What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2023-03-01 compared with 2022-03-01 · 18 added, 2489 removed, 9 unchanged (100% of the section changed)

Market For Registrant’s Common Equity, Related Stoc kholder Matters and Issuer Purchases of Equity Securities

Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “HGV.”

Our common stock began trading on a “when-issued”

basis on December 15, 2016 but did not commence regular-way trading on the NYSE until January 4, 2017, the day after the completion of our spin-off.

As previously disclosed in a Current Report on Form 8-K, in connection with the closing of the Diamond Acquisition, on August 2, 2021, HGV issued an aggregate of 33,925,901 shares of HGV's common stock as substantially all of the consideration to the former stockholders of Diamond.

Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “HGV.”

In connection with the closing of the Diamond Acquisition, on August 2, 2021, HGV issued an aggregate of 33,925,901 shares of HGV's common stock as substantially all of the consideration to the former stockholders of Diamond.

The shares were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended and/or Rule 506 under the Securities Act.

Performance Graph

The following graph compares the cumulative share price performance since December 15, 2016 with the Russell 2500 (R2500) Index and the Dow Jones US Travel & Leisure Index GICS Level 3 (DJUSTLE).

The graph assumes that the value of the investment in our common stock and each index was $100 on December 15, 2016, which was the first day our common stock began trading on a “when-issued”

The following graph compares cumulative total stockholder return of our common stock with the Russell 2500 (“R2500”) Index and the Dow Jones US Travel & Leisure Total Return Index GICS Level 2 (“DJUSGCT”)* over a five-year period ended on December 31, 2022.

The graph assumes that the value of the investment in our common stock and each index was $100 on December 31, 2017, and that all dividends and other distributions were reinvested.

The comparisons in the graph below are based on historical data and are not indicative of, or intended to forecast, future performance of our common stock.

* We have determined that the appropriate index to use going forward is DJUSCGT, which includes reinvestments of dividends.

Previously, we had used DJUSTLE, a tracker index of DJUSCGT, which was not a published industry index and also did not include reinvestment of dividends.

Holders of Record

4 unchanged sentences

Issuer Purchases of Equity Securities

On March 13, 2020, the Company announced that our Board of Directors approved a share repurchase program authorizing the Company to repurchase up to an aggregate of $200 million of its outstanding shares of common stock.

Since the launch of the 2020 share repurchase program, the company has repurchased less than one million shares for $10 million at an average price of $11.92.

Due to the significant adverse impact on the global economy, capital markets, travel industry, and various government mandates regarding closures of businesses, all due to the COVID-19 pandemic and various uncertainties related to it, the Company announced on March 31, 2020 that it had suspended the 2020 share repurchase program.

No shares have been repurchased under the plan since March 2020.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this Annual Report on Form 10-K.

Forward-Looking Statements

This disclosure includes forward-looking statements;

and actual results and events may differ substantially from those discussed or highlighted in these forward-looking statements.

Cautionary Note Regarding Forward-Looking Statements .”

We are a global timeshare company engaged in developing, marketing, selling and managing timeshare resorts primarily under the Hilton Grand Vacations brand.

During 2021, we acquired Diamond Resorts and are in the process of rebranding all Diamond properties and sales centers to the Hilton Grand Vacations brand and Hilton standards.

O ur operations primarily consist of selling vacation ownership intervals and vacation ownership interests (collectively, “VOIs”, "VOI") for us and third parties;

financing and servicing loans provided to consumers for their timeshare purchases;

operating resorts and multi-resort trusts;

and managing our points-based Hilton Grand Vacations Club and Hilton Club exchange program (collectively the “Legacy-HGV Club”) and Diamond points-based clubs.

As of December 31, 2021, we have 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 and feature spacious, condominium-style accommodations with superior amenities and quality service.

As of December 31, 2021, we have approximately 333,000 Hilton Grand Vacations Club and Hilton Club members.

Legacy-HGV Club members have the flexibility to exchange their VOIs for stays at any Hilton Grand Vacations resort or any property in the Hilton system of 18 industry-leading brands across approximately 6,500 properties, as well as numerous experiential vacation options, such as cruises and guided tours.

We also have 166,000 Diamond Club members who are able to utilize their points across the Diamond resorts, affiliated properties and alternative experiential options.

Our business has been and continues to be adversely impacted by the COVID-19 pandemic and its effects on the global economy, including the various government orders and mandates for closures of non-essential businesses and its impact on consumer spending and demand for travel.

Please see, “Impact of the COVID-19 Pandemic on Business and Results of Operations”

and other discussions throughout this MD&A for additional information regarding such impacts.

We operate our business across two segments:

(1) real estate sales and financing;

and (2) resort operations and Club management.

Real Estate Sales and Financing

Our primary Legacy-HGV product is the marketing and selling of fee-simple VOIs deeded in perpetuity and right to use real estate interests, developed either by us or by third parties.

This ownership interest is an interest in real estate generally equivalent to one week on an annual basis, at the timeshare resort where the VOI was purchased.

Traditionally, timeshare operators have funded 100 percent of the investment necessary to acquire land and construct timeshare properties.

We source VOIs through fee-for-service and just-in-time agreements with third-party developers and have focused our inventory strategy on developing an optimal inventory mix focused on developed properties as well as fee-for-service and just-in-time agreements.

The fee-for-service agreements enable us to generate fees from the sales and marketing of the VOIs and Club memberships and from the management of the timeshare properties without requiring us to fund acquisition and construction costs.

The just-in-time agreements enable us to source VOI inventory in a manner that allows us to correlate the timing of acquisition of the inventory with the sale to purchasers.

Sales of owned, including just-in-time inventory, generally result in greater Adjusted EBITDA contributions, while fee-for-service sales require less initial investment and allow us to accelerate our sales growth.

Both sales of owned inventory and fee-for-service sales generate long-term, predictable fee streams, by adding to the Club membership base and properties under management, that generate strong returns on invested capital.

Our primary Collections product is the marketing and selling of VOIs sold to customers as beneficial interests in one of our Collections, which are represented by an annual or biennial allotment of points that can be utilized for vacations at any of the resorts in our network for varying lengths of stay.

In general, purchasers of points do not acquire a direct ownership interest in the resort properties in our network generally, for each Collection, one or more trustees hold legal title to the deeded fee simple real estate interests or the functional equivalent, or, in some cases, leasehold real estate interests for the benefit of the respective Collection’s association members in accordance with the applicable agreements.

We source some of our VOIs through just-in-time agreements with third-party developers and develop our own properties.

For the year ended December 31, 2021, sales from fee-for-service, just-in-time, developed and points-based inventory were 31 percent, 20 percent, 24 percent and 25 percent, respectively, of contract sales.

See “Key Business and Financial Metrics and Terms Used by Management —

Real Estate Sales Operating Metrics”

for additional discussion of contract sales.

The estimated contract sales value related to our inventory that is currently available for sale at open or soon-to-be open projects and inventory at new or existing projects that will become available for sale in the future upon registration, delivery or construction is approximately $13 billion at current pricing.

Capital efficient arrangements, comprised of our fee-for-service and just-in-time inventory, represented approximately 40 percent of that supply.

We believe that the visibility into our long-term supply allows us to efficiently manage inventory to meet predicted sales, reduce capital investments, minimize our exposure to the cyclicality of the real estate market and mitigate the risks of entering into new markets.

We sell our vacation ownership products primarily through our distribution network of both-in-market and off-site sales centers.

Our products are currently marketed for sale throughout the United States, Mexico, Canada, Europe, and Japan.

We operate sales distribution centers in major markets and popular leisure destinations with year-round demand and a history of being a friendly environment for vacation ownership.

We have approximately 50 sales distribution centers in various domestic and international locations.

We anticipate that those that were acquired as part of the Diamond Acquisition will undergo a phased rebranding starting in early 2022.

Our marketing and sales activities are based on targeted direct marketing and a highly personalized sales approach.

We use targeted direct marketing to reach potential members who are identified as having the financial ability to pay for our products and have an affinity with Hilton (Legacy-HGV only) and are frequent leisure travelers.

Tour flow quality impacts key metrics such as close rate and VPG, defined in “Key Business and Financial Metrics and Terms Used by Management—Real Estate Sales Metrics.”

Additionally, the quality of tour flow impacts sales revenue and the collectability of our timeshare financing receivables.

For the year ended December 31, 2021, 70 percent of our contract sales were to our existing owners.

We provide financing for members purchasing our developed and acquired inventory and generate interest income.

Our timeshare financing receivables are collateralized by the underlying VOIs and are generally structured as 10-year, fully-amortizing loans that bear a fixed interest rate ranging from 2.5 percent to 25 percent per annum.

Financing propensity was 74 percent and 66.5 percent for the year ended December 31, 2021 and 2020, respectively.

We calculate financing propensity as contract sales volume of financed contracts originated in the period divided by contract sales volume of all contracts originated in the period.

The interest rate on our loans is determined by, among other factors, the amount of the down payment, the borrower’s credit profile and the loan term.

The weighted-average FICO score for loans to U.S.

and Canadian borrowers at the time of origination were as follows:

Year Ended December 31,

Weighted-average FICO score

Prepayment is permitted without penalty.

When a member defaults, we ultimately return their VOI to inventory for resale and that member no longer participates in our Clubs.

Historical default rates, which represent annual defaults as a percentage of each year’s beginning gross timeshare financing receivables balance, were as follows:

Year Ended December 31,

Historical default rates (1)

(1) A loan is considered to be in default if it is equal to or greater than 121 days past due as of the prior month end.

Some of our timeshare financing receivables have been pledged as collateral in our securitization transactions, which have in the past and may in the future provide funding for our business activities.

In these securitization transactions, special purpose entities are established to issue various classes of debt securities which are generally collateralized by a single pool of assets, consisting of timeshare financing receivables that we service and related cash deposits.

For additional information see Note 7:

Timeshare Financing Receivables in our consolidated financial statements included in Item 8 of this Annual Report on form 10-K.

In addition, we earn fees from servicing the loans provided by third-party developers of our fee-for-service projects to purchasers of their VOIs and from our securitized timeshare financing receivables.

Resort Operations and Club Management

We enter into management agreements with the HOAs of the timeshare resorts developed by us or a third party.

Each of the HOAs is governed by a board of directors comprised of owner and developer representatives that are charged with ensuring the resorts are well-maintained and financially stable.

Our management services include day-to-day operations of the resorts, maintenance of the resorts, preparation of reports, budgets and projections and employee training and oversight.

Our HOA management agreements provide for a cost-plus management fee, which means we generally earn a fee equal to 10 percent to 15 percent of the costs to operate the applicable resort.

The fees we earn are highly predictable due to the relatively fixed nature of resort operating expenses and our management fees are unaffected by changes in rental rate or occupancy.

We are reimbursed for the costs incurred to perform our services, principally related to personnel providing on-site services.

The initial term of our management agreements typically ranges from three to five years and the agreements are subject to periodic renewal for one to three-year periods.

Many of these agreements renew automatically unless either party provides advance notice of termination before the expiration of the term.

We also manage and operate the Clubs, including the points-based Hilton Grand Vacations Club and Hilton Club exchange programs, which provide exclusive exchange, leisure travel and reservation services to our Legacy-HGV Club members, as well as the Diamond Clubs (the Legacy-HGV Club and Diamond Clubs are collectively referred to as “Clubs”).

When owners purchase VOI, they are generally enrolled in a Club which allows the member to exchange their points for a number of vacation options.

In addition to an annual membership fee, Club members pay incremental fees depending on exchanges they choose within the Club system.

We rent unsold VOI inventory, third-party inventory and inventory made available due to ownership exchanges through our club programs.

We earn a fee from rentals of third-party inventory.

Additionally, we provide ancillary offerings including food and beverage, retail and spa offerings at these timeshare properties.

Principal Components and Factors Affecting Our Results of Operations

Principal Components of Revenues

Sales of VOIs, net represents revenue recognized from the sale of owned VOIs, net of amounts considered uncollectible and sales incentives.

Sales, marketing, brand and other fees represents sales commissions, brand fees and other fees earned on the sales of VOIs through fee-for-service agreements with third-party developers.

All sales commissions and brand fees are based on the total sales price of the VOIs.

Also included in Sales, marketing, brand and other fees are revenues from marketing and incentive programs, including redemption of prepaid vacation packages and Club bonus points for stays at HGV properties, which are included in Rental and ancillary services .

Financing represents revenue from the financing of sales of our owned intervals, which includes interest income and fees from servicing loans.

We also earn fees from servicing the loans provided by third-party developers to purchasers of their VOIs.

Resort and club management represents revenues from Club activation fees, annual dues and transaction fees from member exchanges.

Resort and club management also includes recurring management fees under our agreements with HOAs for day-to-day-management services, including housekeeping services, maintenance, and certain accounting and administrative services for HOAs, generally based on a percentage of costs to operate the resorts.

Rental and ancillary services represents revenues from transient rentals of unoccupied vacation ownership units and revenues recognized from the utilization of Club points and vacation packages when points and packages are redeemed for rental stays at one of our resorts.

We also earn fees from the rental of inventory owned by third parties.

Ancillary revenues include food and beverage, retail, spa offerings and other guest services provided to resort guests.

Cost reimbursements include costs that HOAs and developers reimburse to us.

These costs primarily consist of payroll and payroll-related costs for management of the HOAs and other services we provide where we are the employer and insurance.

The corresponding expenses are presented as Cost reimbursements expense in our consolidated statements of operations resulting in no effect on net income.

Factors Affecting Revenues

Relationships with developers .

In recent years, we have entered into fee-for-service and just-in-time agreements to sell VOIs on behalf of or acquired from third-party developers.

The success and sustainability of our capital-efficient business model depends on our ability to maintain good relationships with third-party developers.

Our relationships with these third parties also generate new relationships with developers and opportunities for property development that can support our growth.

We believe that we have strong relationships with our third-party developers, and we are committed to the continued growth and development of these relationships.

These relationships exist with a diverse group of developers and are not significantly concentrated with any particular third party.

Construction activities .

In recent years, we have entered into agreements with third parties to acquire both completed VOIs and property.

At the same time, we have increased our own development activities to construct new properties that we will own and from which we are selling, and will continue to sell, units and VOIs.

These activities, and in particular the development of real property into inventory, are subject to construction risks including, construction delays, zoning and other local, state or governmental approvals and failure by third-party contractors to perform.

The realization of these factors could result in the inability to source inventory and ultimately lead to sales declines.

Registration activities.

The registration of VOIs for sale requires time and cost, and in many jurisdictions the exact date of registration approval cannot be predicted accurately.

The inability to register our products in a timely, cost-effective fashion could result in the inability to sell our products and ultimately lead to sales declines.

Relationship with Hilton.

Following the spin-off, Hilton retained ownership of the Hilton-branded trademarks, tradenames and certain related intellectual property used in the operation of our business.

We entered into a license agreement with Hilton, which was subsequently amended and restated in connection with the Diamond Acquisition, granting us the right to use the Hilton-branded trademarks, trade names and related intellectual property in our business for the term of the agreement.

The termination of the license agreement or exercise of other remedies would materially harm our business and results of operations and impair our ability to market and sell our products and maintain our competitive position.

For example, if we are not able to rely on the strength of the Hilton brands to attract prospective members and guest tours in the marketplace, our revenue would decline and our marketing and sales expenses would increase.

Consumer demand and global economic conditions .

Consumer demand for our products and services may be affected by the performance of the general economy, including the ability to generate high quality tours, and is sensitive to business and personal discretionary spending levels.

Declines in consumer demand due to adverse general economic conditions, risks affecting or reducing travel patterns, lower consumer confidence and adverse political conditions can subject and have subjected our revenues to significant volatility.

We rely on call transfers from Hilton, execution of a successful digital marketing strategy, vacation traffic at key locations, and other critical marketing elements to increase tour flow, VPG, and VOI sales, thereby increasing our revenue.

Any significant changes to one or more factors that adversely affect our marketing activities, such as changes in consumer behavior and preference for vacations, decreases in call transfers from Hilton due to increasing consumer reliance on digital tools, and declining quality and/or volume of tour flow may adversely and materially impact our revenue.

Interest rates .

We generate interest income from consumer loans we originate and declines in interest rates may cause us to lower our interest rates on our originated loans, which would adversely affect our income generated on future loans.

Conversely, if interest rates increase significantly, it would increase the cost of purchasing VOIs for any purchaser who is financing their acquisition and may deter potential purchasers from buying a VOI, which could result in sales declines.

We compete with other hotel and resort timeshare operators for sales of VOIs based principally on location, quality of accommodations, price, service levels and amenities, financing terms, quality of service, terms of property use, reservation systems and flexibility for VOI owners to exchange into time at other timeshare properties or other travel rewards.

In addition, we compete based on brand name recognition and reputation.

Our primary branded competitors in the timeshare space include Marriott Vacations Worldwide (which includes Marriott Vacations Worldwide, Interval Leisure Group, Vistana Signature Club and Hyatt Residence Club brands), Travel + Leisure Co., Disney Vacation Club, Holiday Inn Club Vacations, and Bluegreen Vacations.

Principal Components of Expenses

Cost of VOI sales represents the costs attributable to the sales of owned VOIs recognized, as well as charges incurred related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects.

Sales and marketing represents costs incurred to sell and market VOIs, including costs incurred relating to marketing and incentive programs, costs for tours, rental expense and wages and sales commissions.

Financing represents consumer financing interest expense related to our debt securitized by gross timeshare financing receivables (‘‘Securitized Debt”) and Timeshare Facility, amortization of the related deferred loan costs and other expenses incurred in providing consumer financing and servicing loans.

Resort and club management represents costs incurred to manage resorts and the Club, including payroll and related costs and other administrative costs.

Rental and ancillary services include payroll and related costs, costs incurred from participating in the Hilton Honors loyalty program, retail, food and beverage costs and maintenance fees on unsold inventory.

General and administrative consists primarily of compensation expense for our corporate staff and personnel supporting our business segments, professional fees (including consulting, audit and legal fees), administrative and related expenses.

General and administrative also includes costs for services provided to us by Hilton.

Depreciation and amortization are non-cash expenses that primarily consist of depreciation of fixed assets such as buildings and leasehold improvements and furniture and equipment at our sales centers, corporate offices, and assets purchased for future conversion to inventory, as well as amortization of our management agreement intangibles and capitalized software.

License fee expense represents the royalty fee paid to Hilton under a license agreement for the exclusive right to use the Hilton Grand Vacations mark, which is generally based on a percentage of gross sales volume, of certain revenue streams.

Cost reimbursements include costs that HOAs and developers reimburse to us.

These costs primarily consist of payroll and payroll-related costs for management of the HOAs and other services we provide where we are the employer and insurance.

The corresponding revenues are presented as Cost reimbursements revenue in our consolidated statements of operations resulting in no effect on net income.

Factors Affecting Expenses

Costs of VOI sales.

In periods where there is increased demand for VOIs, we may incur increased costs to acquire inventory in the short-term, which can have an adverse effect on our cash flows, margins and profits.

In addition, the registration of inventory for sale requires time and cost, and in many jurisdictions the exact date of registration approval cannot be predicted accurately.

As we encourage owners to upgrade into other products, we incur expenses when owners upgrade from an interval in a project we developed into fee-for-service projects, on which we earn fees.

In periods where more upgrades are occurring and we are not generating increased sales volume on unsold supply, we could see an adverse effect on our cash flows, margins and profits.

Furthermore, construction delays, zoning and other local, state or federal governmental approvals, particularly in new geographic areas with which we are unfamiliar, cost overruns, lender financial defaults, or natural or man-made disasters, as well as failure by third-party contractors to perform for any reason, could lead to an adverse effect on our cash flows, margins and profits.

Sales and marketing expense .

A significant portion of our costs relates to selling and marketing of our VOIs.

In periods of decreased demand for VOIs, we may be unable to reduce our sales and marketing expenses quickly enough to prevent a deterioration of our profits and margins on our real estate operations.

Rental and ancillary services expense .

These expenses include personnel costs, rent, property taxes, insurance and utilities.

We pay a portion of these costs through maintenance fees of unsold intervals and by subsidizing the costs of HOAs not covered by maintenance fees collected.

If we are unable to decrease these costs significantly or rapidly when demand for our unit rentals decreases, the resulting decline in our revenues could have an adverse effect on our net cash flow, margins and profits.

General and administrative.

Increases in general and administrative expenses associated with operating as a publicly traded company in a competitive and dynamic timeshare industry, regulatory filings and professional fees may affect our net cash flows, margins and profits.

Interest rates .

Increases in interest rates would increase the consumer financing interest expense we pay on the Timeshare Facility and could adversely affect our financing operations in future securitization or other debt transactions, affecting net cash flow, margins and profits.

We experience modest seasonality in VOI sales at certain resorts, with increased revenue during traditional vacation periods for those locations.

Our business activities are highly regulated.

We are subject to a wide variety of complex international, national, federal, state and local laws, regulations and policies in jurisdictions in which we operate.

These laws, regulations and policies primarily affect four areas of our business:

real estate development activities;

marketing and sales activities;

lending activities;

and resort management activities.

We seek to actively participate in the determination of new laws or other regulations affecting the timeshare industry.

For further detail of these regulations see “

Risk Factors”

and “Business–Government Regulation ”

included elsewhere in this Annual Report on Form 10-K.

Key Business and Financial Metrics and Terms Used by Management

Real Estate Sales Operating Metrics

We measure our performance using the following key operating metrics:

Contract sales represents the total amount of VOI products (fee-for-service, just-in-time, developed, and points-based) under purchase agreements signed during the period where we have received a down payment of at least 10 percent of the contract price.

Contract sales differ from revenues from the Sales of VOIs, net that we report in our consolidated statements of operations due to the requirements for revenue recognition, as well as adjustments for incentives.

We consider contract sales to be an important operating measure because it reflects the pace of sales in our business and is used to manage the performance of the sales organization.

While we do not record the purchase price of sales of VOI products developed by fee-for-service partners as revenue in our consolidated financial statements, rather recording the commission earned as revenue in accordance with U.S.

GAAP, we believe contract sales to be an important operational

metric, reflective of the overall volume and pace of sales in our business and believe it provides meaningful comparability of our results to the results of our competitors which may source their VOI products differently.

We believe that the presentation of contract sales on a combined basis (fee-for-service, developed and points-based) is most appropriate for the purpose of the operating metric, additional information regarding the split of contract sales, is included in “—Real Estate”

Summary of Significant Accounting Policies in our consolidated financial statements included in Item 8 in this Annual Report on form 10-K, for additional information on Sales of VOIs, net.

Sales revenue represents Sale of VOIs, net and commissions and brand fees earned from the sale of fee-for-service intervals.

Real estate profit represents sales revenue less the cost of VOI sales and sales and marketing costs, net of marketing revenue.

Real estate margin percentage is calculated by dividing real estate margin by sales revenue.

We consider this to be an important operating measure because it measures the efficiency of our sales and marketing spending and management of inventory costs.

Tour flow represents the number of sales presentations given at our sales centers during the period.

Volume per guest (“VPG”) represents the sales attributable to tours at our sales locations and is calculated by dividing Contract sales, excluding telesales, by tour flow.

We consider VPG to be an important operating measure because it measures the effectiveness of our sales process, combining the average transaction price with the closing rate.

EBITDA and Adjusted EBITDA

EBITDA, presented herein, is a financial measure that is not recognized under U.S.

GAAP that reflects net income (loss), before interest expense (excluding non-recourse debt), a provision for income taxes and depreciation and amortization.

Adjusted EBITDA, presented herein, is calculated as EBITDA, as previously defined, further adjusted to exclude certain items, including, but not limited to, gains, losses and expenses in connection with:

(i) other gains, including asset dispositions and foreign currency translations;

(ii) debt restructurings/retirements;

(iii) non-cash impairment losses;

(iv) share-based and other compensation expenses;

and (v) other items, including but not limited to costs associated with acquisitions, restructuring, amortization of premiums and discounts resulting from purchase accounting, and other non-cash and one-time charges.

EBITDA and Adjusted EBITDA are not recognized terms under U.S.

GAAP and should not be considered as alternatives to net income (loss) or other measures of financial performance or liquidity derived in accordance with U.S.

In addition, our definitions of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

We believe that EBITDA and Adjusted EBITDA provide useful information to investors about us and our financial condition and results of operations for the following reasons:

(i) EBITDA and Adjusted EBITDA are among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions;

and (ii) EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry.

EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered either in isolation or as a substitute for net income (loss), cash flow or other methods of analyzing our results as reported under U.S.

Some of these limitations are:

EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;

EBITDA and Adjusted EBITDA do not reflect our interest expense (excluding interest expense on non-recourse debt), or the cash requirements necessary to service interest or principal payments on our indebtedness;

EBITDA and Adjusted EBITDA do not reflect our tax expense or the cash requirements to pay our taxes;

EBITDA and Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;

EBITDA and Adjusted EBITDA do not reflect the effect on earnings or changes resulting from matters that we consider not to be indicative of our future operations;

EBITDA and Adjusted EBITDA do not reflect any cash requirements for future replacements of assets that are being depreciated and amortized;

EBITDA and Adjusted EBITDA may be calculated differently from other companies in our industry limiting their usefulness as comparative measures.

Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.

Impact of the COVID-19 Pandemic on Business and Results of Operations

As of December 31, 2021, all of our resorts and nearly all sales centers which previously closed due to the COVID-19 pandemic for some period of time beginning in 2020 were open and operating, although some were still operating in markets with various capacity constraints, social distancing requirements and other safety measures, which are impacting consumer demand for resorts in those markets.

We plan to continue our normal business as conditions permit, but increases of new infections or the emergence of new variants (such as the Delta and Omicron variants) may result in the reimposition of social distancing measures and/or restrictions in certain jurisdictions, travel restrictions and reduced consumer demand for travel that may impede or reverse our recovery.

Please carefully review the risk factors contained in this Annual Report on Form 10-K and those described from time to time in other periodic reports that we file with the SEC for discussions of various factors and uncertainties related to the pandemic that may materially impact us.

Results of Operations

Year Ended December 31, 2021 Compared with Year Ended December 31, 2020

The following discussion and analysis of our financial condition and results of operations is for the year ended December 31, 2021 compared with the year ended December 31, 2020.

Discussions of our financial condition and results of operations for the year ended December 31, 2020 compared to December 31, 2019 that have been omitted under this item can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and

Results of Operations”

included in our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission on March 1, 2021.

Segment Results

The following tables present our revenues by segment for the year ended December 31, 2021 compared to the years ended December 31, 2020 and 2019.

We do not include equity in earnings from unconsolidated affiliates in our measures of segment revenues.

Year Ended December 31,

Change due to

Legacy-Diamond

Change due to

($ in millions)

Real estate sales and financing

Resort operations and club management

Total segment revenues

Cost reimbursements

Intersegment eliminations (1)

Total revenues

Year Ended December 31,

Change due to

Legacy-Diamond

Change due to

($ in millions)

Real estate sales and financing

Resort operations and club management

Total segment revenues

Cost reimbursements

Intersegment eliminations (1)

Total revenues

____________________

(1) Refer to Note 22:

Business Segments in our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for details on the intersegment eliminations.

We evaluate our business segment operating performance using segment Adjusted EBITDA, as described in Note 22:

Business Segments in our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

For a discussion of our definition of EBITDA and Adjusted EBITDA, how management uses them to manage our business and material limitations on their usefulness, refer to “—Key Business and Financial Metrics and Terms Used by Management—EBITDA and Adjusted EBITDA.”

The following table reconciles net income, our most comparable U.S.

GAAP financial measure, to EBITDA and Adjusted EBITDA:

Year Ended December 31,

Change due to

Legacy-Diamond

Change due to

($ in millions)

Net income (loss)

Interest expense

Income tax expense (benefit)

Depreciation and amortization

Interest expense, depreciation and amortization included in equity in earnings from unconsolidated affiliates

Other loss (gain), net

Share-based compensation expense

Impairment expense (2)

Acquisition and integration-related expense

Other adjustment items (1)

Adjusted EBITDA

Year Ended December 31,

Change due to

Legacy-Diamond

Change due to

($ in millions)

Net (loss) income

Interest expense

Income tax (benefit) expense

Depreciation and amortization

Interest expense, depreciation and amortization included in equity in earnings from unconsolidated affiliates

Other loss (gain), net

Share-based compensation expense

Impairment expense (2)

Acquisition and integration-related expense

Other adjustment items (1)

Adjusted EBITDA

____________________

(1) For the year ended December 31, 2021, 2020 and 2019, this amount includes costs associated with restructuring, one-time charges and other non-cash items.

Subsequent to the acquisition of Diamond in 2021, this also includes amortization of fair value premiums and discounts resulting from purchase accounting.

(2) In the fourth quarter 2020, we performed a review over certain of our long-lived assets and committed to a plan to monetize and dispose of certain assets via a sale.

As a result, we recorded a non-cash impairment charge of $209 million in the fourth quarter of 2020 related to the identified assets.

The non-cash impairment charge was comprised of a $201 million charge related to Land and infrastructure held for sale and an $8 million charge related to Property and equipment , respectively.

The following table reconciles our segment Adjusted EBITDA to Adjusted EBITDA.

Year Ended December 31,

Change due to

Legacy-Diamond

Change due to

($ in millions)

Adjusted EBITDA:

Real estate sales and financing (1)

Resort operations and club

management (1)

Adjusted EBITDA from

unconsolidated affiliates

License fee expense

General and administrative (2)

Adjusted EBITDA

Year Ended December 31,

Change due to

Legacy-Diamond

Change due to

($ in millions)

Adjusted EBITDA:

Real estate sales and financing (1)

Resort operations and club

management (1)

Adjusted EBITDA from

unconsolidated affiliates

License fee expense

General and administrative (2)

Adjusted EBITDA

____________________

(1) Includes intersegment transactions, share-based compensation, depreciation and other adjustments attributable to the segments.

(2) Adjusts for segment related share-based compensation, depreciation and other adjustment items.

Real Estate Sales and Financing

In accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers”

(“ASC 606”), revenue and the related costs to fulfill and acquire the contract (“direct costs”) from sales of VOIs under construction are deferred until the point in time when construction activities are deemed to be completed.

The real estate sales and financing segment is impacted by construction related deferral and recognition activity.

In periods where Sales of VOIs and related direct costs of projects under construction are deferred, margin percentages will generally contract as the indirect marketing and selling costs associated with these sales are recognized as incurred in the current period.

In periods where previously deferred Sales of VOIs and related direct costs are recognized upon construction completion, margin percentages will generally expand as the indirect marketing and selling costs associated with these sales were recognized in prior periods.

The following table represents deferrals and recognitions of Sales of VOIs revenue and direct costs for properties under construction:

Year Ended December 31,

($ in millions)

Sales of VOIs (deferrals)

Sales of VOIs recognitions

Net Sales of VOIs recognitions (deferrals)

Cost of VOI sales (deferrals) (1)

Cost of VOI sales recognitions

Net Cost of VOI sales recognitions (deferrals) (1)

Sales and marketing expense (deferrals)

Sales and marketing expense recognitions

Net Sales and marketing expense

recognitions (deferrals)

Net construction recognitions (deferrals)

____________________

(1) Includes anticipated Cost of VOI Sales of VOIs under construction that will be acquired once construction is complete for the year ended December 31, 2020 and 2019.

Real estate sales and financing segment revenues increased by $957 million for the year ended December 31, 2021, compared to the same period in 2020, primarily due to the net recognition of $133 million of deferred sales of VOIs related to projects previously under construction that were completed during the year, compared to deferrals of $85 million of deferred sales of VOIs during the same period in 2020.

Sales revenue also increased consistent with an increase in travel demand and the reopening of nearly all of our resorts and sales centers by the end of the second quarter of 2021 that were closed during the same period in 2020.

Additionally, financing revenues increased by $18 million due to a greater balance of timeshare financing receivables and a corresponding increase in servicing fees.

Diamond contributed $322 million to the total increase in real estate sales and financing revenues primarily driven by $251 million of sales of VOIs.

Real estate sales and financing Adjusted EBITDA increased by $504 million compared to the same period in 2020, due to the increases in revenues mentioned above, partially offset by corresponding increases in cost of VOI sales and real estate operating expenses associated with segment performance discussed herein.

In addition, real estate sales and financing segment Adjusted EBITDA was impacted by $6 million of one-time payroll related expenses and $18 million of net amortization related to premiums and discounts resulting from purchase accounting.

Diamond contributed $154 million to the total increase in real estate sales and financing Adjusted EBITDA.

Refer to “—Real Estate”

and “—Financing”

for further discussion on the revenues and expenses of the real estate sales and financing segment.

Resort Operations and Club Management

Resort operations and club management segment revenues increased $424 million for the year ended December 31, 2021, compared to the same period in 2020, primarily due to increases in rental and ancillary revenues as a result of the reopening of nearly all of our resorts and sales centers by the end of the second quarter of 2021 that were closed during the same period in 2020.

Diamond contributed $267 million to the total increase in resort operations and club management segment revenues for the year ended December 31, 2021, driven by $138 million of rental and ancillary revenue and $129 million of resort operations and club management revenue.

Resort operations and club management segment Adjusted EBITDA increased $217 million for the year ended December 31, 2021, compared to the same periods in 2020, primarily due to the increases in revenues described above partially offset by corresponding increases in segment operating expenses associated with segment performance discussed herein.

Resort operations and club management segment Adjusted EBITDA was impacted by $6 million of proceeds from one-time insurance claim reimbursements related to hurricane damage suffered during 2021.

Diamond contributed $97 million to the total increase in resort operations and club management Adjusted EBITDA for the year ended December 31, 2021.

Refer to “—Resort and Club Management”

and “—Rental and Ancillary Services”

for further discussion on the revenues and expenses of the resort operations and club management segment.

Real Estate Sales and Financing Segment

Year Ended December 31,

Change due to

Legacy-Diamond

Change due to

($ in millions, except Tour flow and VPG)

Contract sales

Fee-for-service sales (1)

Provision for financing receivables losses

Reportability and other:

Net recognition (deferral) of sales of VOIs under construction (2)

Fee-for-service sale upgrades, net

Sales of VOIs, net

Year Ended December 31,

Change due to

Legacy-Diamond

Change due to

($ in millions, except Tour flow and VPG)

Contract sales

Fee-for-service sales (1)

Provision for financing receivables losses

Reportability and other:

Net (deferral) recognition of sales of VOIs under construction (2)

Fee-for-service sale upgrades, net

Sales of VOIs, net

___________________ _

(1) Represents contract sales from fee-for-service properties on which we earn commissions and brand fees.

(2) Represents the net impact of deferred revenues related to the Sales of VOIs under construction that are recognized when construction is complete.

(3) Includes adjustments for revenue recognition, including amounts in rescission and sales incentives.

Contract sales increased $824 million for the year ended December 31, 2021, compared to the same period in 2020, primarily due to an increase in tour flow and VPG corresponding with improvement in travel demand as a result of the reopening of nearly all of our resorts and sales centers during the second half of 2021 that were closed during the same period in 2020.

Diamond contributed $331 million to the total increase in contract sales and $251 million to the total increase in sales of VOIs, net.

Year Ended December 31,

Change due to

Legacy-Diamond

Change due to

($ in millions)

Sales, marketing, brand and other fees

Marketing revenue and other fees

Commissions and brand fees

Sales of VOIs, net

Sales revenue

Cost of VOI sales

Sales and marketing expense, net (1)

Real estate profit (loss)

Real estate profit margin

Year Ended December 31,

Change due to

Legacy-Diamond

Change due to

($ in millions)

Sales, marketing, brand and other fees

Marketing revenue and other fees

Commissions and brand fees

Sales of VOIs, net

Sales revenue

Cost of VOI sales

Sales and marketing expense, net (1)

Real estate (loss) profit

Real estate profit margin

____________________

(1) Includes revenue recognized through our marketing programs for existing owners and prospective first-time buyers and revenue associated with sales incentives, title service and document compliance.

Sales revenue increased by $847 million for the year ended December 31, 2021, compared to the same period in 2020, primarily due to the net recognition of sales of VOIs related to deferred revenues associated with properties that were under construction during the same period in 2020.

Sales revenue also increased as a result of the reopening of nearly all of our resorts and sales centers by the end of the second quarter of 2021, combined with a higher mix of our sales for VOIs at new properties partially offset by increased breakage rates on marketing packages.

Diamond contributed $251 million to sales revenue for the year ended December 31, 2021.

Year Ended December 31,

Change due to

Legacy-Diamond

Change due to

($ in millions)

Interest income

Other financing revenue

Financing revenue

Consumer financing interest expense

Other financing expense

Financing expense

Financing profit

Financing profit margin

Year Ended December 31,

Change due to

Legacy-Diamond

Change due to

($ in millions)

Interest income

Other financing revenue

Financing revenue

Consumer financing interest expense

Other financing expense

Financing expense

Financing profit

Financing profit margin

Financing revenue increased $18 million for the year ended December 31, 2021, compared to the same period in 2020, primarily due to a $31 million increase related to interest income on both timeshare financing receivable portfolios acquired from Diamond and originated subsequent to the Acquisition Date, partially offset by a $15 million decrease in interest income on the Legacy-HGV originated timeshare financing receivables portfolio.

The interest income generated from the originated loan portfolio decreased, compared to the same period in 2020, due to a decrease in the timeshare financing receivables balance, partially offset by an increase in weighted average interest rate for the portfolio from 12.6 percent to 14.3 percent as of December 31, 2021.

Financing expense increased by $12 million for the period ended December 31, 2021, compared to the same period in 2020, primarily related to Diamond's financing operations and interest expense on the acquired non-recourse debt.

Resort and Club Management

Year Ended December 31,

Change due to

Legacy-Diamond

Change due to

($ in millions)

Club management revenue

Resort management revenue

Resort and club management revenues

Club management expense

Resort management expense

Resort and club management expenses

Resort and club management profit

Resort and club management profit margin

Year Ended December 31,

Change due to

Legacy-Diamond

Change due to

($ in millions)

Club management revenue

Resort management revenue

Resort and club management revenues

Club management expense

Resort management expense

Resort and club management expenses

Resort and club management profit

Resort and club management profit margin

Resort and club management revenues increased for the year ended December 31, 2021, compared to the same periods in 2020, primarily due to an increase in annual club dues and fees and number of transactions corresponding with more club members.

Additionally, we restored our policy to charge club transaction fees during 2021 which further increased our revenue in comparison to the year ended December 31, 2020.

Diamond contributed $129 million to the increase in resort and club management revenues for the year ended December 31, 2021 primarily related to resort management revenue.

Resort and club management profit increased for the year ended December 31, 2021, primarily due to the aforementioned increase in club management and resort management revenue, partially offset by an increase in resort management expenses driven by the opening of nearly all of our resorts and sales centers which had previously closed due to the COVID-19 pandemic by the end of the second quarter 2021.

Diamond contributed $92 million to the increase in resort and club management profit for the year ended December 31, 2021.

Rental and Ancillary Services

Year Ended December 31,

Change due to

Legacy-Diamond

Change due to

($ in millions)

Rental revenues

Ancillary services revenues

Rental and ancillary services revenues

Rental expenses

Ancillary services expense

Rental and ancillary services expenses

Rental and ancillary services profit (loss)

Rental and ancillary services profit margin

Year Ended December 31,

Change due to

Legacy-Diamond

Change due to

($ in millions)

Rental revenues

Ancillary services revenues

Rental and ancillary services revenues

Rental expenses

Ancillary services expense

Rental and ancillary services expenses

Rental and ancillary services (loss) profit

Rental and ancillary services profit margin

Rental and ancillary services revenues, expenses, and profit margin increased for year ended December 31, 2021, compared to the same period in 2020, primarily due to an increase in transient revenue associated with the reopening of nearly all of our resorts in the second half of 2021 that were closed during the same period in 2020.

Rental and ancillary services expenses increased corresponding with the aforementioned reopening of nearly all of our resorts.

Diamond contributed $11 million to the increase in rental and ancillary profit for the year ended December 31, 2021.

Other Operating Expenses

Year Ended December 31,

($ in millions)

General and administrative

and amortization

License fee expense

Impairment expense

____________________

(1) Fluctuation in terms of percentage change is not meaningful.

The change in other operating expenses for the year ended December 31, 2021, compared to the same period in 2020, was driven by expenses related to the Diamond Acquisition and administrative expenses and depreciation and amortization.

General and administrative expenses increased by $59 million, primarily related to increased salaries and legal and professional fees.

The increase in general and administrative expenses was also related to an increase in expense related to share-based compensation.

In the prior year, certain expenses related to Performance RSUs were reversed as the related RSUs were not expected to achieve certain performance targets, resulting in a credit to expense in the prior period.

Depreciation and amortization increased primarily as a result of the amortization of intangible assets acquired as part of the Diamond Acquisition.

License fee expense increase is related to the corresponding increase in Legacy-HGV revenue.

Acquisition and Integration-Related Expense

Year Ended December 31,

($ in millions)

Acquisition and integration-related expense

____________________

(1) Fluctuation in terms of percentage change is not meaningful.

Acquisition and integration-related costs include direct expenses for the Diamond Acquisition including integration costs, legal and other professional fees.

Integration costs include technology-related costs, fees paid to management consultants and employee-related costs such as severance and transition.

We did not incur any acquisition and integration-related costs for the years ended December 31, 2020, and 2019.

Non-Operating Expenses

Year Ended December 31,

($ in millions)

Interest expense

Equity in earnings from unconsolidated affiliates

Other loss (gain), net

Income tax expense (benefit)

____________________

(1) Fluctuation in terms of percentage change is not meaningful.

The change in non-operating expenses for the year ended December 31, 2021, compared to the same period in 2020, was primarily due to a $62 million increase in interest expense and other loss, net driven by debt extinguished in connection to the Diamond Acquisition and other drawings to support operations.

Income tax expense also increased for the year ended December 31, 2021 compared to the same period in 2020 consistent with increased pre-tax income.

Liquidity and Capital Resources

Our cash management objectives are to maintain the availability of liquidity, minimize operational costs, remit debt payments and fund future acquisitions and development projects.

Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating expenses and other expenditures, including payroll and related benefits, legal costs, operating costs associated with the operation of our resorts and sales centers, interest and scheduled principal payments on our outstanding indebtedness, inventory-related purchase commitments, and capital expenditures for renovations and maintenance at our offices and sales centers.

Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities, inventory-related purchase commitments and costs associated with potential acquisitions and development projects.

Our primary source of funding to satisfy these requirements is derived from sales and financing of vacation ownership intervals, management of our resorts and Clubs, and rentals of available inventory.

Business for more information on our reportable segments and sources of revenue.

We finance our short- and long-term liquidity needs primarily through cash and cash equivalents, cash generated from our operations, draws on our senior secured credit facility, our non-recourse revolving timeshare credit facility (“Timeshare Facility”) and two conduit facilities, and through periodic securitizations of our timeshare financing receivables.

In March 2021, we amended our Credit Agreement to amend certain terms related to financial covenants to permit the Diamond Acquisition.

The financial covenants were also amended to provide greater flexibility for the Company.

The borrowing capacity under the Credit Agreement remained the same.

In connection with the amendment, we incurred $1 million in debt issuance costs.

We amended our Timeshare Facility to align with our amended Credit Agreement.

In addition, we obtained a revolving

credit facility commitment in connection with the Diamond Acquisition and incurred $2 million in debt issuance costs which were amortized over the term of the commitment in the first quarter of 2021.

This was included in Interest expense in our consolidated statements of operations.

In June 2021, we entered into indentures in connection with the issuance and sale of senior notes, $850 million aggregate principal amount of 5.00 percent senior notes due 2029 (" the 2029 Notes") and $500 million aggregate principal amount of 4.875 percent senior notes due 2031 ("the 2031 Notes").

The net proceeds from the 2029 Notes and the 2031 Notes were used to finance the repayment of certain indebtedness in connection with the Diamond Acquisition.

The gross proceeds of the offerings were initially deposited and held in an escrow account until the closing of the Diamond Acquisition on August 2, 2021.

In connection with the offerings, we incurred $24 million in debt issuance costs.

In connection with the closing of the Diamond Acquisition, HGV also entered into a new $1.3 billion seven-year senior secured term loan facility ("Term Loan B").

The Term Loan B was issued at a $6 million discount and the cumulative proceeds received from the Term loan and related senior notes discussed below were used to repay certain existing indebtedness of both HGV and Diamond, including HGV's pre-existing term loan and senior notes, $260 million of the balance on the revolving credit facility, and approximately $2.03 billion of Diamond's corporate indebtedness.

We incurred a $20 million of loss on debt extinguishment for the transactions described herein which is included in Other (loss) gain, net .

As of December 31, 2021, we incurred approximately $32 million in debt issuance costs for Term Loan B.

In December 2021, we amended and recast our existing revolving credit facility due in 2023 into our new senior secured credit facility due in 2028.

As a part of the amendment, we also increased the capacity of the revolving credit facility from $800 million to $1 billion.

Under the new credit facility, the revolver is subject to an interest rate of 2.00 plus one month LIBOR.

Upon the execution of the recast, we refinanced the existing $300 million principal balance on the revolver due in 2023 into the new revolver due in 2028.

As of December 31, 2021, we incurred approximately $5 million in debt issuance costs in connection with the recast of the revolver.

As of December 31, 2021, we had total cash and cash equivalents of $695 million, including $263 million of restricted cash.

As of December 31, 2021, we have $699 million remaining borrowing capacity under the revolver facility.

In addition, we have $461 million remaining borrowing capacity in total under our Timeshare Facility, and conduit facilities due in 2023 and 2024.

We have $74 million of mortgage notes that are available to be securitized, and another $219 million of mortgage notes that we expect will become eligible as soon as they meet typical milestones including receipt of first payment, deeding, or recording.

As of December 31, 2021, we have all of our resorts and nearly all sales centers open and currently operating.

However, some of our resorts and sales centers are still operating in markets with capacity constraints and are subject to various safety measures, which are impacting consumer demand for resorts in those markets.

While we plan to continue normal business as conditions permit, the pandemic continues to be unprecedented and rapidly changing, and has unknown duration and severity.

We utilize surety bonds related to the sales of VOIs in order to meet regulatory requirements of certain states.

The availability, terms and conditions and pricing of such bonding capacity are dependent on, among other things, continued financial strength and stability of the insurance company affiliates providing the bonding capacity, general availability of such capacity and our corporate credit rating.

We have commitments from surety providers in the amount of $293 million as of December 31, 2021 which primarily consist of escrow and construction related bonds.

We believe that these actions, together with drawing on available borrowings under our revolver and preserving our capacity under our Timeshare Facility as described above, will provide adequate capital to meet our short- and long-term liquidity requirements for operating expenses and other expenditures, including payroll and related benefits, legal costs, and additional costs related to complying with various regulatory requirements and best practices for opening under the current environment resulting from the pandemic, and to finance our long-term growth plan and capital expenditures for the foreseeable future.

We believe that our capital allocation strategy provides adequate funding for our operations, is flexible enough to fund our development pipeline, securitizes the optimal level of receivables, and provides the ability to be strategically opportunistic in the marketplace.

We have made commitments with developers to purchase vacation ownership units at a future date to be marketed and sold under our Hilton Grand Vacations brand.

As of December 31, 2021, our inventory-related purchase commitments totaled $330 million over 9 years.

Sources and Uses of Our Cash

The following table summarizes our net cash flows and key metrics related to our liquidity:

Year Ended December 31,

($ in millions)

Net cash provided by (used in):

Operating activities

Investing activities

Financing activities

Operating Activities

Cash flow provided by operating activities is primarily generated from (1) sales and financing of VOIs and (2) net cash generated from managing our resorts, Club and Diamond Club operations and providing related rental and ancillary services.

Cash flows used in operating activities primarily include spending for the purchase and development of real estate for future conversion to inventory and funding our working capital needs.

Our cash flows from operations generally vary due to the following factors related to the sale of our VOIs;

the degree to which our owners finance their purchase and our owners’

repayment of timeshare financing receivables;

the timing of management and sales and marketing services provided;

and cash outlays for VOI inventory acquisition and development.

Additionally, cash flow from operations will also vary depending upon our sales mix of VOIs;

over time, we generally receive more cash from the sale of an owned VOI as compared to that from a fee-for-service sale.

The change in net cash flows provided by operating activities for the year ended December 31, 2021 compared to the same period in 2020 was primarily due to an increase in net income, offset by decreases in net working capital from operations.

The following table exhibits our VOI inventory spending for the years ended December 31, 2021, 2020 and 2019.

Year Ended December 31,

($ in millions)

VOI spending - owned properties

VOI spending - fee-for-service upgrades (1)

Purchases and development of real estate for future conversion to inventory

Total VOI inventory spending

____________________

(1) Includes expense related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects of $7 million, $9 million and $31 million recorded in Costs of VOI sales for the years ended December 31, 2021, 2020 and 2019, respectively.

Investing Activities

The following table summarizes our net cash used in investing activities:

Year Ended December 31,

($ in millions)

Acquisition of Diamond, net of cash and restricted cash acquired

Capital expenditures for property and equipment

Software capitalization costs

Investments in unconsolidated affiliates

Net cash used in investing activities

Our capital expenditures include spending related to technology and buildings and leasehold improvements used to support sales and marketing locations, resort operations and corporate activities.

We believe the renovations of our existing assets are necessary to stay competitive in the markets in which we operate.

The change in net cash used in investing activities for the year ended December 31, 2021 compared to the same period in 2020 was primarily due to the Diamond Acquisition and related capitalized acquisition costs.

Financing Activities

The following table summarizes our net cash provided by (used in) financing activities:

Year Ended December 31,

($ in millions)

Issuance of debt

Issuance of non-recourse debt

Repayment of debt

Repayment of non-recourse debt

Debt issuance costs

Repurchase and retirement of common stock

Payment of withholding taxes on vesting of restricted stock units

Proceeds from employee stock plan purchases

Proceeds from stock option exercises

Other financing activity

Net cash provided by financing activities

The change in net cash flows provided by financing activity for the year ended December 31, 2021 compared to the same period in 2020 was primarily due to the increase in debt borrowings for the issuance of Term Loan B in August 2021 and senior notes in June 2021 offset by repayments of debt and non-recourse debt and $70 million of other debt issuance costs.

Contractual Obligations

Our commitments primarily relate to agreements with developers to purchase or construct vacation ownership units, operating leases and obligations associated with our debt, non-recourse debt and the related interest.

As of December 31, 2021, we were committed to $5,643 million in contractual obligations over 9 years, $775 million of which will be fulfilled in 2022.

This amount includes $923 million of interest on our debt and non-recourse debt, $148 million of which will be incurred in 2022.

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

Commitments and Contingencies, Note 15:

Debt and Non-recourse Debt and Note 17:

Leases in our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for additional information.

We also intend to rebrand Diamond properties as Hilton Grand Vacations branded properties pursuant to the A&R Hilton License Agreement.

We utilize surety bonds related to the sales of VOIs in order to meet regulatory requirements of certain states.

We have commitments from surety providers in the amount of $293 million as of December 31, 2021 which primarily consist of escrow and construction related bonds.

Guarantor Financial Information

Certain subsidiaries, which are listed on Exhibit 22 of this Annual Report on Form 10-K, have guaranteed our obligations related to our senior unsecured 2029 Notes and 2031 Notes (together, "the Notes").

The 2029 Notes were issued in June 2021 with an aggregate principal balance of $850 million, an interest rate of 5.0 percent, and maturity in June 2029.

The 2031 Notes were issued in June 2021 with an aggregate principal balance of $500 million, an interest rate of 4.875 percent, and maturity in July 2031.

The Notes were co-issued by Hilton Grand Vacations Borrower LLC and Hilton Grand Vacations Borrower Inc.

(the “Issuers”) and are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by Hilton Grand Vacations Inc.

(the “Parent”), Hilton Grand Vacations Parent LLC, the Issuers, and each of the Issuer’s existing and future wholly owned domestic restricted subsidiaries (all entities that guarantee the Notes, collectively, the “Obligor group”).

The Notes rank equally in right of payment with all of the Issuers’

and each guarantor’s existing and future senior indebtedness, are subordinated to all of the Issuers’

and guarantors’

existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness, including the Senior Secured Credit Facilities, rank senior in right of payment to all of the Issuers’

and guarantors’

future subordinated indebtedness and other obligations that expressly provide for their subordination to the notes and the related guarantees, and are structurally subordinated to all existing and future indebtedness claims of holders of preferred stock and other liabilities of the Issuer’s subsidiaries that do not guarantee the Notes.

The guarantee of each guarantor subsidiary is limited to a maximum amount, subject to applicable U.S.

The guarantees can also be released upon the sale or transfer of a guarantor subsidiary’s capital stock or substantially all of its assets, becoming designated as an unrestricted subsidiary, or upon its consolidation into a co-Issuer or another subsidiary Guarantor.

The following tables provide summarized financial information of the Obligor group on a combined basis after elimination of (i) intercompany transactions and balances between the Parent and the subsidiary Guarantors and (ii) investments in and equity in the earnings of non-Guarantor subsidiaries and unconsolidated affiliates:

($ in millions)

Cash and cash equivalents

Restricted cash

Accounts receivable, net - due from non-guarantor subsidiaries

Accounts receivable, net - due from related parties

Accounts receivable, net - other

Timeshare financing receivables, net

Property and equipment, net

Operating lease right-of-use assets, net

Investments in unconsolidated affiliates

Intangible assets, net

Land and Infrastructure held for sale

Accounts payable, accrued expenses and other - due from non-guarantor subsidiaries

Accounts payable, accrued expenses and other - other

Advanced deposits

Operating lease liabilities

Deferred revenues

Deferred income tax liabilities

Total liabilities

Year ended December 31,

($ in millions)

Total revenues - transactions with non-guarantor subsidiaries

Total revenues - other

Operating income

Subsequent Events

Management has evaluated all subsequent events through March 1, 2022, the date the audited 2021 10-K was available to be issued and determined the following subsequent event occurred:

Subsequent to December 31, 2021, HGV repaid the full $133 million combined principal balance outstanding at December 31, 2021 of both conduit facilities, comprised of $125 million on the conduit facility due in 2023 and $8 million due on the conduit facility due in 2024.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in accordance with U.S.

GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements, the reported amounts of revenues and expenses during the reporting periods and the related disclosures in the consolidated financial statements and accompanying footnotes.

We believe that of our significant accounting policies, which are described in Note 2:

Summary of Significant Accounting Policies in our consolidated

financial statements included in Item 8 of this Annual Report on Form 10-K, the following accounting policies are critical because they involve a higher degree of judgment, and the estimates required to be made are based on assumptions that are inherently uncertain.

As a result, these accounting policies could materially affect our financial position, results of operations and related disclosures.

On an ongoing basis, we evaluate these estimates and judgments based on historical experiences and various other factors that are believed to reflect the current circumstances.

While we believe our estimates, assumptions and judgments are reasonable, they are based on information presently available.

Actual results may differ significantly from these estimates due to changes in judgments, assumptions and conditions as a result of unforeseen events or otherwise, which could have a material effect on our financial position or results of operations.

Revenue Recognition

In accordance with ASC 606, revenue is recognized upon the transfer of control of promised goods or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.

To achieve the core principle of the guidance, we take the following steps:

(i) identify the contract with the customer;

(ii) determine whether the promised goods or services are separate performance obligations in the contract;

(iii) determine the transaction price, including considering the constraint on variable consideration;

(iv) allocate the transaction price to the performance obligations in the contract based on the standalone selling price or estimated standalone selling price of the good or service;

and (v) recognize revenue when (or as) we satisfy each performance obligation.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606.

For arrangements that contain multiple goods or services, we determine whether such goods or services are distinct performance obligations that should be accounted for separately in the arrangement.

When allocating the transaction price in the arrangement, we may not have observable standalone sales for all the performance obligations in these contracts;

therefore, we exercise significant judgement when determining the standalone selling price of certain performance obligations.

In order to estimate the standalone selling prices for products other than Collections contracts, we primarily rely on the expected cost plus margin and adjusted market assessment approaches.

We estimate stand-alone selling price for Collections contracts based on historical information, including expected breakage in contracts with multiple performance obligations, and allocate the remainder of the transaction price to the sale of points-based VOIs due to the variability in observable historical prices for traditional VOI sales.

We then recognize the revenue allocated to each performance obligation as the related performance obligation is satisfied.

Summary of Significant Accounting Policies in our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further discussion.

Inventory and Cost of Sales

We use the relative sales value method of costing our VOI sales and relieving inventory, which requires us to make estimates subject to significant uncertainty.

The estimates include future sales prices, timing and volume, provisions for financing receivables losses on financed sales of VOIs, sales incentives, projected future cost and volume of recoveries, including inventory reacquired from our upgrade programs.

We aggregate these factors to calculate total net cost of sales of VOIs as a percentage of net sales of VOIs and apply this ratio to allocate the cost of sales to recognized sales of VOIs.

The effect of changes in these estimates over the life of a project are recognized on a retrospective basis through corresponding adjustments to inventory and cost of sales in the period in which the estimates are revised.

Due to the application of the retrospective adjustments, changes in any of our estimates, including changes in our development and sales strategies could have a material effect on the carrying value of certain projects and inventory.

We monitor our projects and inventory on an ongoing basis and complete an evaluation each reporting period to ensure that the inventory is stated at the lower of cost or fair value less cost to sell.

In addition, we continually assess our VOIs inventory and, if necessary, impose pricing adjustments to modify sales pace.

Long-lived Assets and Related Impairment

We evaluate the carrying value of our property and equipment if there are indicators of potential impairment.

We perform an analysis to determine the recoverability of the asset’s carrying value by comparing the expected undiscounted future cash flows to the net book value of the asset.

If it is determined that the expected undiscounted future cash flows are less than the net book value of the asset, we calculate the asset’s fair value.

The impairment loss recognized is equal to the amount that the net book value is in excess of fair value.

Fair value is generally estimated using valuation techniques that consider the discounted cash flows of the asset using discount and capitalization rates

deemed reasonable for the type of asset, as well as prevailing market conditions, appraisals, recent similar transactions in the market and, if appropriate and available, current estimated net sales proceeds from pending offers.

We review all finite life intangible assets for impairment when circumstances indicate that their carrying amounts may not be recoverable.

If the carrying value of an asset group is not recoverable, we recognize an impairment loss for the excess of the carrying value over the fair value in our consolidated statements of operations.

We classify long-lived assets to be sold as held for sale in the period (i) we have approved and committed to a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable, (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

We initially measure a long-lived asset that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell.

We assess the fair value of a long-lived asset less any costs to sell at each reporting period and until the asset is no longer classified as held for sale.

The methodology utilized to determine fair value at the time of classification as held for sale is dependent on the type of long-lived asset reclassified.

All methodologies utilized to determine fair value involve judgment.

Business Combinations

We account for our business combinations in accordance with the acquisition method of accounting.

We allocate the purchase price of an acquisition to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date.

For each acquisition, we recognize goodwill as the amount in which consideration transferred for the acquired entity exceeds the fair values of net assets.

The fair value of net assets is the fair value assigned to the assets acquired reduced by the fair value assigned to liabilities assumed.

In determining the fair values of assets acquired and liabilities assumed, we use various recognized valuation methods including the income, cost and sales and market approaches, which also include certain valuation techniques such as discount rates, and the amount and timing of future cash flows.

We utilize independent valuation specialists under our supervision for certain of our assignments of fair value.

We record the net assets and results of operations of an acquired entity in our consolidated financial statements from the acquisition date through period-end.

We expense acquisition-related expenses as incurred and include such expenses within Acquisition and integration-related expense on our consolidated statements of operations.

Summary of Significant Accounting Policies and Note 3:

Diamond Acquisition for further detail.

We do not amortize goodwill.

We evaluate goodwill for potential impairment at least annually, or more frequently if an event or other circumstance indicates that it is more-likely-than-not that we may not be able to recover the carrying amount (book value) of the net assets of the related reporting unit.

When evaluating goodwill for impairment, we may perform the optional qualitative assessment by considering factors including macroeconomic conditions, industry and market conditions and overall financial performance.

If we bypass the qualitative assessment, or if we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then we perform a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount.

We only recognize an impairment on goodwill if the estimated fair value of a reporting unit is less than its carrying value, in an amount not to exceed the carrying value of the reporting unit's goodwill.

Allowance for Financing Receivables Losses

The allowance for financing receivables losses is related to the receivables generated by our financing of VOI sales, which are secured by the underlying timeshare properties.

We determine our financing receivables to be past due based on the contractual terms of the individual mortgage loans.

We use a technique referred to as static pool analysis as the basis for determining our general reserve requirements on our financing receivables.

The adequacy of the related allowance is determined by management through analysis of several factors requiring judgment, such as current economic conditions and industry trends, as well as the specific risk characteristics of the portfolio, including historic and assumed default rates.

Although the allowance includes several factors requiring judgment, the static pool model is not highly uncertain as it relies upon historical metrics.

Changes in the estimates used in developing our default rates could result in a material change to our allowance.

A 0.5 percentage point increase to our projected default rates used in the allowance calculation would increase our allowance for financing receivables losses by approximately $15 million.

Acquired Financial Assets with Credit Deterioration

When financial assets are acquired, whether in connection with a business combination or an asset acquisition, we evaluate whether those acquired financial assets have experienced a more-than-insignificant deterioration in credit quality since origination.

Financial assets that were acquired with evidence of such credit deterioration are referred to as purchased credit deteriorated (“PCD”) assets and reflect the acquirer’s assessment at the acquisition date.

The evaluation of PCD assets is a qualitative assessment requiring significant management judgment.

We consider indicators such as delinquency, FICO score deterioration, purchased credit impaired status from prior acquisition, certain account status codes which we believe are indicative of credit deterioration, as well as certain loan activity such as modifications and downgrades.

In addition, we consider the impact of current and forward-looking economic conditions relative to the conditions which would have existed at origination.

Acquired PCD assets are recorded at the purchase price, represented by the acquisition date fair value, and subsequently “grossed-up”

by the acquirer’s acquisition date assessment of the allowance for credit losses.

The purchase price and the initial allowance for credit losses collectively represent the PCD asset’s initial amortized cost basis.

While the initial allowance for credit losses of PCD assets does not impact period earnings, the Company remeasures the allowance for credit losses for PCD assets during each subsequent reporting period;

changes in the allowance are recognized as provision expense within period earnings.

The difference over which par value of the acquired PCD assets exceeds the purchase price plus the initial allowance for credit losses is reflected as a non-credit discount (or premium) and is accreted into interest income (or as a reduction to interest income) under the effective interest method.

Acquired financial assets which are not PCD assets are also recorded at the purchase price but are not similarly “grossed-up”.

The acquirer recognizes an allowance for credit losses as of the acquisition date, which is recognized with a corresponding provision expense impact within earnings.

The allowance is remeasured within each subsequent reporting period in the same manner as for PCD assets, with any change in the allowance recognized as provision expense in period earnings.

Diamond Acquisition and Note 7:

Timeshare Financing Receivables for further information.

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using currently enacted tax rates.

We regularly review our deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets that we believe will not be ultimately realized.

In performing this review, we make estimates and assumptions regarding projected future taxable income, the expected timing of reversals of existing temporary differences and the implementation of tax planning strategies.

A change in these assumptions may increase or decrease our valuation allowance resulting in an increase or decrease in our effective tax rate, which could materially affect our consolidated financial statements.

We use a prescribed more-likely-than-not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return if there is uncertainty in income taxes recognized in the financial statements.

Assumptions and estimates are used to determine the more-likely-than-not designation.

Changes to these assumptions and estimates can lead to an additional income tax (expense) benefit, which can materially change our consolidated financial statements.

Legal Contingencies

We are subject to various legal proceedings and claims, the outcomes of which are subject to significant uncertainty.

An estimated loss from a loss contingency should be accrued by a charge to income if it is probable and the amount of the loss can be reasonably estimated.

Significant judgment is required when we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss.

Changes in these factors could materially affect our consolidated financial statements.

Quantitative and Qualitat ive Disclosures about Market Risk

We are exposed to market risk from changes in interest rates and currency exchange rates.

We manage our exposure to these risks by monitoring available financing alternatives and through pricing policies that may take into account currency exchange rates.

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

Interest Rate Risk

We are exposed to interest rate risk on our variable-rate debt, comprised of the term loans, Revolver and our Timeshare Facility, of which the Timeshare Facility is without recourse to us.

The interest rates are based on one-month LIBOR and we are most vulnerable to changes in this rate.

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

We intend to securitize timeshare financing receivables in the asset-backed financing market periodically.

We expect to secure fixed-rate funding to match our fixed-rate timeshare financing receivables.

However, if we have variable-rate debt in the future, we will monitor the interest rate risk and evaluate opportunities to mitigate such risk through the use of derivative instruments.

To the extent we continue to have variable-rate borrowings and continue to utilize variable-rate indebtedness in the future, any increase in interest rates beyond amounts covered under any corresponding derivative financial instruments, particularly if sustained, could have an adverse effect on our net income (loss), cash flows and financial position.

While we have entered into certain hedging transactions to address such potential risk, such transactions and any future hedging transactions we may enter into may not adequately mitigate the adverse effects of interest rate increases or that counterparties in those transactions will honor their obligations.

The following table sets forth the contractual maturities, weighted-average interest rates and the total fair values as of December 31, 2021, for our financial instruments that are materially affected by interest rate risk:

Maturities by Period

($ in millions)

Fixed-rate securitized

timeshare financing

Fixed-rate unsecuritized

timeshare financing

Fixed-rate debt

Variable-rate debt (4)

(1) Weighted-average interest rate as of December 31, 2021.

(2) Amount excludes unamortized deferred financing costs.

(3) Includes debt and non-recourse debt.

(4) Variable-rate debt includes principal outstanding debt of $1,873 million as of December 31, 2021.

Debt & Non-recourse Debt in our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for additional information.

Foreign Currency Exchange Rate Risk

Though the majority of our operations are conducted in United States dollar (“U.S.

dollar”), we are exposed to earnings and cash flow volatility associated with changes in foreign currency exchange rates.

Our principal exposure results from our timeshare financing receivables denominated in Japanese yen and Canadian dollars, the value of which could change materially in reference to our reporting currency, the U.S.

A 10 percent change in the foreign exchange rate of Japanese yen to U.S.

dollar would change our gross timeshare financing receivables by approximately $3 million.

A 10 percent change in the foreign exchange rate of the Canadian dollar to U.S.

dollar would change our gross timeshare financing receivables by less than $1 million.

Financial Stateme nts and Supplementary Data

HILTON GRAND VACATIONS INC.

INDEX TO FINANCIAL STATEMENTS

Audited Consolidated Financial Statements of Hilton Grand Vacations Inc.

Management’s Report on Internal Control Over Financial Reporting

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2021, 2020 and 2019

Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019

Consolidated Statements of Stockholders’

Equity for the years ended December 31, 2021, 2020 and 2019

Notes to Consolidated Financial Statements

Management's Report on Internal Control Over Financial Reporting

Management of Hilton Grand Vacations Inc.

(the "Company") is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.

The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes 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 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 the Company’s management and directors;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets of the Company that could have a material effect on the 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.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021.

In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013).

The scope of our efforts to comply with Section 404 of the Sarbanes-Oxley Act with respect to 2021 included all of our operations other than those of Diamond which we acquired in 2021 as described in Note 3 to the consolidated financial statements.

In accordance with the SEC’s published guidance, because we acquired these operations during the year, we excluded these operations from our efforts to comply with Section 404 with respect to 2021.

The acquired operations of Diamond constituted approximately 64% of total assets as of December 31, 2021 and 27% and 46% of revenue and income before income taxes, respectively, for the year then ended.

The SEC’s published guidance specifies that the period in which management may omit an assessment of an acquired business’s internal control over financial reporting from its assessment of the Company’s internal control may not extend beyond one year from the date of acquisition.

Based on our assessment, which as discussed herein excluded the operations of Diamond, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2021.

Ernst & Young LLP, the independent registered public accounting firm that has audited the consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on the Company’s internal control over financial reporting as of December 31, 2021.

The report is included herein.

Report of Independent Regis tered Public Accounting Firm

To the Shareholders and the Board of Directors of Hilton Grand Vacations Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Hilton Grand Vacations Inc.

(the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, 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, 2021, 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 March 1, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s 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 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 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 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 financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Legacy-HGV Cost of Vacation Ownership Intervals Sales

Description of the Matter

For the year ended December 31, 2021, the Company’s cost of vacation ownership intervals (“VOI”) sales was $213 million, which includes amounts recognized by the Legacy-HGV operations.

As discussed in Note 2 to the consolidated financial statements, the Company accounts for cost of VOI sales using the relative sales value method.

Changes in estimates within the relative sales value calculations are accounted for as cost of sales true-ups and are included in cost of VOI sales in the consolidated statements of operations to retrospectively adjust the margin previously recognized subject to those estimates.

Auditing management’s application of the relative sales value method for Legacy-HGV sales was complex and highly judgmental due to the significant estimation uncertainty in determining the significant assumptions required to apply the method, including future VOI sales prices and sales incentives, timing and volume of VOI sales, provisions for financing receivables losses on financed sales of VOIs, and projected future costs.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Legacy-HGV cost of VOI sales process.

For example, we tested controls over management’s review of the Legacy-HGV cost of VOI sales calculations used as part of the relative sales value method, including the significant assumptions described above.

To test the Legacy-HGV cost of VOI sales, we performed audit procedures that included, among others, assessing the methodologies used by management, evaluating the significant assumptions discussed above and testing the underlying data used by the Company within its analysis.

We compared the significant assumptions used by management to historical trends and/or the Company’s future development plans, as appropriate.

We assessed the historical accuracy of management’s estimates based on previous assumptions and performed analytical procedures to evaluate the significant assumptions.

In addition, we performed analytical procedures to evaluate individual timeshare project Legacy-HGV cost of VOI sales rates.

Given the uniqueness of the cost of VOI sales analysis to the real estate timeshare industry, we involved real estate subject matter resources on our team.

Legacy-HGV Allowance for Financing Receivables

Description of the Matter

At December 31, 2021, the Company’s allowance for financing receivables generated by the financing of VOI sales was $762 million, which includes amounts related to the Legacy-HGV operations.

As discussed in Note 2 to the consolidated financial statements, the Company records an estimate of variable consideration due to uncollectibles as a reduction of revenue from VOI sales at the time revenue is recognized on a VOI sale.

The Company uses a technique referred to as static pool analysis as the basis for determining the default rates that are used to estimate variable consideration and allowance for financing receivables.

The estimates of the variable consideration are based on default rates that are an output of the Legacy-HGV static pool and considers current and future economic and market conditions.

Auditing the Legacy-HGV allowance for financing receivables was challenging and required additional audit effort due to the complex nature of the static pool analysis and the high volume of data which is utilized in applying the static pool analysis.

The estimate also required judgment in evaluating management’s conclusions regarding which historical default rates most appropriately reflect the current and future market conditions.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Legacy-HGV allowance for financing receivables process, including controls over management’s review of the static pool analysis and data utilized in the static pool analysis.

To test the estimated Legacy-HGV allowance for financing receivables, we performed audit procedures that included, among others, assessing the methodology discussed above, and testing the completeness and accuracy of the underlying data used by the Company in its analysis.

We also compared data used in the Legacy-HGV static pool analysis to historical data from prior periods.

We compared current year default rates to prior year default rates.

In addition, we recalculated the Legacy-HGV allowance for financing receivables for certain pools of loans.

We evaluated management’s assessment that historical data reflects current and future market conditions in estimating the allowance.

Given the uniqueness of the static pool analysis to the real estate timeshare industry, we involved real estate subject matter resources on our team.

Accounting for the Acquisition of Diamond

Description of the Matter

As more fully described in Note 3 to the consolidated financial statements, the Company acquired Dakota Holdings, Inc., the parent of Diamond Resorts International, Inc.

(“Diamond”), on August 2, 2021 for aggregate cash and stock consideration of approximately $3.41 billion.

The acquisition was accounted for as a business combination and, as such, the Company preliminarily measured the assets acquired and liabilities assumed at their acquisition-date fair values, including preliminary fair values of the acquired inventory and the management contracts intangible asset of $497 million and $1.25 billion, respectively.

Auditing management’s acquisition of Diamond involved especially subjective judgments and complex analyses related to the preliminary fair value estimates of the acquired inventory and management contracts intangible asset due to the significant estimation required in determining fair value.

The estimates of fair value of the acquired inventory and management contracts intangible asset are sensitive to changes in assumptions impacting the net present value of future cash flows expected from the future performance of the acquired business.

The significant assumptions impacting the estimates of the preliminary fair value of the acquired inventory and management contracts intangible asset included anticipated operating costs and margins, and the discount rates, which are affected by expectations about future market and economic conditions.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Diamond business combination accounting process.

For example, we tested controls over the valuation of the acquired inventory and management contracts intangible asset, including the Company’s controls over the valuation approaches and methods selected, and the significant assumptions used in the fair value measurements described above.

To test the fair values of the acquired inventory and the management contracts intangible asset, our audit procedures, among others, included evaluating the Company's valuation methods and significant assumptions used and testing the completeness and accuracy of the underlying data supporting the significant assumptions and estimates.

We compared the significant assumptions used by management to current economic trends, where applicable, the historical results of the acquired business, and other relevant factors.

We involved our valuation specialists to assist with our evaluation of the valuation methods and certain significant assumptions, including the discount rates used in determining the fair values of the acquired inventory and the management contracts intangible asset.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2016.

Orlando, Florida

March 1, 2022

Report of Independent Regist ered Public Accounting Firm

To the Shareholders and the Board of Directors of Hilton Grand Vacations Inc.

Opinion on Internal Control Over Financial Reporting

We have audited Hilton Grand Vacations Inc.’s internal control over financial reporting as of December 31, 2021, 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, Hilton Grand Vacations Inc.

(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Dakota Holdings, Inc., which is included in the 2021 consolidated financial statements of the Company and constituted approximately 64% of total assets as of December 31, 2021 and 27% and 46% of revenues and income before income taxes, respectively, for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Dakota Holdings, Inc.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated March 1, 2022 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.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

/s/ Ernst & Young LLP

Orlando, Florida

March 1, 2022

HILTON GRAND VACATIONS INC.

CONSOLIDATED BA LANCE SHEETS

(in millions, except share data)

Cash and cash equivalents

Restricted cash

Accounts receivable, net of allowance for doubtful accounts of $ 39 and $ 20

Timeshare financing receivables, net

Property and equipment, net

Operating lease right-of-use assets, net

Investments in unconsolidated affiliates

Intangible assets, net

Land and infrastructure held for sale

TOTAL ASSETS (variable interest entities - $ 1,100 and $ 800 )

LIABILITIES AND EQUITY

Accounts payable, accrued expenses and other

Advanced deposits

Non-recourse debt, net

Operating lease liabilities

Deferred revenues

Deferred income tax liabilities

Total liabilities (variable interest entities - $ 1,199 and $ 771 )

Commitments and contingencies - see Note 23

Preferred stock, $ 0.01 par value;

300,000,000 authorized shares, none

issued or outstanding as of December 31, 2021 and 2020

Common stock, $ 0.01 par value;

3,000,000,000 authorized shares,

119,904,001 shares issued and outstanding as of December 31, 2021 and

85,205,012 shares issued and outstanding as of December 31, 2020

Additional paid-in capital

Accumulated retained earnings

Accumulated other comprehensive income

TOTAL LIABILITIES AND EQUITY

See notes to consolidated financial statements.

HILTON GRAND VACATIONS INC.

CONSOLIDATED STATEME NTS OF OPERATIONS

(in millions, except per share amounts)

Year Ended December 31,

Sales of VOIs, net

Sales, marketing, brand and other fees

Resort and club management

Rental and ancillary services

Cost reimbursements

Total revenues

Cost of VOI sales

Sales and marketing

Resort and club management

Rental and ancillary services

General and administrative

Acquisition and integration-related expense

Depreciation and amortization

License fee expense

Impairment expense

Cost reimbursements

Total operating expenses

Interest expense

Equity in earnings from unconsolidated affiliates

Other (loss) gain, net

Income (loss) before income taxes

Income tax (expense) benefit

Net income (loss)

Earnings (loss) per share:

See notes to consolidated financial statements.

HILTON GRAND VACATIONS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)

Year Ended December 31,

Net income (loss)

Foreign currency translation adjustments

Derivative instrument adjustments, net of tax

Other comprehensive income, net of tax

Comprehensive income (loss)

See notes to consolidated financial statements.

HILTON GRAND VACATIONS INC.

CONSOLIDATED STATEM ENTS OF CASH FLOWS

(in millions)

Year Ended December 31,

Operating Activities

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

Amortization of deferred financing costs, acquisition premiums and other

Provision for financing receivables losses

Impairment expense

Other loss (gain), net

Share-based compensation

Deferred income tax expense (benefit)

Equity in earnings from unconsolidated affiliates

Return on investment in unconsolidated affiliates

Net changes in assets and liabilities, net of effects of acquisition:

Accounts receivable, net

Timeshare financing receivables, net

Purchases and development of real estate for future conversion to inventory

Accounts payable, accrued expenses and other

Advanced deposits

Deferred revenues

Net cash provided by operating activities

Investing Activities

Acquisition of Diamond, net of cash and restricted cash acquired

Capital expenditures for property and equipment

Software capitalization costs

Investments in unconsolidated affiliates

Net cash used in investing activities

Financing Activities

Issuance of debt

Issuance of non-recourse debt

Repayment of debt

Repayment of non-recourse debt

Debt issuance costs and discounts

Repurchase and retirement of common stock

Payment of withholding taxes on vesting of restricted stock units

Proceeds from employee stock plan purchases

Proceeds from stock option exercises

Other financing activity

Net cash provided by (used in) financing activities

Effect of changes in exchange rates on cash, cash equivalents & restricted cash

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

See notes to consolidated financial statements.

HILTON GRAND VACATIONS INC.

CONSOLIDATED STATEMENTS OF ST OCKHOLDERS ’

(in millions)

Comprehensive

Balance as of December 31, 2019

Activity related to share-based compensation

Repurchase and retirement of common stock

Balance as of December 31, 2020

Activity related to share-based compensation

Shares issued for Diamond acquisition

Employee stock plan issuance

Foreign currency translation adjustments

Derivative instrument adjustments

Balance as of December 31, 2021

See notes to consolidated financial statements.

HILTON GRAND VACATIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Organization and Basis of Presentation

We are a global timeshare company engaged in developing, marketing, selling and managing timeshare resorts primarily under the Hilton Grand Vacations brand.

During 2021, we also acquired Diamond Resorts and are in the process of rebranding Diamond properties and sales centers to the Hilton Grand Vacations brand and Hilton standards.

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

financing and servicing loans provided to consumers for their timeshare purchases;

operating resorts and multi-resort trusts;

and managing our points-based Hilton Grand Vacations Club and Hilton Club exchange program (collectively the “Legacy-HGV Club”) and Diamond points-based clubs.

As of December 31, 2021 , 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, Europe, Hawaii, California, Arizona, Nevada, and Virginia.

Diamond Acquisition

On August 2, 2021, we completed the acquisition of Dakota Holdings, Inc., the parent of Diamond Resorts International (the “Diamond Acquisition”).

We completed the acquisition by exchanging 100 percent of the outstanding equity interests of Diamond for shares of HGV common stock.

Pre-existing HGV shareholders owned approximately 72 percent of the combined company immediately after giving effect of the Diamond Acquisition, with certain funds controlled by Apollo Global Management Inc.

(the "Apollo Funds" or, "Apollo") and other minority shareholders, who previously owned 100 percent of Diamond, holding the remaining approximately 28 percent at the time the Diamond Acquisition was completed .

Diamond also operates in the hospitality and VOI industry, with a worldwide resort network of global vacation destinations.

Diamond’s portfolio consists of resort properties (the “Portfolio Properties”) that we manage, are included in one of Diamond's single- and multi-use trusts (collectively, the "Diamond Collections"), or are Diamond branded resorts in which we own inventory, as well as affiliated resorts and hotels, which we do not manage, and which do not carry the Diamond brand but are a part of Diamond's network and, through THE Club® and other Club offerings (the “Diamond Clubs”), are available for its members to use as vacation destinations.

Diamond’s operations primarily consist of:

VOI sales and financing which includes marketing and sales of VOIs and consumer financing for purchasers of the Company's VOIs;

operations related to the management of the homeowners associations (the “HOAs”) for resort properties and the Diamond Collections, operating and managing points-based vacation clubs, and operation of certain resort amenities and management services.

This Annual Report on Form 10-K includes Diamond’s results of operations beginning on August 2, 2021.

We refer to Diamond's business and operations that we acquired as "Legacy-Diamond", and our business and operations that existed both prior to and following the Diamond Acquisition as "Legacy-HGV." See Note 3:

Diamond Acquisition for more information.

Of our 154 properties, 92 are Legacy-Diamond properties as of December 31, 2021.

Basis of Presentation

The consolidated financial statements presented herein include 100 percent of our assets, liabilities, revenues, expenses and cash flows as well as all entities in which we have a controlling financial interest.

Our accompanying consolidated financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods.

All material intercompany transactions and balances have been eliminated in consolidation.

The consolidated financial statements reflect our financial position, results of operations and cash flows as prepared in conformity with U.S.

generally accepted accounting principles (“U.S.

GAAP”).

The determination of a controlling financial interest is based upon the terms of the governing agreements of the respective entities, including the evaluation of rights held by other interests.

If the entity is considered to be a variable interest entity (“VIE”), we determine whether we are the primary beneficiary, and then consolidate those VIEs for

which we have determined we are the primary beneficiary.

If the entity in which we hold an interest does not meet the definition of a VIE, we evaluate whether we have a controlling financial interest through our voting interests in the entity.

We consolidate entities when we own more than 50 percent of the voting shares of a company or otherwise have a controlling financial interest.

The consolidated financial statements reflect our financial position, results of operations and cash flows as prepared in conformity with U.S.

Use of Estimates

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the amounts reported and, accordingly, ultimate results could differ from those estimates.

Impact of the COVID-19 Pandemic

As of December 31, 2021, all of our resorts and nearly all sales centers which had previously closed due to the COVID-19 pandemic were open and operating, although some are still operating in markets with various capacity constraints, social distancing requirements and other safety measures, which are impacting consumer demand for resorts in those markets.

We plan to continue our normal business as conditions permit, but there can be no assurance that such positive trends will continue or that there will not be any increases of new infections and/or new variants (such as Delta and Omicron variant) that may result in the reimposition of social distancing measures and/or restrictions in certain jurisdictions, as well as travel restrictions that may impede or reverse our recovery.

Summa ry of Significant Accounting Policies

Revenue Recognition

We account for revenue in accordance with Accounting Standards Update (“ASU”) No.

2014-09, Revenue from Contracts with Customers (commonly referred to as Accounting Standards Codification (“ASC”) Topic 606 (“ASC 606”).

Revenue is recognized upon the transfer of control of promised goods or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.

To achieve the core principle of the guidance, we take the following steps:

(i) identify the contract with the customer;

(ii) determine whether the promised goods or services are separate performance obligations in the contract;

(iii) determine the transaction price, including considering the constraint on variable consideration;

(iv) allocate the transaction price to the performance obligations in the contract based on the standalone selling price or estimated standalone selling price of the good or service;

and (v) recognize revenue when (or as) we satisfy each performance obligation.

Contracts with Multiple Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606.

For arrangements that contain multiple goods or services, we determine whether such goods or services are distinct performance obligations that should be accounted for separately in the arrangement.

When allocating the transaction price in the arrangement, we may not have observable standalone sales for all of the performance obligations in these contracts;

therefore, we exercise significant judgement when determining the standalone selling price of certain performance obligations.

In order to estimate the standalone selling prices for products, we primarily rely on the expected cost plus margin and adjusted market assessment approaches.

We then recognize the revenue allocated to each performance obligation as the related performance obligation is satisfied as discussed below.

Sales of VOIs, net —

Customers who purchase all vacation ownership products, whether paid in cash or financed, enter into multiple contracts, which we combine and account for as a single contract.

Revenue from VOI sales is recognized at the point in time when control of the VOI is transferred to the customer which is when the customer has executed a binding sales contract, collectability is reasonably assured, the purchaser’s period to cancel for a refund has expired and the customer has the right to use the VOI.

Revenue from sales of VOIs under construction is deferred until the point in time when construction activities are deemed to be completed, occupancy of the development is permissible, and the above criteria has been met.

For financed sales, we estimate the variable consideration to be received under such contracts and recognize revenue net of amounts deemed uncollectible as the VOI is returned to inventory upon customer default.

Variable consideration which has not been included within the transaction price is presented as a reserve on the financing receivable.

Timeshare Financing Receivables for more information regarding our estimate of variable consideration.

Vacation ownership product sales include revenue from the sale of VOIs, which in the case of the Diamond Collections are represented by an annual or biennial allotment of points that can be utilized for vacations at Diamond resorts in our network for varying lengths of stay.

Typical contracts include the sale of VOIs, certain sales incentives primarily in the form of additional points for use over a specified period of time (“Bonus Points”), and generally membership in the Legacy-HGV Club or Diamond Clubs, each of which represent a separate and distinct performance obligation for which consideration is allocated based on the estimated stand-alone selling price of the sales incentives and membership dues.

We recognize revenue related to our VOIs when control of the points passes to the customer, which generally occurs after the expiration of the applicable statutory rescission period and after collectability is reasonably assured and the customer has the right to use the VOI.

Bonus Points are valid for a specified period of time (generally for a period between 18 and 30 months) and may be used for stays at properties within our resort network, and in the case of HGV, hotel reservations within Hilton’s system and VOI interval exchanges with other third-party vacation ownership exchanges.

At the time of the VOI sale, we estimate the fair value of sales incentives to be redeemed, including an adjustment for estimated breakage, to determine the standalone selling price of these incentives (“FDI”).

We defer a portion of the total transaction price for the combined VOI contract as a liability for the FDI and recognize the corresponding revenue at the point in time when the customer receives the benefits of the FDI, which is upon the customer’s redemption of the Bonus Points.

At that time, we also determine whether we are principal or agent for the redeemed good or service and recognize revenue on a gross or net basis accordingly.

Contracts’

financed amount represents variable consideration which is estimated based on the expected value method to the extent that it is probable a significant reversal is not expected to occur.

We estimate the expected value to be collected based on historical default rates and recognize revenue net of amounts deemed to be uncollectible.

Variable consideration that has not been included in the transaction price is presented as a reserve on the financing receivable.

Timeshare Financing Receivables for more information regarding our estimate of variable consideration.

Sales, marketing, brand and other fees —

We enter into contracts with third-party developers to sell VOIs on their behalf through fee-for-service agreements for which we earn sales commissions and other fees.

These commissions are variable as they are based on the sales and marketing results, which are subject to the constraint on variable consideration and resolved on a monthly basis over the contract term.

We estimate such commissions to the extent that it is probable that a significant reversal of such revenue will not occur and recognize the commissions as the developer receives and consumes the benefits of the services.

Any changes in these estimates would affect revenue and earnings in the period such variances are realized.

Additionally, we enter into contracts to sell prepaid vacation packages.

Our obligation in such contracts is satisfied when customers stay at our property;

therefore, we recognize revenue for these packages when they are redeemed.

On a portfolio basis, we exercise judgement to estimate the amount of expected breakage related to unused prepaid vacation packages and recognize such breakage in proportion to the pattern of packages utilized by our portfolio of customers.

Financing —

We offer financing to qualifying customers purchasing our VOIs.

Revenue from the financing of timeshare sales is recognized on the accrual method as earned based on the outstanding principal, interest rate and terms stated in each individual financing agreement.

We also recognize revenue from servicing the loans provided by third-party developers to purchasers of their VOIs over the period services are rendered.

Resort and club management —

As part of our VOI sales, a majority of our customers enter into a Legacy-HGV Club or Diamond Club arrangement (referred to collectively as “Clubs”) which allows the member to exchange points for a number of vacation options.

We manage the Clubs, receiving annual dues, transaction fees from member exchanges, and, in the case of the Legacy-HGV Club, activation fees.

The member's first year of annual dues and, in the case of the Legacy-HGV Club, the activation fee, are payable at the time of the VOI sale.

The Legacy-HGV Club activation fee relates to activities we are required to undertake at or near contract inception to fulfill the contract and does not result in the transfer of a promised good or service.

Since our customers are granted the opportunity to renew their membership on an annual basis for no additional activation fee, we defer and amortize the activation fee on a straight-line basis over the seven-year average inventory holding period.

Annual dues for membership renewals are billed each year, and we recognize revenue from these annual dues over the period services are rendered.

A member may elect to enter into an optional exchange transaction at which point the member pays their required transaction fee.

This option does not represent a material right as the transactions are priced at their standalone selling price.

Revenue related to the transaction is recognized when the services are rendered.

As part of our resort operations, we contract with HOAs to provide day-to-day-management services, including housekeeping services, operation of a reservation system, maintenance, and certain accounting and administrative services.

We receive compensation for such management services, which is generally based on a percentage of costs to operate the resorts, on a monthly basis.

These fees represent a form of variable consideration and are estimated and recognized over time as the HOAs receive and consume the benefits of the management services.

Management fees earned related to the portion of unsold VOIs at each resort which we own are recognized on a net basis given we retain these VOIs in our inventory.

Rental and ancillary services —

Our rental and ancillary services consist primarily of rental revenues on unoccupied vacation ownership units, inventory made available due to ownership exchanges through our club program and ancillary revenues.

Rental revenue is recognized when occupancy has occurred.

Advance deposits on the rental unit and the corresponding revenue is deferred and recognized upon the customer’s vacation stay.

Ancillary revenues consist of food and beverage, retail, spa offerings and other items.

We recognize ancillary revenue when goods have been provided and/or services have been rendered.

We account for rental operations of unsold VOIs, including accommodations provided through the use of our vacation sampler programs, as incidental operations.

Incremental carrying costs in excess of incremental revenues are recognized in the period incurred.

In all periods presented, incremental carrying costs exceeded incremental revenues, and all revenues and expenses are recognized in the period earned or incurred.

Cost reimbursements —

As part of our management agreements with HOAs and fee-for-service developers, we receive cost reimbursements for performing the day-to-day management services, including direct and indirect costs that HOAs and developers reimburse to us.

These costs primarily consist of insurance, payroll and payroll related costs for management of the HOAs and other services we provide where we are the employer and provide insurance.

Cost reimbursements are based upon actual expenses with no added margin, and are billed to the HOA on a monthly basis.

We recognize cost reimbursements when we incur the related reimbursable costs as the HOA receives and consumes the benefits of the management services.

We capitalize all incremental costs incurred to obtain a contract when such costs would not have been incurred if the contract had not been obtained.

We elect to expense costs incurred to obtain a contract when the deferral period would be one year or less.

Commissions for VOI sales for resorts under construction are expensed when the associated VOI revenue is recognized which is upon completion of the resort.

These commissions are classified as Sales and marketing expense in our consolidated statements of operations.

These contract costs are recognized at the point in time that the revenue related to the incentive is recognized and included within Sales of VOIs, net on the consolidated statements of operations.

As of December 31, 2021 , the ending asset balance for costs to obtain a contract was $ 13 million relating to deferred commission costs for certain vacation package sales and VOI sales of resorts under construction.

For the year ended December 31, 2021, we recognized $ 33 million of expense related to this asset balance.

Other than the United States, there were no countries that individually represented more than 10 percent of total revenues for the years ended December 31, 2021, 2020 and 2019.

We earn commission and other fees related to fee-for-service agreements to sell VOIs.

For the years ended December 31, 2021, 2020 and 2019 , we did not earn more than 10 percent of our total revenue from one customer.

We are required to collect certain taxes and fees from customers on behalf of government agencies and remit these back to the applicable governmental agencies on a periodic basis.

We have a legal obligation to act as a collection agent with respect to these taxes and fees.

We do not retain these taxes and fees and, therefore, they are not included in revenues.

We record a liability when the amounts are collected and relieve the liability when payments are made to the applicable taxing authority or other appropriate governmental agency.

Business Combinations

We account for our business combinations in accordance with the acquisition method of accounting.

We allocate the purchase price of an acquisition to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date.

For each acquisition, we recognize goodwill as the amount in which consideration transferred for the acquired entity exceeds the fair values of net assets.

The fair value of net assets is the fair value assigned to the assets acquired reduced by the fair value assigned to liabilities assumed.

We utilize independent valuation specialists under our supervision for certain of our assignments of fair value.

We record the net assets and results of operations of an acquired entity in our consolidated financial statements from the acquisition date through period-end.

We expense acquisition-related expenses as incurred and include such expenses within Acquisition and integration-related expense on our consolidated statements of operations.

Diamond Acquisition for further information.

Acquired Financial Assets with Credit Deterioration

Financial assets that were acquired with evidence of such credit deterioration are referred to as purchased credit deteriorated ("PCD") assets and reflect the acquirer’s assessment at the acquisition date.

The evaluation of PCD assets is a qualitative assessment requiring management judgment.