Note 4.Discontinued Operations

On May 11, 2016, we completed a series of transactions with ILG and certain of its subsidiaries involving our vacation ownership business (the Vistana Vacation Ownership Business). Specifically, (a) we and certain of our subsidiaries engaged in a series of transactions in which certain assets and liabilities, including five hotels to be converted to vacation ownership properties, were (i) sold directly to subsidiaries of ILG or (ii) otherwise conveyed pursuant to an internal restructuring to Vistana Signature Experiences, Inc. (Vistana) or its subsidiaries, which resulted in the separation of the Vistana Vacation Ownership Business from our other businesses, (b) immediately after such separation, via spin-off we distributed the shares of Vistana common stock to our stockholders of record as of March 28, 2016, on a pro rata basis (the Distribution), and (c) immediately after the Distribution, Vistana merged with a subsidiary of ILG (the Merger). The holders of SLC Operating Limited Partnership units also received shares of Vistana common stock. We refer to this series of transactions as the “Transactions.”

Upon the completion of the Transactions, Vistana became a wholly-owned subsidiary of ILG. In addition, upon completion of the Transactions, Starwood stockholders owned approximately 55% of the outstanding shares of ILG on a fully-diluted basis, and the existing shareholders of ILG owned approximately 45% of ILG on a fully-diluted basis. As a result of the Transactions, ILG’s board of directors now consists of 13 directors, comprising nine previous ILG directors and four of our director appointees.

As a result of the Transactions, Starwood stockholders and holders of SLC Operating Limited Partnership units entitled to receive shares of Vistana common stock in the Distribution received approximately 0.4309 shares of ILG common stock, which were valued at $14.385 per share based on the average of the high and low of the ILG share price on May 11, 2016, for each share of Vistana common stock they received in the Distribution. In addition, certain subsidiaries of ILG paid certain of our subsidiaries approximately $123 million in consideration for the sale of certain assets and liabilities related to the Vistana Vacation Ownership Business. The total fair value of the stock and cash consideration received by us and our stockholders was approximately $1.2 billion.

As this transaction represented a material strategic shift in our business, in accordance with ASC Topic 205, Presentation of Financial Statements, we have reclassified the financial results of the Vistana Vacation Ownership Business, the impairment charge, and costs associated with the Transactions to discontinued operations in our consolidated statements of operations for all periods presented. Additionally, the related assets and liabilities associated with the discontinued operations in the consolidated balance sheet as of December 31, 2015 have been reclassified as held for sale.

In connection with the Transactions, in the three months ended June 30, 2016 we recorded a non-cash pre-tax impairment charge of $214 million to discontinued operations loss on dispositions resulting from the difference between the carrying value of our investment in the vacation ownership business and the fair value of the consideration received at the transaction date.

Additionally, in connection with the Transactions, we have entered into an exclusive, 80-year global license agreement with Vistana for the use of the Westin and Sheraton brands in vacation ownership. In addition, ILG has the non-exclusive license for the existing St. Regis and The Luxury Collection vacation ownership properties. The agreement provides for a fixed annual license fee of $30 million (adjusted every five years by an inflation factor) and certain variable fees based on sales volumes which are recorded to the management fees, franchise fees and other income line item, within continuing operations. As of June 30, 2016, we had a receivable balance of approximately $13 million due from ILG.

The following table presents financial results of the Vistana Vacation Ownership Business and the five hotels transferred to ILG (in millions):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016 ⁽¹⁾			2015			2016 ⁽²⁾			2015
Revenues:
Owned, leased and consolidated joint venture hotels	$	9		$	24		$	39		$	49
Vacation ownership and residential sales and services		85			169			269			355
Management fees, franchise fees and other income		—			1			1			2
Other revenues from managed and franchised properties		21			46			66			90
		115			240			375			496
Costs and Expenses:
Owned, leased and consolidated joint venture hotels		7			17			24			37
Vacation ownership and residential sales and services		66			125			206			260
Restructuring and other special charges, net ⁽³⁾		30			11			37			17
Depreciation		5			9			15			18
Amortization		—			1			—			1
Other expenses from managed and franchised properties		21			46			66			90
Total operating expenses		129			209			348			423
Income (loss) from operations of discontinued operations		(14	)		31			27			73
Equity earnings and gains (losses) from unconsolidated ventures, net		—			(1	)		—			—
Interest expense, net of interest income		—			(1	)		(2	)		(4	)
Gain (loss) on asset dispositions and impairments, net		(214	)		—			(214	)		—
Income (loss) from discontinued operations before taxes		(228	)		29			(189	)		69
Income tax expense		—			(11	)		(22	)		(27	)
Income (loss) from discontinued operations, net of taxes	$	(228	)	$	18		$	(211	)	$	42

(1)	Includes the financial results from April 1, 2016 to May 11, 2016.

(2)	Includes the financial results from January 1, 2016 to May 11, 2016.

(3)	Transaction costs related to the spin-off of the Vistana Vacation Ownership Business have been reclassified to discontinued operations loss on dispositions.

Prior to the Transactions, the Vistana Vacation Ownership Business, excluding the five hotels to be converted to vacation ownership properties, was reported in our vacation ownership and residential segment. The five hotels were reported in the Americas segment.

The following table presents the aggregate carrying amounts of the classes of assets and liabilities of the Vacation Ownership Business and the five hotels transferred to ILG (in millions). For additional information and disclosures of balances as of December 31, 2015, please see our Annual Report on Form 10-K for the year ended December 31, 2015.

	December 31,
	2015

Carrying amounts of assets associated with the discontinued operations:
Cash and cash equivalents	$	25
Restricted cash		36
Accounts receivable, net of allowance for doubtful accounts of $9		115
Inventories		304
Securitized vacation ownership notes receivable, net of allowance for doubtful accounts of $2		32
Prepaid expenses and other		22
Investments		13
Property and equipment, net		445
Goodwill and intangible assets, net		162
Deferred income taxes		33
Other assets		411
Securitized vacation ownership notes receivable, net		141
Total assets of the discontinued operations classified as held for sale	$	1,739

Carrying amounts of liabilities associated with the discontinued operations:
Short-term borrowings and current maturities of long-term debt	$	1
Accounts payable		12
Current maturities of long-term securitized vacation ownership debt		48
Accrued expenses		137
Accrued taxes and other		18
Accrued salaries, wages and benefits		39
Long-term debt		—
Long-term securitized vacation ownership debt		123
Deferred income taxes		2
Other liabilities		32
Total liabilities of the discontinued operations classified as held for sale	$	412

The following table presents the cash flows the Vacation Ownership Business and the five hotels transferred to ILG (in millions):

	Six Months Ended
	June 30,
	2016 ⁽¹⁾			2015
Discontinued Operating activities
Depreciation and amortization	$	15		$	19
(Gain) loss on asset dispositions and impairments, net		214			—
Stock-based compensation expense		2			2
Decrease (increase) in restricted cash		(23	)		30
Securitized VOI notes receivable activity, net		23			38
Unsecuritized VOI notes receivable activity, net		(38	)		(36	)
Discontinued Investing activities
Purchases of plant, property and equipment	$	11		$	15
Proceeds from asset sales, net		98			—

(1)	Includes the financial results from January 1, 2016 to May 11, 2016.