What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-11-09 compared with 2022-08-09 · 214 added, 209 removed, 822 unchanged (34% of the section changed)

3 unchanged sentences

(in millions, except share data)

September 30,

2022 December 31,

24 unchanged sentences

Preferred stock, $ 0.01 par value;

300,000,000 authorized shares, none issued or outstanding as of June 30, 2022 and December 31, 2021

300,000,000 authorized shares, none issued or outstanding as of September 30, 2022 and December 31, 2021

Common stock, $ 0.01 par value;

3,000,000,000 authorized shares, 118,501,896 shares issued and outstanding as of June 30, 2022 and 119,904,001 shares issued and outstanding as of December 31, 2021

3,000,000,000 authorized shares, 116,387,235 shares issued and outstanding as of September 30, 2022 and 119,904,001 shares issued and outstanding as of December 31, 2021

Additional paid-in capital 1,607 1,630

7 unchanged sentences

(in millions, except per share amounts)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

15 unchanged sentences

License fee expense 33 24 90 57

Impairment (reversal) expense ( 3 ) — — 1

Impairment expense — 1 — 2

Cost reimbursements 82 58 215 131

2 unchanged sentences

Equity in earnings from unconsolidated affiliates 2 1 9 7

Other loss, net ( 2 ) ( 1 ) ( 1 ) ( 2 )

Income (loss) before income taxes 114 12 185 ( 1 )

Income tax (expense) benefit ( 41 ) ( 3 ) ( 61 ) 3

Other gain (loss), net 2 ( 20 ) 1 ( 22 )

Income before income taxes 204 148 389 147

Income tax expense ( 54 ) ( 49 ) ( 115 ) ( 46 )

Net income $ 150 $ 99 $ 274 $ 101

6 unchanged sentences

(in millions)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

8 unchanged sentences

(in millions)

Six Months Ended June 30,

Nine Months Ended September 30,

Operating Activities

7 unchanged sentences

Share-based compensation 40 32

Deferred income tax expense — 9

Deferred income tax (benefit) expense ( 1 ) 9

Equity in earnings from unconsolidated affiliates ( 9 ) ( 7 )

Return on investment in unconsolidated affiliates — 2

Net changes in assets and liabilities:

9 unchanged sentences

Investing Activities

Acquisition of Diamond, net of cash and restricted cash acquired — ( 1,585 )

Capital expenditures for property and equipment ( 25 ) ( 11 )

14 unchanged sentences

Effect of changes in exchange rates on cash, cash equivalents & restricted cash ( 19 ) —

Net (decrease) increase in cash, cash equivalents and restricted cash ( 29 ) 1,254

Net increase in cash, cash equivalents and restricted cash 49 38

Cash, cash equivalents and restricted cash, beginning of period 695 526

11 unchanged sentences

Net income — — — 51 — 51

Activity related to share-based compensation — — 4 — — 4

Derivative instrument adjustments, net of tax — — — — 22 22

Activity related to share-based compensation — — 4 — — 4

Balance as of March 31, 2022 120 $ 1 $ 1,634 $ 408 $ 22 $ 2,065

Net income — — — 73 — 73

Activity related to share-based compensation — — 16 — — 16

Foreign currency translation adjustments — — — — ( 6 ) ( 6 )

Derivative instrument adjustments, net of tax — — — — 10 10

Foreign currency translation adjustments — — — — ( 6 ) ( 6 )

Activity related to share-based compensation — — 16 — — 16

Employee stock plan issuance — — 2 — — 2

1 unchanged sentence

Balance as of June 30, 2022 118 $ 1 $ 1,626 $ 424 $ 26 $ 2,077

Net income — — — 150 — 150

Derivative instrument adjustments, net of tax — — — — 17 17

Foreign currency translation adjustments — — — — ( 11 ) ( 11 )

Activity related to share-based compensation — — 13 — — 13

Repurchase and retirement of common stock ( 2 ) — ( 32 ) ( 57 ) — ( 89 )

Balance at September 30, 2022 116 $ 1 $ 1,607 $ 517 $ 32 $ 2,157

See notes to unaudited condensed consolidated financial statements.

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(Continued) (in millions)

Common Stock Additional

10 unchanged sentences

Balance as of June 30, 2021 85 $ 1 $ 212 $ 183 $ — $ 396

Net income — — — 99 — 99

Activity related to share-based compensation 1 — 18 — — 18

Shares issued for Diamond Acquisition 34 — 1,381 — — 1,381

Balance at September 30, 2021 120 $ 1 $ 1,611 $ 282 $ — $ 1,894

See notes to unaudited condensed consolidated financial statements.

4 unchanged sentences

(“Hilton Grand Vacations,” “we,” “us,” “our,” “HGV” or the “Company”) is a global timeshare company engaged in developing, marketing, selling and managing timeshare resorts, primarily under the Hilton Grand Vacations brand.

During 2021, we acquired Dakota Holdings, Inc., the parent of Diamond Resorts International (the "Diamond Acquisition"), and are in the process of rebranding Diamond properties and sales centers to brands that meet Hilton standards.

During 2021, we acquired Dakota Holdings, Inc., the parent of Diamond Resorts International (“Diamond”)(the “Diamond Acquisition”), and are in the process of rebranding Diamond properties and sales centers to brands that meet Hilton standards.

Our operations primarily consist of selling vacation ownership intervals and vacation ownership interests (collectively, “VOIs” or “VOI”) for ourselves and third parties;

2 unchanged sentences

and managing our points-based Hilton Grand Vacations Club and Hilton Club exchange program (collectively the “Legacy-HGV Club”) in addition to our Diamond points-based clubs (the Legacy-HGV Club and Diamond Clubs (as defined below) are collectively referred to as “Clubs”).

As of June 30, 2022, we had 154 properties located in the United States (“U.S.”), Europe, Mexico, the Caribbean, Canada and Japan.

As of September 30, 2022, we had 154 properties located in the United States (“U.S.”), Europe, Mexico, the Caribbean, Canada and Japan.

A significant number of our properties and VOIs are concentrated in Florida, Nevada, Hawaii, Europe, California, Virginia and Arizona.

52 unchanged sentences

(1) Represents the average of the opening and closing price of HGV stock on August 2, 2021.

Preliminary Fair Values of Assets Acquired and Liabilities Assumed

We accounted for the Diamond Acquisition as a business combination, which requires us to record the assets acquired and liabilities assumed at fair value as of the Acquisition Date.

The preliminary fair values of the assets acquired and liabilities assumed, which are presented in the table below, and the related preliminary acquisition accounting are based on management’s estimates and assumptions, as well as information compiled by management, including the books and records of Diamond.

Our estimates and assumptions are subject to change during the measurement period, not to exceed one year from the Acquisition Date.

The magnitude of the Diamond Acquisition could necessitated the need to use the full one-year measurement period to adequately analyze and assess a number of the factors used in establishing the asset and liability fair values as of the Acquisition Date.

The final values may also result in changes to amortization expense related to intangible assets and depreciation expense related to property and equipment, among other changes.

Any potential adjustments made could be material in relation to the values presented in the table below.

As of June 30, 2022, the primary areas of the purchase price allocation that are not yet finalized include the following:

(1) finalizing the review and valuation of acquired undeveloped land, property and equipment (including key assumptions, inputs and estimates) and assigning the remaining useful lives to the depreciable assets;

(2) finalizing the review of accounts receivable, including the evaluation of which receivables are purchased credit deteriorated assets;

finalizing the review and valuation of other acquired assets and assumed liabilities;

and (4) finalizing our estimate of the impact of purchase accounting on deferred income tax liabilities.

($ in millions) Preliminary Amounts Recognized as of the Acquisition Date

Fair Values of Assets Acquired and Liabilities Assumed

We accounted for the Diamond Acquisition as a business combination, which required us to record the assets acquired and liabilities assumed at fair value as of the Acquisition Date.

The following table presents the fair values of the assets that we acquired and the liabilities that we assumed on the Acquisition Date in connection with the business combination as finalized at September 30, 2022.

($ in millions) Amounts Recognized as of the Acquisition Date

Assets acquired

20 unchanged sentences

(1) Goodwill is calculated as total consideration transferred less net assets acquired and it primarily represents the value that we expect to obtain from synergies and growth opportunities from our combined Company post-acquisition.

The majority of goodwill is not expected to be deductible for tax purposes.

The majority of goodwill is not deductible for tax purposes.

The measurement period adjustments recorded during the quarter ended September 30, 2022 resulted from changes to our estimates of the fair value of the acquired assets and assumed liabilities based on finalizing the valuations of acquired property and equipment and accounts receivable.

In addition, we have established an initial reserve in connection

with certain pre-acquisition expenses which we have determined are not deductible for tax purposes.

These resulted in a net increase to goodwill for the period of $ 59 million, net of tax impacts of adjustments.

The measurement period adjustments recorded during the quarter ended June 30, 2022 resulted from changes to our estimates of the fair value of the acquired assets and assumed liabilities based on finalizing the valuations of operating lease right-of-use asset and related lease liabilities valuation and capitalized software.

3 unchanged sentences

These resulted in a net adjustment to goodwill for the period of $ 26 million.

The prior period net income effect associated with the measurement period adjustments recorded during the six months ended June 30, 2022 is immaterial.

The prior period net income effect associated with the measurement period adjustments recorded during the nine months ended September 30, 2022 is immaterial.

Timeshare Financing Receivables

1 unchanged sentence

These timeshare financing receivables are collateralized by the underlying VOIs and generally have 10 -year amortizing repayment terms.

We estimated the fair value of the timeshare

financing receivables using a discounted cash flow model, which calculated a present value of expected future risk-adjusted cash flows over the remaining term of the respective timeshare financing receivables.

We do not expect any material changes to the provisional estimates.

We estimated the fair value of the timeshare financing receivables using a discounted cash flow model, which calculated a present value of expected future risk-adjusted cash flows over the remaining term of the respective timeshare financing receivables.

For purposes of our allocation, we have considered all acquired receivables to be purchase credit deteriorated assets.

7 unchanged sentences

We acquired inventory which primarily consists of completed unsold VOIs and undeveloped land.

We preliminarily estimated the value of acquired inventory using a discounted cash flows method, which included an estimate of cash flows expected to be generated from the sale of VOIs.

We valued acquired inventory using a discounted cash flows method, which included an estimate of cash flows expected to be generated from the sale of VOIs.

Significant estimates and assumptions impacting the fair value of the acquired inventory that are subjective and/or require complex judgments include our estimates of operating costs and margins, and the discount rate.

1 unchanged sentence

short-term and long-term revenue growth rates, capital expenditures, tax rates and other factors impacting the discounted cash flows.

We do not expect any material changes to the provisional estimates for completed and unsold VOIs.

Property and Equipment

We acquired property and equipment, which includes land, building and leasehold improvements, furniture and fixtures and construction in progress.

We preliminarily estimated the value of the majority of property and equipment using a mix of cost, market and discounted cash flow approaches, which included estimates of future income growth, capitalization rates, discount rates, and capital expenditure needs of the resorts.

Certain property and equipment assets were preliminarily valued at carrying value, which is our best estimate of fair value at this time given the information available to us.

As of June 30, 2022, we are continuing to assess the market assumptions and property conditions, which could result in changes to these preliminary values.

We recognized goodwill of approximately $ 1.4 billion in connection with the Diamond Acquisition.

We have allocated the acquired goodwill to our segments, Real Estate Sales and Financing and Resort Operations and Club Management, as indicated in the table below.

Our allocations may change throughout the measurement period as we continue to finalize the fair value of assets acquired and liabilities assumed in the Diamond Acquisition.

Real Estate Sales and Financing Segment Resort Operations and Club Management Segment Total Consolidated

Goodwill $ 1,001 $ 356 $ 1,357

We valued the majority of acquired property and equipment using a mix of cost, market and discounted cash flow approaches, which included estimates of future income growth, capitalization rates, discount rates, and capital expenditure needs of the resorts.

Intangible Assets

The following table presents our preliminary estimates of the fair values of the acquired Diamond’s identified intangible assets and their related estimated remaining useful lives:

The following table presents our estimates of the fair values of the acquired Diamond’s identified intangible assets and their related estimated remaining useful lives:

Estimated Fair Value

5 unchanged sentences

Total intangible assets $ 1,429

We estimated the fair value of Diamond’s trade name using the relief-from-royalty method, which applies an estimated royalty rate to forecasted future cash flows, discounted to present value.

We estimated the value of management contracts and member relationships using the multi-period excess earnings method, which is a variation of the income approach.

We valued the acquired trade name intangible using the relief-from-royalty method, which applies an estimated royalty rate to forecasted future cash flows, discounted to present value.

We valued the acquired management contracts intangible and member relationships intangible using the multi-period excess earnings method, which is a variation of the income approach.

This method estimates an intangible asset’s value based on the present value of the incremental after-tax cash flows attributable to the intangible asset.

2 unchanged sentences

short-term and long-term revenue growth rates, attrition rates, capital expenditures, tax rates and other factors impacting the discounted cash flows.

We do not expect any material changes to the provisional estimates for trade names, management contracts, and club member relationships, other than as a result of working capital adjustments.

Deferred Revenue

2 unchanged sentences

Additionally, deferred revenue includes maintenance fees collected from owners, in certain cases, which are earned by the relevant property owners’ association over the applicable period.

We preliminarily estimated the fair value of the deferred revenue at the carrying value of such liabilities as of the Acquisition Date.

We do not expect any material changes to the provisional estimates.

We valued deferred revenue at its carrying value.

Deferred Income Taxes

Deferred income taxes primarily relate to the fair value of assets and liabilities acquired from Diamond, including timeshare financing receivables, inventory, property and equipment, intangible assets, and debt.

We preliminarily estimated deferred income taxes based on statutory rates in the jurisdictions of the legal entities where the acquired assets and liabilities are recorded.

We are continuing to assess the tax rates used, and we will update our estimate of deferred income taxes based on changes to our preliminary valuations of the related assets and liabilities and refinement of the effective tax rates, which could result in changes to these preliminary values.

We calculated deferred income taxes based on statutory rates in the jurisdictions of the legal entities where the acquired assets and liabilities are recorded.

As part of the acquisition and consideration transferred, we paid off $ 2,029 million of Diamond’s existing corporate debt, accrued interest and early termination penalties.

Non-Recourse Debt

We estimated the fair value of the securitized debt from VIEs and warehouse loan facilities, using a discounted cash flow model under the income approach.

We valued the securitized debt from VIEs and warehouse loan facilities, using a discounted cash flow model under the income approach.

The significant assumptions in our analysis include default rates, prepayment rates, bond interest rates and other structural factors.

We do not expect any material changes to the provisional estimates.

Lease Obligations

Operating Lease Right-of-Use-Assets and Lease Liabilities

We have recorded liabilities for those operating leases assumed in connection with the Diamond Acquisition with a remaining term in excess of a year.

We measured the lease liabilities assumed at the present value of the remaining contractual lease payments based on the guidance in ASC 842 and using a discount rate determined as of the Acquisition Date.

The right-of-use assets for such leases were measured at an amount equal to the lease liabilities, adjusted for favorable or unfavorable terms of the lease when compared with market terms.

We do not expect any material changes to the provisional estimates.

We valued lease liabilities at the present value of the remaining contractual lease payments based on the guidance in ASC 842 and using a discount rate determined as of the Acquisition Date.

The right-of-

use assets for such leases were measured at an amount equal to the lease liabilities, adjusted for favorable or unfavorable terms of the lease when compared with market terms.

We have allocated the acquired goodwill to our segments, Real Estate Sales and Financing and Resort Operations and Club Management, as indicated in the table below.

Real Estate Sales and Financing Segment Resort Operations and Club Management Segment Total Consolidated

Goodwill $ 1,048 $ 368 $ 1,416

Pro Forma Results of Operations

The following unaudited pro forma information presents the combined results of operations of HGV and Diamond as if we had completed the Diamond Acquisition on January 1, 2021, the first day of our prior fiscal year, but using our preliminary fair values of assets and liabilities as of the Acquisition Date.

The following unaudited pro forma information presents the combined results of operations of HGV and Diamond as if we had completed the Diamond Acquisition on January 1, 2021, the first day of our prior fiscal year, but using our fair values of assets and liabilities as of the Acquisition Date.

These unaudited pro forma results do not reflect any synergies from operating efficiencies.

Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the Diamond Acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations.

($ in millions, except per share data) Six Months Ended

June 30, 2021

($ in millions, except per share data) Nine Months Ended

September 30, 2021

Revenue $ 2,226

Net loss ( 87 )

Net income 58

Revenue from Contracts with Customers

5 unchanged sentences

Business Segments below for more details related to our segments.

($ in millions) Three Months Ended June 30, Six Months Ended June 30,

($ in millions) Three Months Ended September 30, Nine Months Ended September 30,

Real Estate Sales and Financing Segment 2022 2021 2022 2021

4 unchanged sentences

Real estate sales and financing segment revenues $ 745 $ 659 $ 1,783 $ 976

($ in millions) Three Months Ended June 30, Six Months Ended June 30,

($ in millions) Three Months Ended September 30, Nine Months Ended September 30,

Resort Operations and Club Management Segment 2022 2021 2022 2021

8 unchanged sentences

The following table provides information on our accounts receivable from contracts with customers which are included in Accounts receivable, net on our unaudited condensed consolidated balance sheets:

($ in millions) June 30,

($ in millions) September 30,

2022 December 31,

1 unchanged sentence

The following table presents the composition of our contract liabilities:

($ in millions) June 30,

($ in millions) September 30,

2022 December 31,

6 unchanged sentences

This liability is comprised of unrecognized revenue for incentives from VOI sales and sales and marketing expenses in conjunction with our fee-for-service arrangements.

Revenue earned for three and six months ended June 30, 2022 that was included in the contract liabilities balance at December 31, 2021 was approximately $ 54 million and $ 98 million, respectively.

Our accounts receivables that relate to our contracts with customers includes amounts associated with our contractual right to consideration for completed performance obligations related primarily to our fee-for-service arrangements and homeowners’ associations management agreements and are settled when the related cash is received.

Revenue earned for the three and nine months ended September 30, 2022, that was included in the contract liabilities balance at December 31, 2021 was approximately $ 63 million and $ 161 million, respectively.

Our accounts receivable that relate to our contracts with customers includes amounts associated with our contractual right to consideration for completed performance obligations related primarily to our fee-for-service arrangements and homeowners’ associations management agreements and are settled when the related cash is received.

Accounts receivable are recorded when the right to consideration becomes unconditional and is only contingent on the passage of time.

3 unchanged sentences

however, our right to consideration is conditional upon completing the requirements of the annual incentive fee period.

There were no contract assets as of June 30, 2022 and December 31, 2021, respectively.

There were $ 5 million contract assets as of September 30, 2022 and no contract assets as of December 31, 2021.

Contract liabilities include payments received or due in advance of satisfying our performance obligations.

Such contract liabilities include advance deposits received on prepaid vacation packages for future stays at our resorts, deferred revenues related to sales of VOIs of projects under construction, Club activation fees and annual dues and the liability for Bonus Points awarded to our customers for purchase of VOIs at our properties or properties under our fee-for-service arrangements that may be redeemed in the future.

In addition to the contract liabilities included herein, we also have deferred revenue of $ 142 million and $ 112 million as of June 30, 2022 and December 31, 2021, respectively.

This additional deferred revenue balance includes $ 44 million and $ 51 million for bonus points and vacation package deferred revenue, $ 33 million and $ 10 million in deferred property insurance, $ 27 million and $ 14 million in deferred maintenance fees and $ 38 million and $ 37 million in other deferred revenue as of June 30, 2022 and December 31, 2021, respectively.

In addition to the contract liabilities included herein, we also have deferred revenue of $ 118 million and $ 112 million as of September 30, 2022 and December 31, 2021, respectively.

This additional deferred revenue balance includes $ 50 million and $ 51 million for bonus points and vacation package deferred revenue, $ 22 million and $ 10 million in deferred property insurance, $ 17 million and $ 14 million in deferred maintenance fees and $ 28 million and $ 37 million in other deferred revenue as of September 30, 2022 and December 31, 2021, respectively.

Transaction Price Allocated to Remaining Performance Obligations

1 unchanged sentence

Our contracts with remaining performance obligations primarily include (i) sales of VOIs under construction, (ii) Legacy-HGV Club activation fees paid at closing of a VOI purchase, (iii) customers’ advanced deposits on prepaid vacation packages and (iv) Bonus Points that may be redeemed in the future.

The following table represents the deferred revenue, cost of VOI sales and direct selling costs from sales of VOIs related to projects under construction as of June 30, 2022 and December 31, 2021:

($ in millions) June 30,

The following table represents the deferred revenue, cost of VOI sales and direct selling costs from sales of VOIs related to projects under construction as of September 30, 2022 and December 31, 2021:

($ in millions) September 30,

2022 December 31,

3 unchanged sentences

(1) Includes anticipated Cost of VOI sales related to inventory associated with Sales of VOIs under construction.

We expect to recognize the revenue, costs of VOI sales and direct selling costs related to the projects under construction as of June 30, 2022 upon their completion in 2022.

The following table includes the remaining transaction price related to Advanced deposits, and Legacy-HGV Club activation fees and Bonus Points as of June 30, 2022:

We recognized the revenue, costs of VOI sales and direct selling costs related to the project under construction upon completion during the third quarter of 2022.

The following table includes the remaining transaction price related to Advanced deposits, and Legacy-HGV Club activation fees and Bonus Points as of September 30, 2022:

($ in millions) Remaining

6 unchanged sentences

Restricted cash was as follows:

($ in millions) June 30,

($ in millions) September 30,

2022 December 31,

7 unchanged sentences

The following table represents our accounts receivable, net of allowance for credit losses:

($ in millions) June 30,

($ in millions) September 30,

2022 December 31,

6 unchanged sentences

Total $ 398 $ 302

(1) Net of allowance.

(2) Primarily includes individually insignificant allowances recognized in the ordinary course of business.

5 unchanged sentences

Additionally, the terms of these arrangements include provisions requiring the reduction of fees earned for defaults and cancellations.

The changes in our allowance for fee-for-service commissions were as follows during the period from December 31, 2021 to June 30, 2022:

The changes in our allowance for fee-for-service commissions were as follows during the period from December 31, 2021 to September 30, 2022:

($ in millions)

2 unchanged sentences

Write-offs charged against the allowance ( 9 )

Balance at June 30, 2022 $ 14

Balance at September 30, 2022 $ 14

In addition to the fee-for-service commission allowance, we have various allowances for our accounts receivable to account for expected losses related to club dues, maintenance fees, trade accounts receivable, sales of VOIs, and marketing packages.

3 unchanged sentences

Originated (2)

($ in millions) June 30,

($ in millions) September 30,

2022 December 31,

2021 June 30,

2021 September 30,

2022 December 31,

9 unchanged sentences

Originated timeshare financing receivables include all Legacy-HGV timeshare financing receivables and Legacy-Diamond timeshare financing receivables originated after the Acquisition Date.

(3) Non-credit premium of $ 97 million was recognized at the Acquisition Date, of which $ 54 million remains unamortized as of June 30, 2022.

In April 2022, we completed a securitization of $ 246 million of gross timeshare financing receivables and issued approximately $ 107 million of 3.61 percent notes, $ 84 million of 4.10 percent notes, $ 22 million of 4.69 percent notes, and $ 33 million of 6.79 percent notes due June 2034.

(3) Non-credit premium of $ 97 million was recognized at the Acquisition Date, of which $ 47 million remains unamortized as of September 30, 2022.

In August 2022, we completed a securitization of $ 269 million of gross timeshare financing receivables and issued approximately $ 153 million of 4.30 percent notes, $ 73 million of 4.74 percent notes, $ 26 million of 5.57 percent notes, and $ 17 million of 8.73 percent notes due January 2037.

The securitization transaction did not qualify as a sale and, accordingly, no gain or loss was recognized.

The transaction is considered a secured borrowing;

therefore, the proceeds from the transaction are presented as non-recourse debt.

The transaction is considered a secured borrowing, and the proceeds from the transaction are presented as non-recourse debt.

The proceeds were primarily used to pay down the remaining borrowings of our Timeshare Facility and general corporate operating expenses.

Debt and Non-recourse Debt for additional information.

The securitization transaction did not qualify as a sale and, accordingly,

no gain or loss was recognized.

The transaction is considered a secured borrowing, and the proceeds from the transaction are presented as non-recourse debt.

The proceeds were primarily used to pay down the remaining borrowings of one of our conduit facilities and general corporate operating expenses.

Debt and Non-recourse Debt for additional information.

As of June 30, 2022 and December 31, 2021, we had timeshare financing receivables with a carrying value of $ 155 million and $ 131 million, respectively, securing the Timeshare Facility and one additional conduit facility in anticipation of future financing activities.

As of September 30, 2022 and December 31, 2021, we had timeshare financing receivables with a carrying value of $ 9 million and $ 131 million, respectively, securing the Timeshare Facility.

We record an estimate of variable consideration for estimated defaults as a reduction of revenue from VOI sales at the time revenue is recognized on a VOI sale.

We record the difference between the timeshare financing receivable and the variable consideration included in the transaction price for the sale of the related VOI as an allowance for financing receivables and record the receivable net of the allowance.

For the six months ended June 30, 2022, we recorded an adjustment to our estimate of variable consideration of $ 71 million.

For the nine months ended September 30, 2022, we recorded an adjustment to our estimate of variable consideration of $ 101 million.

We recognize interest income on our timeshare financing receivables as earned.

As of June 30, 2022 and December 31, 2021, we had interest receivable outstanding of $ 10 million and $ 9 million, respectively, on our originated timeshare financing receivables, which represent all Legacy-HGV timeshare financing receivables and timeshare financing receivables originated by Legacy-Diamond subsequent to the Acquisition Date.

As of June 30, 2022 and December 31, 2021, we had interest receivable outstanding of $ 5 million and $ 7 million on our acquired timeshare financing receivables, which represents all timeshare financing receivables of Legacy-Diamond as of the Acquisition Date.

Interest receivable is included in Other Assets within our balance sheets.

As of September 30, 2022 and December 31, 2021, we had interest receivable outstanding of $ 12 million and $ 9 million, respectively, on our originated timeshare financing receivables, which represent all Legacy-HGV timeshare financing receivables and timeshare financing receivables originated by Legacy-Diamond subsequent to the Acquisition Date.

As of September 30, 2022 and December 31, 2021, we had interest receivable outstanding of $ 4 million and $ 7 million on our acquired timeshare financing receivables, which represents all timeshare financing receivables of Legacy-Diamond as of the Acquisition Date.

Interest receivable is included in Other Assets within our consolidated balance sheets.

The interest rate charged on the notes correlates to the risk profile of the customer at the time of purchase and the percentage of the purchase that is financed, among other factors.

As of June 30, 2022, our originated timeshare financing receivables had interest rates ranging from 1.5 percent to 25.8 percent, a weighted-average interest rate of 13.9 percent, a weighted-average remaining term of 8.1 years and maturities through 2037.

As of September 30, 2022, our originated timeshare financing receivables had interest rates ranging from 1.5 percent to 25.8 percent, a weighted-average interest rate of 14.2 percent, a weighted-average remaining term of 8.2 and maturities through 2037.

Our acquired timeshare financing receivables had interest rates ranging from 2.0 percent to 25.0 percent, a weighted-average interest rate of 15.7 percent, a weighted-average remaining term of 7.6 years and maturities through 2032.

3 unchanged sentences

These notes receivable were initially recognized at their purchase price, represented by the acquisition date fair value, and subsequently “grossed-up” by our acquisition date assessment of the allowance for credit losses.

The difference over which par value of the acquired purchased credit

deteriorated assets exceeds the purchase price plus the initial allowance for credit losses is reflected as a non-credit premium and is amortized as a reduction to interest income under the effective interest method.

The fair value of our acquired timeshare financing receivables as of the Acquisition Date was determined using a discounted cash flow method, which calculated a present value of expected future cash flows based on scheduled principal and interest payments over the term of the respective timeshare financing receivables, while considering anticipated defaults and early repayments based on historical experience.

Consequently, the fair value of the acquired timeshare financing receivables recorded on our balance sheet as of the Acquisition Date included an estimate of expected credit losses which became the historical cost basis for that portfolio going forward.

The difference over which par value of the acquired purchased credit deteriorated assets exceeds the purchase price plus the initial allowance for credit losses is reflected as a non-credit premium and is amortized as a reduction to interest income under the effective interest method.

The fair value of our acquired timeshare financing receivables as of the Acquisition Date was determined using a discounted cash flow method, which calculated a present value of expected future risk-adjusted cash flows over the remaining term of the respective timeshare financing receivables.

which calculated a present value of expected future cash flows based on scheduled principal and interest payments over the term of the respective timeshare financing receivables.

Consequently, the fair value of the acquired timeshare financing receivables recorded on our consolidated balance sheet as of the Acquisition Date included an estimate of expected credit losses which became the historical cost basis for that portfolio going forward.

The allowance for credit losses for our acquired timeshare financing receivables is remeasured at each period end and takes into consideration an estimated measure of anticipated defaults and early repayments.

1 unchanged sentence

Subsequent changes to the allowance for credit losses are recorded as additions to or reversals of credit losses in our consolidated statements of operations through provision for credit losses.

Our acquired timeshare financing receivables as of June 30, 2022 mature as follows:

Our acquired timeshare financing receivables as of September 30, 2022 mature as follows:

Acquired Timeshare Financing Receivables

9 unchanged sentences

Originated timeshare financing receivables represent all Legacy-HGV timeshare financing receivables and timeshare financing receivables originated by Legacy-Diamond subsequent to the Acquisition Date.

Our originated timeshare financing receivables as of June 30, 2022 mature as follows:

Our originated timeshare financing receivables as of September 30, 2022 mature as follows:

Originated Timeshare Financing Receivables

9 unchanged sentences

The changes in our allowance for financing receivables losses were as follows:

June 30, 2022

($ in millions) Originated Acquired

2 unchanged sentences

Write-offs ( 52 ) ( 63 )

Balance as of June 30, 2022 $ 348 $ 405

June 30, 2021

Balance at September 30, 2022 $ 374 $ 388

($ in millions) Originated

1 unchanged sentence

Provision for financing receivables losses (1)

Initial allowance for PCD financing receivables acquired during the period — 469

Write-offs ( 50 ) ( 7 )

Balance as of June 30, 2021 $ 203 $ —

Balance at September 30, 2021 $ 238 $ 462

(1) Includes incremental provision for financing receivables losses, net of activity related to the repurchase of defaulted and upgraded securitized timeshare financing receivables.

12 unchanged sentences

Legacy-HGV Timeshare Financing Receivables

($ in millions) June 30,

($ in millions) September 30,

2022 December 31,

3 unchanged sentences

(1) Timeshare financing receivables without a FICO score are primarily related to foreign borrowers.

The following table details our Legacy-HGV timeshare financing receivables by the origination year and average FICO score as of June 30, 2022:

The following table details our Legacy-HGV timeshare financing receivables by the origination year and average FICO score as of September 30, 2022:

($ in millions) 2022 2021 2020 2019 2018 Prior Total

11 unchanged sentences

We fully reserve for a timeshare financing receivable in the month following the date that the loan is 121 days past due and, subsequently, we write off the uncollectible note against the reserve once the foreclosure process is complete and we receive the deed for the foreclosed unit.

As of June 30, 2022 and December 31, 2021, we had ceased accruing interest on timeshare financing receivables with an aggregate principal balance of $ 70 million and $ 83 million, respectively.

As of September 30, 2022 and December 31, 2021, we had ceased accruing interest on timeshare financing receivables with an aggregate principal balance of $ 71 million and $ 83 million, respectively.

The following tables detail an aged analysis of our gross timeshare receivables balance:

Legacy-HGV Timeshare Financing Receivables

June 30, 2022

September 30, 2022

($ in millions) Securitized Unsecuritized Total

23 unchanged sentences

Acquired Timeshare Financing Receivables

($ in millions) June 30, 2022 December 31, 2021

($ in millions) September 30, 2022 December 31, 2021

700+ $ 423 $ 601

4 unchanged sentences

Originated Timeshare Financing Receivables

($ in millions) June 30, 2022 December 31, 2021

($ in millions) September 30, 2022 December 31, 2021

700+ $ 282 $ 172

1 unchanged sentence

(1) Timeshare financing receivables without a FICO score are primarily related to foreign borrowers.

The following tables detail our Legacy-Diamond acquired and originated timeshare financing receivables by the origination year and average FICO score as of June 30, 2022:

The following tables detail our Legacy-Diamond acquired and originated timeshare financing receivables by the origination year and average FICO score as of September 30, 2022:

Legacy-Diamond Acquired Timeshare Financing Receivables

14 unchanged sentences

(1) Timeshare financing receivables without a FICO score are primarily related to foreign borrowers.

The accrued interest on our Legacy-Diamond timeshare financing receivables is accrued based on the contractual provisions of the loan documents, which is suspended at the earlier of (i) the customer’s account becoming over 90 days

delinquent, or (ii) the completion of cancellation or foreclosure proceedings.

Once suspended, we reverse all prior recognized interest income as well.

1 unchanged sentence

We fully reserve for a timeshare financing receivable in the month following the date that the receivable is 121 days past due and, subsequently, we write off the uncollectible balance against the reserve once the foreclosure process is complete and we become owner of the deed for the foreclosed unit.

As of June 30, 2022 and December 31, 2021, we had ceased accruing interest on Legacy-Diamond timeshare financing receivables with an aggregate principal balance of $ 374 million and $ 369 million, respectively.

As of September 30, 2022 and December 31, 2021, we had ceased accruing interest on Legacy-Diamond timeshare financing receivables with an aggregate principal balance of $ 400 million and $ 369 million, respectively.

The following tables detail an aged analysis of our gross timeshare receivables balance:

Legacy-Diamond Timeshare Financing Receivables

June 30, 2022

September 30, 2022

($ in millions) Securitized Unsecuritized Total

13 unchanged sentences

Inventory was comprised of the following:

($ in millions) June 30,

($ in millions) September 30,

2022 December 31,

4 unchanged sentences

The table below presents costs of sales true-ups relating to VOI products and the related impacts to the carrying value of inventory.

Six Months Ended June 30,

Nine Months Ended September 30,

($ in millions) 2022 2021

Cost of sales true-up (1)

(1) For the six months ended June 30, 2022 and 2021, respectively, the cost of sales true-up reduced costs of VOI sales and increased inventory.

(1) For the nine months ended September 30, 2022, the costs of sales true-up decreased costs of VOI sales and increased inventory.

For the nine months ended September 30, 2021, the costs of sales true-up increased costs of VOI sales and decreased inventory.

Shown below are expenses incurred, recorded in Cost of VOI sales, related to granting credit to customers for their existing ownership when upgrading into fee-for service projects:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

($ in millions) 2022 2021 2022 2021

2 unchanged sentences

Property and equipment were comprised of the following:

($ in millions) June 30,

($ in millions) September 30,

2022 December 31,

4 unchanged sentences

Accumulated depreciation ( 187 ) ( 155 )

Land increased by $ 48 million as of June 30, 2022 from December 31, 2021.

During the second quarter of 2022, we concluded that certain parcels of land and infrastructure which were previously classified as held for sale, no longer met the held for sale criteria.

Land increased by $ 48 million during the second quarter of 2022 from December 31, 2021.

We concluded that certain parcels of land and infrastructure which were previously classified as held for sale, no longer met the held for sale criteria.

Thus, these assets were reclassified to property and equipment as a non-cash transfer.

The assets were measured at fair value as of June 30, 2022 as assets held for sale prior to reclassification, principally utilizing market approaches for the land parcels and the cost approach for infrastructure.

For the three and six months ended June 30, 2022, we recorded a reversal of impairment expense of $ 7 million corresponding with this reclassification .

During the second quarter of 2022, we recorded a reversal of impairment expense of $ 7 million corresponding with this reclassification .

Consolidated Variable Interest Entities

As of June 30, 2022 and December 31, 2021, we consolidated 10 variable interest entities (“VIEs”) and 11 VIEs, respectively.

As of September 30, 2022 and December 31, 2021, we consolidated 9 variable interest entities (“VIEs”) and 11 VIEs, respectively.

The activities of these entities are limited primarily to purchasing qualifying non-recourse timeshare financing receivables from us and issuing debt securities and/or borrowing under a debt facility to facilitate such purchases.

6 unchanged sentences

They have been aggregated for disclosure purposes as they are similar in nature to our previously established VIEs.

As of June 30, 2022, one conduit facility was terminated and the remaining conduit facility had no outstanding balance.

As of December 31, 2021, the conduit facilities had an outstanding balance of $ 133 million.

As of September 30, 2022 and December 31, 2021, conduit facilities had outstanding balances of zero and $ 133 million, respectively.

As of September 30, 2022, all conduit facilities were paid off and terminated.

Our unaudited condensed consolidated balance sheets included the assets and liabilities of these entities, which primarily consisted of the following:

($ in millions) June 30,

($ in millions) September 30,

2022 December 31,

3 unchanged sentences

(1) Net of deferred financing costs.

During the three and six months ended June 30, 2022 and 2021, we did not provide any financial or other support to any VIEs that we were not previously contractually required to provide, nor do we intend to provide such support in the future.

During the three and nine months ended September 30, 2022 and 2021, we did not provide any financial or other support to any VIEs that we were not previously contractually required to provide, nor do we intend to provide such support in the future.

Investments in Unconsolidated Affiliates

As of June 30, 2022, we have 25 percent and 50 percent ownership interests in BRE Ace LLC and 1776 Holding LLC, respectively, which are VIEs.

As of September 30, 2022, we have 25 percent and 50 percent ownership interests in BRE Ace LLC and 1776 Holding LLC, respectively, which are VIEs.

We do not consolidate BRE Ace LLC and 1776 Holding LLC because we are not the primary beneficiary.

Our investment interests in and equity earned from both VIEs are included in our consolidated balance sheets as Investments in unconsolidated affiliates and in our consolidated statements of operations as Equity in earnings from unconsolidated affiliates , respectively.

Our two unconsolidated affiliates have aggregated debt balances of $ 425 million and $ 463 million as of June 30, 2022 and December 31, 2021, respectively.

Our two unconsolidated affiliates have aggregated debt balances of $ 398 million and $ 463 million as of September 30, 2022 and December 31, 2021, respectively.

The debt is secured by their assets and is without recourse to us.

Our maximum exposure to loss as a result of our investment interests in the two unconsolidated affiliates is primarily limited to (i) the carrying amount of the investments, which totaled $ 66 million and $ 59 million as of June 30, 2022 and December 31, 2021, respectively, and (ii) receivables for commission and other fees earned under fee-for-service arrangements.

Our maximum exposure to loss as a result of our investment interests in the two unconsolidated affiliates is primarily limited to (i) the carrying amount of the investments, which totaled $ 69 million and $ 59 million as of September 30, 2022 and December 31, 2021, respectively, and (ii) receivables for commission and other fees earned under fee-for-service arrangements.

Related Party Transactions for additional information.

1 unchanged sentence

Intangible assets and related accumulated amortization were as follows:

June 30, 2022

September 30, 2022

($ in millions) Gross Carrying Amount Accumulated Amortization

16 unchanged sentences

Diamond Acquisition for further details.

Amortization expense on intangible assets was $ 49 million and $ 5 million for the three months ended June 30, 2022 and 2021, respectively, and $ 97 million and $ 9 million for the six months ended June 30, 2022 and 2021, respectively.

Amortization expense on intangible assets was $ 50 million and $ 38 million for the three months ended September 30, 2022 and 2021, respectively, and $ 147 million and $ 48 million for the nine months ended September 30, 2022 and 2021, respectively.

Debt & Non-recourse Debt

The following table details our outstanding debt balance and its associated interest rates:

($ in millions) June 30,

($ in millions) September 30,

2022 December 31,

9 unchanged sentences

$ 2,612 $ 2,913

(1) As of June 30, 2022 and December 31, 2021, weighted-average interest rates were 4.806 % and 4.052 %, respectively.

(2) Amount includes unamortized deferred financing costs related to our term loan and senior notes of $ 28 million and $ 21 million, respectively, as of June 30, 2022 and $ 33 million and $ 22 million, respectively, as of December 31, 2021.

This amount also includes unamortized original issuance discounts of $ 7 million and $ 6 million as of June 30, 2022 and December 31, 2021, respectively.

(3) Amount does not include unamortized deferred financing costs of $ 5 million as of June 30, 2022 and December 31, 2021 related to our revolving facility which are included in Other assets in our unaudited condensed consolidated balance sheets.

(1) As of September 30, 2022 and December 31, 2021, weighted-average interest rates were 5.248 % and 4.052 %, respectively.

(2) Amount includes unamortized deferred financing costs related to our term loan and senior notes of $ 27 million and $ 20 million, respectively, as of September 30, 2022 and $ 33 million and $ 22 million, respectively, as of December 31, 2021.

This amount also includes unamortized original issuance discounts of $ 7 million and $ 6 million as of September 30, 2022 and December 31, 2021, respectively.

(3) Amount does not include unamortized deferred financing costs of $ 4 million and $ 5 million as of September 30, 2022 and December 31, 2021, respectively, related to our revolving facility which are included in Other assets in our unaudited condensed consolidated balance sheets.

Senior secured credit facilities

During the six months ended June 30, 2022, we repaid $ 132 million under the senior secured credit facilities.

As of June 30, 2022, we had $ 1 million of letters of credit outstanding under the revolving credit facility and $ 2 million outstanding backed by cash collateral.

We were in compliance with all applicable maintenance and financial covenants and ratios as of June 30, 2022.

During the nine months ended September 30, 2022, we repaid $ 310 million under the senior secured credit facilities.

As of September 30, 2022, we had $ 1 million of letters of credit outstanding under the revolving credit facility and $ 2 million outstanding backed by cash collateral.

We were in compliance with all applicable maintenance and financial covenants and ratios as of September 30, 2022.

We primarily use interest rate swaps as part of our interest rate risk management strategy for our variable-rate debt.

Such interest rate swaps converted the LIBOR based variable rates on our Revolver and Term Loan to average fixed rates of 0.53 percent per annum with maturities in 2023 and 1.58 percent with maturities between 2023 and 2028, respectively, for the balance on these borrowings up to the notional values of our interest rate swaps.

As of June 30, 2022, the notional values of the interest rate swaps under our Revolver and Term Loan were $ 163 million and $ 550 million, respectively.

These interest rate swaps are associated with the remaining available LIBOR based senior secured credit facility.

Therefore as of September 30, 2022, these interest rate swaps convert the LIBOR based variable rate on our Term Loan to average fixed rates of 1.32 percent per annum with maturities between 2023 and 2028, for the balance on this borrowing up to the notional values of our interest rate swaps.

As of September 30, 2022, the notional values of the interest rate swaps under our Term Loan was $ 710 million.

Our interest rate swaps have been designated and qualify as cash flow hedges of interest rate risk and recorded at their estimated fair value as an asset in Other assets in our unaudited condensed consolidated balance sheets.

As of June 30, 2022 and December 31, 2021, the estimated fair value of our cash flow hedges are $ 45 million and $ 2 million, respectively.

As of September 30, 2022 and December 31, 2021, the estimated fair value of our cash flow hedges are $ 67 million and $ 2 million, respectively.

We characterize payments we make in connection with these derivative instruments as interest expense and a reclassification of accumulated other comprehensive income for presentation purposes.

The following table reflects the activity in accumulated other comprehensive income related to our derivative instruments during the six months ended June 30, 2022.

The following table reflects the activity in accumulated other comprehensive income related to our derivative instruments during the nine months ended September 30, 2022.

Net unrealized gain on derivative instruments

2 unchanged sentences

Reclassification to net income 1

Balance as of June 30, 2022 $ 34

Balance as of September 30, 2022 $ 51

Non-recourse Debt

The following table details our outstanding non-recourse debt balance and associated interest rates:

($ in millions) June 30,

($ in millions) September 30,

2022 December 31,

6 unchanged sentences

HGV Securitized Debt with a weighted average rate of 4.826 %, due 2037

HGV Securitized Debt with a weighted average rate of 3.658 %, due 2039

Diamond Resorts Premium Yield Facility with an average rate of 4.766 %, due 2031

7 unchanged sentences

$ 1,161 $ 1,328

(1) As of June 30, 2022 and December 31, 2021, weighted-average interest rates were 3.337 % and 2.876 %, respectively.

(2) Amount relates to securitized debt only and does not include unamortized deferred financing costs of $ 2 million and $ 2 million as of June 30, 2022 and December 31, 2021, respectively, relating to our Timeshare Facility included in Other Assets in our unaudited condensed consolidated balance sheets.

(1) As of September 30, 2022 and December 31, 2021, weighted-average interest rates were 3.661 % and 2.876 %, respectively.

(2) Amount relates to securitized debt only and does not include unamortized deferred financing costs of $ 4 million and $ 2 million as of September 30, 2022 and December 31, 2021, respectively, relating to our Timeshare Facility included in Other Assets in our unaudited condensed consolidated balance sheets.

(3) In connection with the amended and restated Timeshare Facility executed in May 2022, the revolving commitment period of the Timeshare Facility terminates in August 2024, however the repayment maturity date extends 12 months beyond the commitment termination date to August 2025.

During the six months ended June 30, 2022, we terminated our conduit facility due in 2024.

During the nine months ended September 30, 2022, we terminated our conduit facility due in 2023 and 2024.

The securitized debt is backed by pledged assets, consisting primarily of a pool of timeshare financing receivables secured by first mortgages or deeds of trust on timeshare interest.

The proceeds were primarily used to pay down the remaining borrowings of our Timeshare Facility and general corporate operating expenses.

In connection with the securitization, we incurred $ 5 million in debt issuance costs.

1 unchanged sentence

The securitized debt is a non-recourse obligation and is payable solely from the pool of timeshare financing receivables pledged as collateral to the debt.

The proceeds were primarily used to pay down the remaining borrowings on our conduit facility and general corporate operating expenses.

The proceeds were primarily used to pay down the remaining borrowings on one of our conduit facility and general corporate operating expenses.

In connection with the securitization, we incurred $ 4 million in debt issuance costs.

The Timeshare Facility is a non-recourse obligation payable solely from the pool of timeshare financing receivables pledged as collateral and related assets.

In May 2022, we Amended and Restated our Timeshare Facility agreement under new terms, which include increasing the borrowing capacity from $ 450 million to $ 750 million, allowing us to borrow up to the maximum amount until May 2024 and requiring all amounts borrowed to be repaid in 2025.

In May 2022, we Amended and Restated our Timeshare Facility agreement under new terms, which include increasing the borrowing capacity from $ 450 million to $ 750 million, allowing

us to borrow up to the maximum amount until May 2024 and requiring all amounts borrowed to be repaid in 2025.

In connection with the amendment, we incurred $ 3 million in debt issuance costs.

In addition to our Timeshare Facility, we have access to one additional conduit facility, which is a non-recourse obligation with customary provisions similar in nature to the Timeshare Facility.

The conduit facility bears a variable interest rate plus a margin and is subject to non-use fees.

The conduit facility is due in 2023 and has a borrowing capacity of $ 125 million.

This conduit facility is issued through a variable interest entity.

Consolidated Variable Interest Entities for more information.

We are required to deposit payments received from customers on the timeshare financing receivables securing the Timeshare Facility and Securitized Debt into depository accounts maintained by third parties.

On a monthly basis, the depository accounts are utilized to make required principal, interest and other payments due under the respective loan

The balances in the depository accounts were $ 63 million and $ 67 million as of June 30, 2022 and December 31, 2021, respectively, and were included in Restricted cash in our unaudited condensed consolidated balance sheets.

On a monthly basis, the depository accounts are utilized to make required principal, interest and other payments due under the respective loan agreements.

The balances in the depository accounts were $ 59 million and $ 67 million as of September 30, 2022 and December 31, 2021, respectively, and were included in Restricted cash in our unaudited condensed consolidated balance sheets.

Debt Maturities

The contractual maturities of our debt and non-recourse debt as of June 30, 2022 were as follows:

The contractual maturities of our debt and non-recourse debt as of September 30, 2022 were as follows:

($ in millions) Debt Non-recourse Debt Total

8 unchanged sentences

The carrying amounts and estimated fair values of our financial assets and liabilities were as follows:

June 30, 2022

September 30, 2022

Hierarchy Level

21 unchanged sentences

Considerable judgment is necessary to interpret market data and develop the estimated fair values.

The table above excludes cash and cash equivalents, restricted cash, accounts receivable, accounts payable, advance deposits and accrued liabilities, all of which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments.

above excludes cash and cash equivalents, restricted cash, accounts receivable, accounts payable, advance deposits and accrued liabilities, all of which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments.

Our estimated fair value of derivative financial instruments is considered a level 2 measurement and is included in Note 13:

Debt and Non-recourse Debt above.

Our valuation methodology is categorized

based on each asset or liability's respective measurement inputs and their correlation to information available in active markets as follows:

Our valuation methodology is categorized based on each asset or liability’s respective measurement inputs and their correlation to information available in active markets as follows:

• Level 1 - Measurements based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access.

3 unchanged sentences

Our model incorporates default rates, coupon rates, credit quality and loan terms respective to the portfolio based on current market assumptions for similar types of arrangements.

The estimated fair value of our level 2 derivative financial instruments was determined utilizing projected future cash flows discounted based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.

The estimated fair value of our level 3 debt was determined utilizing indicative quotes obtained for similar issuances and projected future cash flows discounted at risk-adjusted rates.

3 unchanged sentences

Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

As part of our integration of business operations from the Diamond Acquisition, we ceased utilizing one leased office space in the three months ended March 31, 2022 and one additional office space in the three months ended June 30, 2022, both of which the Company considered to be a triggering event for impairment analysis.

We recognized impairment expenses on the related right-of-use assets of $ 3 million and $ 6 million in the three and six months ended June 30, 2022, respectively.

As part of our integration of business operations from the Diamond Acquisition, we ceased utilizing one leased office space in the first quarter of 2022 and one additional office space in the second quarter of 2022 , both of which the Company considered to be a triggering event for impairment analysis.

We recognized no impairment expenses on the related right-of-use assets during the three months ended September 30, 2022 and $ 6 million in the nine months ended September 30, 2022 respectively.

We recognize rent expense on leases with both contingent and non-contingent lease payment terms.

Rent associated with non-contingent lease payments are recognized on a straight-line basis over the lease term.

Rent expense for all operating leases for the three months ended June 30, 2022 and 2021, was $ 8 million and $ 5 million, and $ 15 million and $ 9 million, for the six months ended June 30, 2022 and 2021, respectively.

For the three months ended June 30, 2022 and 2021, these amounts included $ 2 million and $ 1 million, of short-term and variable lease costs, and for the six months ended June 30, 2022 and 2021, $ 2 million and $ 2 million, respectively.

Rent expense for all operating leases for the three months ended September 30, 2022 and 2021, was $ 14 million and $ 6 million, and $ 29 million and $ 15 million, for the nine months ended September 30, 2022 and 2021, respectively.

For the three months ended September 30, 2022 and 2021, these amounts included less than $ 1 million of short-term and variable lease costs, and for the nine months ended September 30, 2022 and 2021, $ 2 million and $ 1 million, respectively.

Supplemental cash flow information related to operating leases was as follows:

Six Months Ended June 30,

Nine Months Ended September 30,

($ in millions) 2022 2021

3 unchanged sentences

Operating leases 2 35

Supplemental balance sheet information related to operating leases was as follows:

Supplemental consolidated balance sheet information related to operating leases was as follows:

September 30,

2022 December 31,

1 unchanged sentence

Weighted-average discount rate of operating leases 4.46 % 4.35 %

The future minimum lease payments under non-cancelable operating leases, due in each of the next five years and thereafter as of June 30, 2022, are as follows:

The future minimum lease payments under non-cancelable operating leases, due in each of the next five years and thereafter as of September 30, 2022, are as follows:

($ in millions) Operating Leases

3 unchanged sentences

Present value of lease liabilities $ 74

The effective tax rate for the six months ended June 30, 2022 and 2021 was approximately 33 percent and 300 percent, respectively.

The effective tax rate is lower primarily due to the impact of non-recurring discrete items and share-based compensation awards relative to pre-tax income (loss) through the second quarter of 2022 as compared to the second quarter of 2021.

The effective tax rate for the nine months ended September 30, 2022 and 2021 was approximately 30 percent and 31 percent, respectively.

The effective tax rate decrease year over year is primarily due to the change in earnings mix of our worldwide income and the impact of non-deductible costs related to the Diamond acquisition in the third quarter of 2021.

The difference between our effective tax rate as compared to the U.S.

statutory federal tax rate of 21% is primarily due to the impact of state and foreign income taxes, as well as the aforementioned discrete items.

statutory federal tax rate of 21 percent is primarily due to the impact of state and foreign income taxes, as well as discrete items including share-based compensation.

Share-Based Compensation

We issue service-based restricted stock units (“Service RSUs”), service and performance-based restricted stock units (“Performance RSUs”) and nonqualified stock options (“Options”) to certain employees and directors.

We recognized share-based compensation expense of $ 15 million and $ 14 million for the three months ended June 30, 2022 and 2021, respectively, and $ 26 million and $ 18 million for the six months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, unrecognized compensation costs for unvested awards was approximately $ 57 million, which is expected to be recognized over a weighted average period of 1.9 years.

As of June 30, 2022, there were 2,649,317 shares of common stock available for future issuance under this plan.

During the six months ended June 30, 2022, we issued 793,561 Service RSUs with a grant date fair value of $ 44.18 , which generally vest in equal annual installments over three years from the date of grant.

During the six months ended June 30, 2022 , we issued 389,536 Options with an exercise price of $ 44.09 , which generally vest over three years from the date of the grant.

We recognized share-based compensation expense of $ 14 million for the three months ended September 30, 2022 and 2021, and $ 40 million and $ 32 million for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, unrecognized compensation costs for unvested awards was approximately $ 43 million, which is expected to be recognized over a weighted average period of 1.9 years.

As of September 30, 2022, there were 2,657,102 shares of common stock available for future issuance under this plan.

During the nine months ended September 30, 2022, we issued 795,963 Service RSUs with a grant date fair value of $ 44.17 , which generally vest in equal annual installments over three years from the date of grant.

During the nine months ended September 30, 2022 , we issued 389,536 Options with an exercise price of $ 44.09 , which generally vest over three years from the date of the grant.

The weighted-average grant date fair value of these options was $ 20.08 , which was determined using the Black-Scholes-Merton option-pricing model with the assumptions included in the table below.

Expected volatility is calculated using our historical and implied volatility of our share price.

Dividend yield is calculated based on our expected future

payout at the time of issuance.

Dividend yield is calculated based on our expected future payout at the time of issuance.

Risk-free rate is based on the yields of U.S.

5 unchanged sentences

Expected term (in years) 6.0

As of June 30, 2022, we had 1,544,120 Options outstanding that were exercisable.

As of September 30, 2022, we had 1,539,384 Options outstanding that were exercisable.

Performance RSUs

During the three and six months ended June 30, 2022, we issued 93,064 Performance RSUs with a grant date fair value of $ 44.09 .

During the nine months ended months ended September 30, 2022, we issued 93,064 Performance RSUs with a grant date fair value of $ 44.09 .

The Performance RSUs are settled at the end of a two-year performance period, with 50 percent of the Performance RSUs subject to achievement based on the Company’s adjusted earnings before interest expense, taxes and depreciation and amortization further adjusted for net deferral and recognition of revenues and related direct expenses related to sales of VOIs of projects under construction.

The remaining 50 percent of the Performance RSUs are subject to the achievement of certain contract sales targets.

We determined that the performance conditions for our Performance RSUs are probable of achievement and, for the three and six months ended June 30, 2022, we recognized compensation expense based on the number of Performance RSUs we expect to vest.

We determined that the performance conditions for our Performance RSUs are probable of achievement and, for the three and nine months ended September 30, 2022, we recognized compensation expense based on the number of Performance RSUs we expect to vest.

Employee Stock Purchase Plan

3 unchanged sentences

The ESPP allows eligible employees to purchase shares of our common stock at a price per share not less than 95 percent 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.

During the three and six months ended June 30, 2022 and 2021, we recognized less than $ 1 million of compensation expense related to this plan.

During the three and nine months ended September 30, 2022 and 2021, we recognized less than $ 1 million of compensation expense related to this plan.

Earnings Per Share

The following tables present the calculation of our basic and diluted earnings per share (“EPS”) and the corresponding weighted average shares outstanding referenced in these calculations for the three and six months ended June 30, 2022 and 2021.

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

($ and shares outstanding in millions, except per share amounts) 2022 2021 2022 2021

7 unchanged sentences

Diluted EPS $ 1.24 $ 0.90 $ 2.23 $ 1.07

(1) Net income for the three months ended June 30, 2022 and 2021 was $ 72,931,504 and $ 8,700,776 , respectively, and $ 123,700,348 and $ 1,929,361 for the six months ended June 30, 2022 and 2021, respectively.

Three Months Ended June 30, Six Months Ended June 30,

(1) Net income for the three months ended September 30, 2022 and 2021 was $ 149,767,212 and $ 98,704,709 , respectively, and $ 273,567,561 and $ 100,634,069 for the nine months ended September 30, 2022 and 2021, respectively.

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

3 unchanged sentences

The dilutive effect of outstanding share-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.

For the three and six months ended June 30, 2022, we exclud ed 839,347 and 485,808 , respe ctively, and 788,168 and 568,891 for the three and six months ended June 30, 2021, respectively, of share-based compensation awards, because their effect would have been anti-dilutive under the treasury stock method.

For the three and nine months ended September 30, 2022, we excluded 846,369 and 736,581 , res pe ctively, and 512,371 and 631,738 for the three and nine months ended September 30, 2021, respectively, of share-based compensation awards, because their effect would have been anti-dilutive under the treasury stock method.

Related Party Transactions

6 unchanged sentences

These amounts are summarized in the following table and are included in Sales, marketing, brand, and other fees on our unaudited condensed consolidated statements of operations as of the date they became related parties.

We also had $ 35 million and $ 20 million of outstanding receivables related to the fee-for-service agreements included in Accounts receivable, net on our unaudited condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021, respectively.

Three Months Ended June 30, Six Months Ended June 30,

We also had $ 14 million and $ 20 million of outstanding receivables related to the fee-for-service agreements included in Accounts receivable, net on our unaudited condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively.

Three Months Ended September 30, Nine Months Ended September 30,

($ in millions) 2022 2021 2022 2021

21 unchanged sentences

The following table presents revenues for our reportable segments reconciled to consolidated amounts:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

($ in millions) 2022 2021 2022 2021

8 unchanged sentences

(1) Includes charges to the real estate sales and financing segment from the resort operations and club management segment for fulfillment of discounted marking package stays at resorts.

These charges totaled $ 8 million and $ 5 million for the three months ended June 30, 2022 and 2021, respectively.

For the six months ended June 30, 2022 and 2021, these charges totaled $ 15 million and $ 8 million, respectively.

These charges totaled $ 10 million and $ 5 million for the three months ended September 30, 2022 and 2021, respectively.

For the nine months ended September 30, 2022 and 2021, these charges totaled $ 25 million and $ 13 million, respectively.

(2) Includes charges to the real estate sales and financing segment from the resort operations and club management segment for the rental of model units to show prospective buyers.

These charges totaled less than $ 1 million for the three and six months ended June 30, 2022 and 2021.

The following table presents Adjusted EBITDA for our reportable segments reconciled to net income (loss):

Three Months Ended June 30, Six Months Ended June 30,

These charges totaled $ 1 million and $ 2 million and less than $ 1 million for the three and nine months ended September 30, 2022 and 2021, respectively.

The following table presents Adjusted EBITDA for our reportable segments reconciled to net income:

Three Months Ended September 30, Nine Months Ended September 30,

($ in millions) 2022 2021 2022 2021

11 unchanged sentences

Interest expense ( 37 ) ( 42 ) ( 105 ) ( 74 )

Income tax (expense) benefit ( 41 ) ( 3 ) ( 61 ) 3

Income tax expense ( 54 ) ( 49 ) ( 115 ) ( 46 )

Equity in earnings from unconsolidated affiliates 2 1 9 7

Impairment reversal (expense) 3 — — ( 1 )

Impairment expense — ( 1 ) — ( 2 )

Other adjustment items (2)

3 unchanged sentences

Refer to our table presenting revenues by reportable segment above for additional discussion.

(2) For the three and six months ended June 30, 2022 and 2021, this amount includes costs associated with restructuring, one-time charges and other non-cash items included within our reportable segments.

(2) For the three and nine months ended September 30, 2022 and 2021, this amount includes costs associated with restructuring, one-time charges and other non-cash items included within our reportable segments.

Commitments and Contingencies

We have entered into certain arrangements with developers whereby we have committed to purchase vacation ownership units or other real estate at a future date to be marketed and sold under our Hilton Grand Vacations brand.

As of June 30, 2022, we were committed to purchase approximately $ 271 million of inventory and land over a period of 9 years and $ 14 million of other commitments in the normal course of business.

As of September 30, 2022, we were committed to purchase approximately $ 270 million of inventory and land over a period of 8 years and $ 12 million of other commitments in the normal course of business.

Additionally, we have committed to develop additional vacation ownership units at an existing resort in Japan.

1 unchanged sentence

The actual amount and timing of the acquisitions are subject to change pursuant to the terms of the respective arrangements, which could also allow for cancellation in certain circumstances.

During the six months ended June 30, 2022, we fulfilled $ 47 million of purchases required under our inventory commitments.

During the six months ended June 30, 2021 we completed $ 18 million of purchases required under our inventory-related purchase commitments.

As of June 30, 2022, our remaining obligations pursuant to these arrangements were expected to be incurred as follows:

During the nine months ended September 30, 2022, we fulfilled $ 50 million of purchases required under our inventory commitments.

During the nine months ended September 30, 2021, we completed $ 132 million of purchases required under our inventory-related purchase commitments.

As of September 30, 2022, our remaining obligations pursuant to these arrangements were expected to be incurred as follows:

($ in millions) 2022

7 unchanged sentences

As part of the Diamond Acquisition and per our licensing agreement with Hilton, we are committed to rebranding Diamond properties to brands that meet Hilton standards.

We are currently rebranding related to our resorts and sales centers and expect rebranding to occur over a period of several years.

We are currently rebranding our resorts and sales centers and expect rebranding to occur over a period of several years.

Litigation Contingencies

2 unchanged sentences

We record a contingent litigation liability when it is determined that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

As of June 30, 2022, we accrued liabilities of approximately $ 120 million for all legal matters that were contingencies.

Substantially all of these accrued liabilities are related to matters that existed as of the Acquisition Date, of which approximately $ 24 million are subject to change during the measurement period of the Diamond Acquisition.

Diamond Acquisition .

As of September 30, 2022, we accrued liabilities of approximately $ 121 million for all legal matters that were contingencies.

Approximately $ 95 million of these accrued liabilities relate to a judgment entered against Diamond in March 2022 in connection with a case filed in 2015 that was not deemed probable and estimable as of the Acquisition Date.

This matter is subject to insurance coverage and as a result as of June 30, 2022, we recorded an insurance claim receivable of $ 79 million within Accounts receivable, net in our unaudited condensed consolidated balance sheet and a $ 14 million charge to our unaudited condensed consolidated statement of operations during the quarter ended June 30, 2022 that represents the amount of the settlement liability not deemed probable of recovery from the insurance carriers.

This matter is subject to insurance coverage and as a result as of September 30, 2022, we recorded an insurance claim receivable of $ 80 million within Accounts receivable, net in our unaudited condensed consolidated balance sheet, During the three and nine months ended September 30, 2022, we recognized a charge of $ 1 million and $ 15 million, respectively, to our unaudited condensed consolidated statement of operations that represents the amount of the settlement liability not deemed probable of recovery from the insurance carriers.

While we currently believe that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material effect on the Company’s financial condition, cash flows, or materially adversely affect overall trends in our results of operations, legal proceedings are inherently uncertain and unfavorable rulings could, individually or in aggregate, have a material adverse effect on the Company’s business, financial condition or results of operations.

Subsequent Events

Management has evaluated all subsequent events through August 9, 2022, the date the unaudited condensed consolidated financial statements were available to be issued.

Management has evaluated all subsequent events through November 9, 2022, the date the unaudited condensed consolidated financial statements were available to be issued.

The results of management’s analysis indicated no significant subsequent events have occurred that required consideration or adjustments to our disclosures in the unaudited financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements