,514		14,813
Total contract sales	$	802,890	$	723,634	$	728,304	$	713,279	$	693,902


*($ in millions)*	Fiscal Years
	2014		2013		2012		2011⁽¹⁾			2010⁽¹⁾
Net income (loss)	$	81	$	80	$	7	$	(172	)	$	59
Interest expense^(a)		12		13		17		—			—
Tax provision (benefit)		70		51		24		(45	)		50
Depreciation and amortization		19		23		30		33			39

EBITDA	$	182	$	167	$	78	$	(184	)	$	148


	U.S.⁽¹⁾		Non-U.S.		Total
North America		45		5		50
Europe		—		5		5
Asia Pacific		—		3		3

Total		45		13		58


~~Name and Title~~	~~Age~~	~~Business Experience~~

Clifford M. Delorey Executive Vice President and Chief Resort Experience Officer	5457	Clifford M. Delorey has served as our Executive Vice President and Chief Resort Experience Officer since October 2012. From May 2011 to October 2012, Mr. Delorey served as Vice President of Operations for the Middle East and Africa region for Marriott International. From April 2006 to May 2011, he served as our Vice President of Operations for the East region. Mr. Delorey joined Marriott International in 1981 and served in a number of operational roles, including Director of International Operations.


~~Exhibit~~ ~~No.~~		~~Description~~

~~10.24~~		Third Amended and Restated Indenture and Servicing Agreement, entered into September 15, 2014 and dated as of September 1, 2014, among Marriott Vacations Worldwide Owner Trust 2011-1, Marriott Ownership Resorts, Inc., and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 16, 2014).

~~10.25~~		Second Amended and Restated Sale Agreement, entered into September 15, 2014 and dated as of September 1, 2014, between MORI SPC Series Corp. and Marriott Vacations Worldwide Owner Trust 2011-1 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on~~Form 8-K~~ ~~filed on September 16, 2014).~~

~~10.26~~		Second Amendment and Restatement Agreement, dated as of September 10, 2014, among Marriott Vacations Worldwide Corporation, Marriott Ownership Resorts, Inc., certain subsidiaries of Marriott Vacations Worldwide Corporation, JPMorgan Chase Bank, N.A., and the several banks and other financial institutions or entities from time to time parties thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 11, 2014).

~~10.27~~		Second Amended and Restated Credit Agreement, dated as of September 10, 2014, among Marriott Vacations Worldwide Corporation, Marriott Ownership Resorts, Inc., the several banks and other financial institutions or entities from time to time parties thereto, JPMorgan Chase Bank, N.A., as administrative agent, Bank of America, N.A. and Deutsche Bank Securities Inc., as co-syndication agents, and Bank of America, N.A. and Deutsche Bank Securities Inc., as co-documentation agents (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 11, 2014).

~~10.28~~		Second Amended and Restated Guarantee and Collateral Agreement, dated as of September 10, 2014, made by Marriott Vacations Worldwide Corporation, Marriott Ownership Resorts, Inc. and certain subsidiaries of Marriott Vacations Worldwide Corporation in favor of JPMorgan Chase Bank, N.A., as administrative agent for the banks and other financial institutions or entities from time to time parties to the Second Amended and Restated Credit Agreement filed as Exhibit 10.27 hereto (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on September 11, 2014).

~~10.29~~		Purchase and Sale Agreement dated as of April 25, 2014 among Tower Development Inc., Lifestyle Retail Properties LLC, Kauai Lagoons LLC and MORI Golf (Kauai), LLC (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on April 29, 2014).

~~10.30~~		~~First Amendment to Purchase and Sale Agreement dated as of October 27, 2014 among Tower Development Inc., Lifestyle Retail Properties LLC, Kauai Lagoons LLC and MORI Golf (Kauai), LLC.~~

~~10.31~~		~~Second Amendment to Purchase and Sale Agreement dated as of November 21, 2014 among Tower Development Inc., Lifestyle Retail Properties LLC, Kauai Lagoons LLC and MORI Golf (Kauai), LLC.~~

~~10.32~~		Third Amendment to Purchase and Sale Agreement and Assignment and Assumption of Purchase Agreement dated as of December 8, 2014 among Tower Development Inc., Lifestyle Retail Properties LLC, Kauai Lagoons LLC and MORI Golf (Kauai), LLC.

~~21.1~~		~~Subsidiaries of Marriott Vacations Worldwide Corporation.~~

~~23.1~~		~~Consent of Ernst & Young, LLP.~~

~~24.1~~		~~Powers of Attorney (included on the signature pages hereto).~~

~~31.1~~		~~Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.~~


~~Exhibit~~ ~~No.~~		~~Description~~

~~31.2~~		~~Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.~~

~~32.1~~		~~Certification of Chief Executive Officer pursuant to Rule 13a-14(b) and Section 906 of theSarbanes-Oxley~~ ~~Act of 2002.~~

~~32.2~~		~~Certification of Chief Financial Officer pursuant to Rule 13a-14(b) and Section 906 of theSarbanes-Oxley~~ ~~Act of 2002.~~

~~101.INS~~		~~XBRL Instance Document.~~

~~101.SCH~~		~~XBRL Taxonomy Extension Schema Document.~~

~~101.CAL~~		~~XBRL Taxonomy Calculation Linkbase Document.~~

~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document.~~

~~101.LAB~~		~~XBRL Taxonomy Label Linkbase Document.~~

~~101.PRE~~		~~XBRL Taxonomy Presentation Linkbase Document.~~


	Common Shares Outstanding			Common Stock		Treasury Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Income			Retained (Deficit) Earnings			Total Equity
Balance at year-end 2011		34		$	—	$	—		$	1,117		$	19		$	(5	)	$	1,131
Net income		—			—		—			—			—			7			7
Foreign currency translation adjustments		—			—		—			—			2			—			2
Adjustment to reclassification of Marriott International investment to Additional paid-in capital⁽¹⁾		—			—		—			(21	)		—			—			(21	)
Amounts related to share-based compensation		1			—		—			20			—			—			20

Balance at year-end 2012		35			—		—			1,116			21			2			1,139
Net income		—			—		—			—			—			80			80
Foreign currency translation adjustments		—			—		—			—			2			—			2
Amounts related to share-based compensation		1			—		—			14			—			—			14
Repurchase of common stock		(1	)		—		(26	)		—			—			—			(26	)

Balance at year-end 2013		35			—		(26	)		1,130			23			82			1,209
Net income		—			—		—			—			—			81			81
Foreign currency translation adjustments		—			—		—			—			(6	)		—			(6	)
Amounts related to share-based compensation		—			—		—			12			—			—			12
Adjustment to reclassification of Marriott International investment to Additional paid-in capital⁽²⁾		—			—		—			(4	)		—			—			(4	)
Adjustment to Additional paid-in capital⁽³⁾		—			—		—			(1	)		—			—			(1	)
Repurchase of common stock		(3	)		—		(203	)		—			—			—			(203	)
Dividends		—			—		—			—			—			(8	)		(8	)

Balance at year-end 2014		32		$	—	$	(229	)	$	1,137		$	17		$	155		$	1,080


*($ in millions)*	At Year-End 2014			At Year-End 2013
Deferred tax assets	$	167		$	153
Deferred tax liabilities		(246)			(213	)

Net deferred tax liability	$	(79	)	$	(60	)


*($ in millions)*	Non-Securitized Vacation Ownership Notes Receivable		Securitized Vacation Ownership Notes Receivable		Total
31 – 90 days past due	$	8	$	23	$	31
91 – 150 days past due		6		7		13
Greater than 150 days past due		54		—		54

Total past due		68		30		98
Current		163		775		938

Total vacation ownership notes receivable	$	231	$	805	$	1,036


	At Year-End 2014						At Year-End 2013
*($ in millions)*	Carrying Amount			Fair Value⁽¹⁾			Carrying Amount			Fair Value⁽¹⁾
Vacation ownership notes receivable – securitized	$	751		$	909		$	719		$	865
Vacation ownership notes receivable – non-securitized		166			172			251			267

Total financial assets	$	917		$	1,081		$	970		$	1,132

Non-recourse debt associated with vacation ownership notes receivable securitizations	$	(708	)	$	(713	)	$	(674	)	$	(695	)
Other debt		(3	)		(3	)		(4	)		(4	)
Mandatorily redeemable preferred stock of consolidated subsidiary		(40	)		(44	)		(40	)		(44	)
Liability for Marriott Rewards customer loyalty program		(89	)		(80	)		(114	)		(110	)
Other liabilities		(4	)		(4	)		(6	)		(6	)

Total financial liabilities	$	(844	)	$	(844	)	$	(838	)	$	(859	)


*(in millions, except per share amounts)*	January 2, 2015⁽¹⁾		January 3, 2014⁽²⁾		December 28, 2012⁽³⁾
Computation of Basic Earnings Per Share
Net income	$	81	$	80	$	7
Weighted average shares outstanding		33.7		35.4		34.4

Basic earnings per share	$	2.40	$	2.25	$	0.19

Computation of Diluted Earnings Per Share
Net income	$	81	$	80	$	7

Weighted average shares outstanding		33.7		35.4		34.4
Effect of dilutive securities
Employee stock options and SARs		0.5		0.7		1.0
Restricted stock units		0.4		0.5		0.8

Shares for diluted earnings per share		34.6		36.6		36.2

Diluted earnings per share	$	2.33	$	2.18	$	0.18


*($ in millions)*	Maximum Potential Amount of Future Fundings at Year-End 2014		Liability for Expected Future Fundings at Year-End 2014
Segment
Asia Pacific	$	8	$	—
North America		3		—

Total guarantees where we are the primary obligor	$	11	$	—


*($ in millions)*	Land Lease		Corporate Facilities Leases		Other Operating Leases		Total
Fiscal Year
2015	$	1	$	3	$	10	$	14
2016		1		3		8		12
2017		1		4		6		11
2018		1		4		3		8
2019		1		4		2		7
Thereafter		13		6		7		26

Total minimum lease payments	$	18	$	24	$	36	$	78


*($ in millions)*	Vacation Ownership Notes Receivable Securitizations⁽¹⁾		Other Debt		Total
Debt Principal Payments Year
2015	$	116	$	—	$	116
2016		109		—		109
2017		80		—		80
2018		72		—		72
2019		72		—		72
Thereafter		259		3		262

Balance at January 2, 2015	$	708	$	3	$	711


*($ in millions)*
5 percent change in the cost per point	$	4
10 percent change in the cost per point	$	8
100 basis point change in the breakage rate	$	9
200 basis point change in the breakage rate	$	18


	2014
	Number of RSUs		Weighted Average Grant Date Fair Value Per RSU
Outstanding at year-end 2013⁽¹⁾		1,025,264	$	24
Granted during 2014⁽¹⁾		227,452		53
Distributed during 2014		(304,790)		22
Forfeited during 2014		(8,846)		39

Outstanding at year-end 2014⁽¹⁾ ⁽²⁾		939,080		31


	2014
	Number of Stock Options		Weighted Average Exercise Price Per Option
Outstanding at year-end 2013		284,623	$	12
Granted during 2014		—		—
Exercised during 2014		(262,879)		12
Forfeited during 2014		—		—

Outstanding at year-end 2014⁽¹⁾		21,744		17


	Outstanding					Exercisable
Range of Exercise Prices	Number of Stock Options		Weighted Average Exercise Price Per Option		Weighted Average Remaining Life (in years)	Number of Stock Options		Weighted Average Exercise Price Per Option		Weighted Average Remaining Life (in years)
$ 8 to $12		1,830	$	9	—		1,830	$	9		—
$ 13 to $17		9,643		16	4		9,643		16		4
$ 18 to $22		8,264		19	1		8,264		19		1
$ 23 to $28		2,007		24	6		1,524		24		6

$ 8 to $28		21,744		17	3		21,261		17		3

Fiscal Years

Average FICO score