Hilton Grand Vacations Inc. 10-K

ITEM 8. Financial Statements 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 69 Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) 70 Report of Independent Registered Public Accounting Firm 72 Consolidated Balance Sheets as of December 31, 202 2 and 202 1 74 Consolidated Statements of Operations for the years ended December 31, 202 2 , 202 1 and 20 20 75 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 202 2 , 202 1 and 20 20 76 Consolidated Statements of Cash Flows for the years ended December 31, 20 22 , 202 1 and 20 20 77 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 202 2 , 202 1 and 20 20 78 Notes to Consolidated Financial Statements 79 68 Table of Contents 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 “Exchange Act”). 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, 2022. 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). Based on our assessment, management concluded that a material weakness exists in our internal control over financial reporting as of December 31, 2022 due to a material weakness in internal control over financial reporting at Dakota Holdings, Inc. (“Diamond”), which the Company acquired on August 2, 2021. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements could occur but will not be prevented or detected on a timely basis. Prior to 2022, Diamond, which was acquired on August 2, 2021, was not included in our assessment of the effectiveness of our internal control over financial reporting as the Securities and Exchange Commission (“SEC”) rules provide companies one year to assess controls at an acquired entity. Accordingly, within this period, we performed our first comprehensive assessment of the design and effectiveness of internal controls at Diamond, which was not a reporting company pursuant to the Exchange Act, at the time of the acquisition and therefore not subject to the same requirements with respect to internal controls as the Company. As a result of this assessment, we determined that Diamond’s internal control over financial reporting was ineffective as of December 31, 2022. Specifically, Diamond did not adequately identify, design and implement the process-level controls for its significant processes that are necessary for compliance with the requirements for reporting companies, and Diamond did not have appropriate information technology controls for its information technology systems or such controls did not operate for a sufficient period of time prior to the assessment date. These deficiencies neither pertained to, nor impacted, any of the processes, controls or procedures related to the historical business of the Company outside of Diamond. Additionally, there were no identified material misstatements to our current year financial statements, no restatements of prior period financial statements and no changes in previously released financial results required as the result of these control deficiencies. 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 expressing an adverse opinion on the Company’s internal control over financial reporting as of December 31, 2022. The report is included herein. 69 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders 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, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, 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, 2022, 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, 2023 expressed an adverse 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. Cost of Vacation Ownership Intervals Sales Description of the Matter For the year ended December 31, 2022, the Company’s cost of vacation ownership intervals (“VOI”) sales was $274 million, which includes amounts recognized by the Legacy-HGV and Legacy-Diamond 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 and Legacy-Diamond 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, timing and volume of VOI sales, and provisions for financing receivables losses on financed sales of VOIs. 70 Table of Contents Cost of Vacation Ownership Intervals Sales (Continued) 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 and Legacy-Diamond 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 analyses. We compared the significant assumptions used by management to historical trends and/or the Company’s future 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. We performed analytical procedures to evaluate individual timeshare project or individual collection 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. Allowance for Financing Receivables Description of the Matter At December 31, 2022, the Company’s allowance for financing receivables generated by the financing of VOI sales was $742 million, which included amounts related to the Legacy-HGV and Legacy-Diamond 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 and Legacy-Diamond static pools and consider current and future economic and market conditions. Auditing the Legacy-HGV and Legacy-Diamond 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 and Legacy-Diamond 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 analyses. We evaluated management’s assessment that historical data reflects current and future market conditions in estimating the allowance. We also compared data used in the Legacy-HGV and Legacy-Diamond static pool analyses to historical data from prior periods. We analytically compared current year default rates to prior year default rates. In addition, we recalculated the Legacy-HGV and Legacy-Diamond allowance for financing receivables for certain pools of loans. Given the uniqueness of the static pool analysis to the real estate timeshare industry, we involved real estate subject matter resources on our team. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2016. Orlando, Florida March 1, 2023 71 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Hilton Grand Vacations Inc. Opinion on Internal Control Over Financial Reporting We have audited Hilton Grand Vacation Inc.’s internal control over financial reporting as of December 31, 2022, 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, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, Hilton Grand Vacations Inc. (the Company) has not maintained effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. The Company, which acquired Diamond on August 2, 2021, did not adequately identify, design and implement appropriate process-level controls for Legacy-Diamond’s significant processes and appropriate information technology controls for Legacy-Diamond’s information technology systems or such controls did not operate for a sufficient period of time prior to the assessment date. 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, 2022 and 2021, 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, 2022, and the related notes. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2022 consolidated financial statements, and this report does not affect our report dated March 1, 2023, which 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. 72 Table of Contents 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. /s/ Ernst & Young LLP Orlando, Florida March 1, 2023 73 Table of Contents HILTON GRAND VACATIONS INC. CONSOLIDATED BALANCE SHEETS (in millions, except share data) December 31, 2022 2021 ASSETS Cash and cash equivalents $ 223 $ 432 Restricted cash 332 263 Accounts receivable, net of allowance for doubtful accounts of $ 52 and $ 39 511 302 Timeshare financing receivables, net 1,767 1,747 Inventory 1,159 1,240 Property and equipment, net 798 756 Operating lease right-of-use assets, net 76 70 Investments in unconsolidated affiliates 72 59 Goodwill 1,416 1,377 Intangible assets, net 1,277 1,441 Land and infrastructure held for sale — 41 Other assets 373 280 TOTAL ASSETS (variable interest entities - $ 948 and $ 1,100 ) $ 8,004 $ 8,008 LIABILITIES AND EQUITY Accounts payable, accrued expenses and other $ 1,007 $ 673 Advanced deposits 150 112 Debt, net 2,651 2,913 Non-recourse debt, net 1,102 1,328 Operating lease liabilities 94 87 Deferred revenues 190 237 Deferred income tax liabilities 659 670 Total liabilities (variable interest entities - $ 1,005 and $ 1,199 ) 5,853 6,020 Commitments and contingencies - see Note 23 Equity: Preferred stock, $ 0.01 par value; 300,000,000 authorized shares, none issued or outstanding as of December 31, 2022 and 2021 — — Common stock, $ 0.01 par value; 3,000,000,000 authorized shares, 113,628,706 shares issued and outstanding as of December 31, 2022 and 119,904,001 shares issued and outstanding as of December 31, 2021 1 1 Additional paid-in capital 1,582 1,630 Accumulated retained earnings 529 357 Accumulated other comprehensive income 39 — Total equity 2,151 1,988 TOTAL LIABILITIES AND EQUITY $ 8,004 $ 8,008 See notes to consolidated financial statements. 74 Table of Contents HILTON GRAND VACATIONS INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per share amounts) Year Ended December 31, 2022 2021 2020 Revenues Sales of VOIs, net $ 1,491 $ 883 $ 108 Sales, marketing, brand and other fees 620 385 221 Financing 267 183 165 Resort and club management 534 340 166 Rental and ancillary services 626 342 97 Cost reimbursements 297 202 137 Total revenues 3,835 2,335 894 Expenses Cost of VOI sales 274 213 28 Sales and marketing 1,146 653 381 Financing 103 65 53 Resort and club management 161 80 36 Rental and ancillary services 579 267 107 General and administrative 212 151 92 Acquisition and integration-related expense 67 106 — Depreciation and amortization 244 126 45 License fee expense 124 80 51 Impairment expense 17 2 209 Cost reimbursements 297 202 137 Total operating expenses 3,224 1,945 1,139 Interest expense ( 142 ) ( 105 ) ( 43 ) Equity in earnings from unconsolidated affiliates 13 10 5 Other (loss) gain, net ( 1 ) ( 26 ) 3 Income (loss) before income taxes 481 269 ( 280 ) Income tax (expense) benefit ( 129 ) ( 93 ) 79 Net income (loss) $ 352 $ 176 $ ( 201 ) Earnings (loss) per share: Basic $ 2.98 $ 1.77 $ ( 2.36 ) Diluted $ 2.93 $ 1.75 $ ( 2.36 ) See notes to consolidated financial statements. 75 Table of Contents HILTON GRAND VACATIONS INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in millions) Year Ended December 31, 2022 2021 2020 Net income (loss) $ 352 $ 176 $ ( 201 ) Foreign currency translation adjustments ( 7 ) ( 2 ) — Derivative instrument adjustments, net of tax 46 2 — Other comprehensive income, net of tax 39 — — Comprehensive income (loss) $ 391 $ 176 $ ( 201 ) See notes to consolidated financial statements. 76 Table of Contents HILTON GRAND VACATIONS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Year Ended December 31, 2022 2021 2020 Operating Activities Net income (loss) $ 352 $ 176 $ ( 201 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 244 126 45 Amortization of deferred financing costs, acquisition premiums and other 52 39 18 Provision for financing receivables losses 142 121 75 Impairment expense 17 2 209 Other loss (gain), net 3 14 ( 1 ) Share-based compensation 46 48 15 Deferred income tax (benefit) expense ( 38 ) 58 ( 123 ) Equity in earnings from unconsolidated affiliates ( 13 ) ( 10 ) ( 5 ) Return on investment in unconsolidated affiliates — 2 — Net changes in assets and liabilities, net of effects of acquisition: Accounts receivable, net ( 177 ) ( 124 ) 56 Timeshare financing receivables, net ( 224 ) ( 92 ) 107 Inventory 100 15 ( 91 ) Purchases and development of real estate for future conversion to inventory ( 8 ) ( 33 ) ( 36 ) Other assets ( 34 ) 48 ( 11 ) Accounts payable, accrued expenses and other 294 ( 48 ) ( 56 ) Advanced deposits 37 ( 8 ) 2 Deferred revenues ( 46 ) ( 166 ) 76 Net cash provided by operating activities 747 168 79 Investing Activities Acquisition of Diamond, net of cash and restricted cash acquired — ( 1,592 ) — Capital expenditures for property and equipment (excluding inventory) ( 58 ) ( 18 ) ( 8 ) Software capitalization costs ( 39 ) ( 21 ) ( 23 ) Investments in unconsolidated affiliates — — ( 2 ) Net cash used in investing activities ( 97 ) ( 1,631 ) ( 33 ) Financing Activities Issuance of debt 40 2,950 495 Issuance of non-recourse debt 769 264 495 Repayment of debt ( 313 ) ( 1,154 ) ( 165 ) Repayment of non-recourse debt ( 990 ) ( 359 ) ( 475 ) Debt issuance costs ( 13 ) ( 70 ) ( 9 ) Repurchase and retirement of common stock ( 272 ) — ( 10 ) Payment of withholding taxes on vesting of restricted stock units ( 8 ) ( 6 ) ( 4 ) Proceeds from employee stock plan purchases 5 1 2 Proceeds from stock option exercises 2 13 1 Other ( 2 ) ( 3 ) ( 2 ) Net cash (used in) provided by financing activities ( 782 ) 1,636 328 Effect of changes in exchange rates on cash, cash equivalents & restricted cash ( 8 ) ( 4 ) — Net (decrease) increase in cash, cash equivalents and restricted cash ( 140 ) 169 374 Cash, cash equivalents and restricted cash, beginning of period 695 526 152 Cash, cash equivalents and restricted cash, end of period 555 695 526 Less: Restricted cash 332 263 98 Cash and cash equivalents $ 223 $ 432 $ 428 See notes to consolidated financial statements. 77 Table of Contents HILTON GRAND VACATIONS INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ EQUITY (in millions) Common Stock Additional Paid-in Capital Accumulated Retained Earnings Accumulated Other Comprehensive Income Total Equity Shares Amount Balance as of December 31, 2020 84 $ 1 $ 192 $ 181 $ — $ 374 Net income — — — 176 — 176 Activity related to share-based compensation 2 — 56 — — 56 Shares issued for Diamond acquisition 34 — 1,381 — — 1,381 Employee stock plan issuance — — 1 — — 1 Foreign currency translation adjustments — — — — ( 2 ) ( 2 ) Derivative instrument adjustments — — — — 2 2 Balance as of December 31, 2021 120 $ 1 $ 1,630 $ 357 $ — $ 1,988 Net income — — — 352 — 352 Activity related to share-based compensation — — 40 — — 40 Employee stock plan issuance — — 4 — — 4 Foreign currency translation adjustments — — — — ( 7 ) ( 7 ) Derivative instrument adjustments — — — — 46 46 Repurchase and retirement of common stock ( 7 ) — ( 92 ) ( 180 ) — ( 272 ) Balance as of December 31, 2022 113 $ 1 $ 1,582 $ 529 $ 39 $ 2,151 See notes to consolidated financial statements. 78 Table of Contents . HILTON GRAND VACATIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1: Organization and Basis of Presentation Our Business We are a global timeshare company engaged in developing, marketing, selling, managing and operating timeshare resorts, timeshare plans and ancillary reservation services, primarily under the Hilton Grand Vacations brand. During 2021, we acquired Dakota Holdings, Inc., (the “Diamond Acquisition”) the parent of Diamond Resorts International (“Diamond”) and are in the process of rebranding Diamond properties and sales centers to the Hilton Grand Vacations brand and Hilton standards. Our operations primarily consist of selling vacation ownership intervals and vacation ownership interests (collectively, “VOIs” or “VOI”) for ourselves and third parties; financing and servicing loans provided to consumers for their VOI purchases; operating resorts and timeshare plans; and managing both our points-based Hilton Grand Vacations Club and Hilton Club exchange program (collectively the “Legacy-HGV Club”) and our Diamond points-based multi-resort timeshare plans and exchange programs (the “Legacy-Diamond Clubs”). During 2022, we began offering a new club membership called HGV Max across certain of our sales centers. For any customer who purchases a VOI, this membership provides the ability to use points across all properties within our network. The membership provides new destinations for both Legacy-HGV and Legacy-Diamond club owners and broader vacation opportunities for new buyers. The Legacy-HGV Club, Legacy-Diamond Clubs and HGV Max are collectively referred to as “Clubs”. As of December 31, 2022, we had over 150 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 Diamond Acquisition by exchanging 100 % of the outstanding equity interests of Diamond for shares of HGV common stock. Pre-existing HGV shareholders owned approximately 72 % of the combined company immediately after giving effect to the Diamond Acquisition, with certain funds controlled by Apollo Global Management Inc. (“Apollo”) and other minority shareholders, which previously owned 100 % of Diamond, holding the remaining approximately 28 % at the time the Diamond Acquisition was completed. The acquired portfolio of resort properties are included in Diamond's single- and multi-use trusts (collectively, the “Diamond Collections” or “Collections”), or are stand-alone Diamond branded resorts in which we own inventory. In addition, there are 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 (collectively the “Diamond Clubs”), are available for its members to use as vacation destinations. 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 further information. Basis of Presentation The consolidated financial statements presented herein include 100% 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. 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% of the voting shares of a company or otherwise have a controlling financial interest. 79 Table of Contents 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. Note 2: Summary of Significant Accounting Policies Revenue Recognition We account for revenue in accordance with Accounting Standards Codification 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. The variable consideration is estimated based on the expected value method, based on historical default rates, to the extent that it is probable that a significant reversal is not expected to occur. Variable consideration which has not been included within the transaction price is presented as a reserve on the financing receivable. See Note 7: Timeshare Financing Receivables for further 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 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 80 Table of Contents 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. • 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. • Resort and club management — As part of our VOI sales, a majority of our customers enter into a Club arrangement 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, when applicable, activation fees. The member's first year of annual dues and, when applicable, the activation fee, are payable at the time of the VOI sale. The 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. 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 81 Table of Contents 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. These contract costs are recognized at the point in time that the revenue related to the incentive is recognized. 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. As of December 31, 2022, the ending asset balance for costs to obtain a contract was $ 8 million relating to deferred commission costs for certain vacation package sales and VOI sales of resorts under construction. For the year ended December 31, 2022, we recognized $ 9 million of expense related to costs deferred as of December 31, 2021. Other than the United States, there were no countries that individually represented more than 10% of total revenues for the years ended December 31, 2022, 2021 and 2020. For the years ended December 31, 2022, 2021 and 2020, we did not earn more than 10% 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. See Note 4: Revenue from Contracts with Customers for further information. 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. See Note 3: Diamond Acquisition for further information. 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 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. 82 Table of Contents 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. See Note 3: Diamond Acquisition and Note 7: Timeshare Financing Receivables for further information. Investments in Unconsolidated Affiliates We account for investments in unconsolidated affiliates under the equity method of accounting when we exercise significant influence, but do not maintain a controlling financial interest over the affiliates. We evaluate our investments in affiliates for impairment when there are indicators that the fair value of our investment may be less than our carrying value. Cash and Cash Equivalents Cash and cash equivalents include all highly liquid investments with original maturities of three months or less. Restricted Cash Restricted cash includes deposits received on VOI sales that are held in escrow until legal requirements of the local jurisdictions are met with regards to project construction or contract status and cash reserves required by our non-recourse debt agreements. Restricted cash also includes certain amounts collected on behalf of HOAs. Accounts Receivable and Allowance for Credit Losses Accounts receivable primarily consists of trade receivables and is reported as the customers’ outstanding balances, less any allowance for credit losses. The expected credit losses are measured using an expected-loss model that reflects the risk of loss and considers the losses expected over the outstanding period of the receivable. Cloud Computing Arrangements We capitalize certain costs associated with cloud computing arrangements (“CCAs”). These costs are included in Other assets in our consolidated balance sheets and are expensed in the same line as the hosting arrangement in our consolidated statements of operations using the straight-line method over the assets’ estimated useful lives, which is generally three to five years . We review the CCAs 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 carrying value over the fair value in our consolidated statements of operations. Derivative Instruments We use derivative instruments as part of our overall strategy to manage our exposure to market risks primarily associated with fluctuations in interest rates and do not use derivatives for trading or speculative purposes. We record the derivative instrument at fair value either as an asset or liability. We assess the effectiveness of our hedging instruments quarterly and record changes in fair value in Accumulated other comprehensive income for the effective portion of the hedge and record the ineffectiveness of a hedge immediately in earnings in our consolidated statement of operations. We release the derivative’s gain or loss from accumulated other comprehensive income to match the timing of the underlying hedged items’ effect on earnings. Timeshare Financing Receivables and Allowance for Financing Receivables Losses Our timeshare financing receivables consist of loans related to our financing of VOI sales that are secured by the underlying timeshare properties. We determine our timeshare financing receivables to be past due based on the contractual terms of the individual mortgage loans. We recognize interest income on our timeshare financing receivables as earned. The interest rate charged on the notes correlates to the risk profile of the borrower at the time of purchase and the percentage of the purchase that is financed, among other factors. We record an estimate of variable consideration as a reduction of revenue from VOI sales at the time revenue is recognized on a VOI sale. We have two timeshare financing receivables portfolio segments: (i) originated and (ii) acquired. Our originated portfolio segment includes Legacy-HGV and Legacy-Diamond timeshare financing receivables originated after the August 2, 2021 acquisition date, while our acquired portfolio segments includes all Legacy-Diamond timeshare financing receivables as of that date. We evaluate the portfolio segments collectively, since we hold a large group of homogeneous timeshare financing receivables, which are individually immaterial. We monitor the credit quality of our receivables on an ongoing basis. There are no significant concentrations of collection risk with any individual counterparty or groups of counterparties. We use a technique referred to as static pool analysis as the basis for determining our financing receivables losses reserve requirements on our timeshare financing receivables. The static pool analysis includes several years of default data through which we stratify our portfolio using certain key dimensions including, for Legacy-HGV timeshare financing receivables, FICO scores and equity percentage at the time of sale. The adequacy of the related allowance is 83 Table of Contents determined by management through analysis of several factors, such as current and forward-looking economic conditions and industry trends, as well as the specific risk characteristics of the portfolio including assumed default rates, aging and historical write-offs of these receivables. In addition, for our acquired portfolio segment we also develop an inventory recovery assumption to reflect the recovery value of VOIs from future potential defaults. Our estimate of inventory recovery is principally based upon the fair value of underlying VOIs and assumed default rates and is reflected as a reduction to the estimated gross allowance. Once a timeshare financing receivable within the acquired portfolio segment is charged-off, the loan's corresponding inventory recovery amount is reclassified from the allowance into inventory. The allowance is maintained at a level deemed adequate by management based on a periodic analysis of the mortgage portfolio. We apply payments we receive for loans, including those in non-accrual status, to amounts due in the following order: servicing fees; interest; principal; and late charges. Once a loan is 91 days past due, we cease accruing interest and reverse the accrued interest recognized up to that point. We resume interest accrual for loans for which we had previously ceased accruing interest once the loan is less than 91 days past due. We fully reserve for a timeshare financing receivable in the month following the date that the loan is 121 days past due and, subsequently, we write off the uncollectible note against the reserve once the foreclosure process is complete and we receive the deed for the foreclosed unit. See Note 7: Timeshare Financing Receivables for further information. Inventory and Cost of Sales Inventory includes unsold, completed VOIs; VOIs under construction; and land and infrastructure held for future VOI product development at our current resorts. We carry our completed VOI inventory at the lower of cost or estimated fair value, less costs to sell, which can result in impairment losses and/or recoveries of previous impairments. Projects under development, along with land and infrastructure for future development are under a held and use impairment model and are reviewed for indicators of impairment quarterly. We capitalize costs directly associated with the acquisition, development and construction of a real estate project when it is probable that the project will move forward. We capitalize salary and related costs only to the extent they directly relate to the project. We capitalize interest expense, taxes and insurance costs when activities that are necessary to get the property ready for its intended use are underway. We cease capitalization of costs during prolonged gaps in development when substantially all activities are suspended or when projects are considered substantially complete. We account for our VOI inventory and cost of VOI sales using the relative sales value method. Also, we do not reduce inventory for the cost of VOI sales related to anticipated defaults, and accordingly, no adjustment is made when inventory is reacquired upon default of the related receivable. This results in changes in estimates within the relative sales value calculations to be accounted for as real estate inventory true-ups, which we refer to as cost of sales true-ups, and are included in Cost of VOI sales in our consolidated statements of operations to retrospectively adjust the margin previously recognized subject to those estimates. Property and Equipment Property and equipment includes land, buildings and leasehold improvement and furniture and equipment at our corporate offices, sales centers and management offices. Additionally, certain property and equipment is held for future conversion into inventory. Construction in progress primarily relates to development activities. Costs that are capitalized related to development activities are classified as property and equipment until they are registered for sale. Costs of improvements that extend the economic life or improve service potential are also capitalized. Capitalized costs are depreciated over their estimated useful lives. Costs for normal repairs and maintenance are expensed as incurred. Other than the United States, there were no countries that individually represented over 10% of total property and equipment, net as of December 31, 2022 and 2021. Depreciation is recorded using the straight-line method over the assets’ estimated useful lives, which are generally as follows: buildings and improvements ( eight to forty years ); furniture and equipment ( three to fifteen years , including our corporate jet); and computer equipment and acquired software ( three years ). Leasehold improvements are depreciated over the shorter of the estimated useful life, based on the estimates above, or the lease term. 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. Refer to Note 9: Property and Equipment for further information. 84 Table of Contents If sufficient information exists to reasonably estimate the fair value of a conditional asset retirement obligation, including environmental remediation liabilities, we recognize the fair value of the obligation when the obligation is incurred. Assets Held for Sale 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. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale of a long-lived asset until the date of sale. Upon designation as an asset held for sale, we stop recording depreciation expense on the asset. 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. All methodologies utilized to determine fair value involve judgment. For the year ended December 31, 2020, we recorded a non-cash impairment charge of $ 209 million related to the identified assets held for sale. 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 estimated fair value of land and infrastructure held for sale was $ 45 million as of December 31, 2021, excluding costs to sell. We did not have any non-cash impairment charges related to assets held for sale for the year ended December 31, 2021. During the year ended December 31, 2022, we concluded that the parcels of land and infrastructure which were previously classified as held for sale, no longer met the held for sale criteria. Thus, these assets were reclassified to property and equipment as a non-cash transfer. The assets were measured at fair value as of the transfer date as assets held for sale prior to reclassification, principally utilizing market approaches for the land parcels and the cost approach for infrastructure. For the year ended December 31, 2022, we recorded a reversal of impairment expense of $ 7 million corresponding with this reclassification. As of December 31, 2022, we did not have assets held for sale. Refer to Note 9: Property and Equipment and Note 16: Fair value measurements for further information. Leases We lease sales centers, office space and equipment under lease agreements. We determine if an arrangement is a lease at inception. Amounts related to operating leases are included in Operating lease right-of-use (“ROU”) assets, net and Operating lease liabilities in our consolidated balance sheets. ROU assets are adjusted for lease incentives received. ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term as of the commencement date. Because most of our leases do not provide an explicit or implicit rate of return, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments on an individual lease basis. Our incremental borrowing rate for a lease is the rate of interest we would have to pay on a collateralized basis to borrow an amount equal to the lease payments for the asset under similar terms. We have lease agreements with lease and non-lease components, which are accounted for as a single lease component. Our operating leases may require minimum rent payments, contingent rent payments based on a percentage of revenue or income, or rental payments adjusted periodically for inflation or rent payments equal to the greater of a minimum rent or contingent rent. Our leases do not contain any residual value guarantees or material restrictive covenants. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets and lease expense is recognized on a straight-line basis over the lease term. We monitor events or changes in circumstances that change the timing or amount of future lease payments which results in the remeasurement of a lease liability, with a corresponding adjustment to the ROU asset. ROU assets for operating and financing leases are periodically reviewed for impairment losses under ASC 360-10, Property, Plant, and Equipment , to determine whether a ROU asset is impaired, and if so, the amount of the impairment loss to recognize. Refer to Note 17: Leases for further information. Goodwill Goodwill acquired in business combinations is assigned to the reporting units expected to benefit from the combination as of the acquisition date. We do not amortize goodwill. We evaluate goodwill for potential impairment at least annually, on October 1, or more frequently if an event or other circumstance indicates that it is more-likely-than-not 85 Table of Contents that we may not be able to recover the carrying amount (book value) of the net assets of the related reporting unit. The review is based on either a qualitative assessment or a two-step impairment test. When evaluating goodwill for impairment, we may perform the optional qualitative assessment by considering factors including macroeconomic conditions, industry and market conditions, overall financial performance of our reporting units, and other relevant entity-specific events. 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. No goodwill impairment charges were recognized during the years ended December 31, 2022 and 2021. Refer to Note 3: Diamond Acquisition for further information. Intangible Assets Our intangible assets consist of management agreements, trade name, club member relationships and certain proprietary software technologies with finite lives. We have management agreements, trade name, club member relationships, and software intangibles that were recorded at their fair value as part of the Diamond Acquisition. We also have management agreements that were recorded at their fair value at the time of the completion of a merger on October 24, 2007, where Hilton became a wholly-owned subsidiary of an affiliate of The Blackstone Group L.P. (“Blackstone”). Additionally, we capitalize costs incurred to develop internal-use computer software, including costs incurred in connection with development of upgrades or enhancements that result in additional functionality. These capitalized costs are included in Intangible assets, net in our consolidated balance sheets. Intangible assets with finite useful lives are amortized using the straight-line method over their respective useful lives, which varies for each type of intangible, unless another amortization method is deemed to be more appropriate. In our consolidated statements of operations, the amortization of these intangible assets is included in Depreciation and amortization expense. In estimating the useful life of acquired assets, we reviewed the expected use of the assets acquired, factors that may limit the useful life of an acquired asset or may enable the extension of the useful life of an acquired asset without substantial cost, the effects of obsolescence, demand, competition and other economic factors, and the level of maintenance expenditures required to obtain the expected future cash flows from the asset. 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. As of December 31, 2022 and 2021, we do not have any indefinite lived intangible assets. Refer to Note 12: Intangible Assets for further information. Deferred Financing Costs Deferred financing costs, including legal fees and upfront lenders fees, related to the Company’s debt and non-recourse debt are deferred and amortized over the life of the respective debt using the effective interest method. The capitalized costs related to the Timeshare Facility and the Revolver are included in Other assets while the remaining capitalized costs related to all other debt instruments are included in Debt, net in our consolidated balance sheets. The amortization of deferred financing costs is included in Interest expense in our consolidated statements of operations. Refer to Note 15: Debt & Non-recourse debt for additional information. Costs Incurred to Sell VOIs and Vacation Packages We expense indirect sales and marketing costs we incur to sell VOIs and vacation packages when incurred. Deferred selling expenses, which are direct selling costs related to a contract for which revenue has not yet been recognized, were $ 18 million and $ 25 million as of December 31, 2022 and 2021, respectively, and were included in Other assets on our consolidated balance sheets. Fair Value Measurements—Valuation Hierarchy Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date (an exit price). We use the three-level valuation hierarchy for classification of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our own assumptions about the data 86 Table of Contents market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The three-level hierarchy of inputs is summarized below: • Level 1—Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets; • Level 2—Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument; and • Level 3—Valuation is based upon unobservable inputs that are significant to the fair value measurement. The classification of assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement in its entirety. Refer to Note 15: Debt and non-recourse debt and Note 16: Fair Value Measurements for further information. Currency Translation and Remeasurement The United States dollar (“USD”) is our reporting currency and is the functional currency of the majority of our operations. For operations whose functional currency is not the USD, assets and liabilities measured in foreign currencies are translated into USD at the prevailing exchange rates in effect as of the financial statement date, and the related gains and losses are reflected within Accumulated other comprehensive income in our consolidated balance sheets. Related income and expense accounts are translated at the average exchange rate for the period. Gains and losses from foreign exchange rate changes related to transactions denominated in a currency other than an entity’s functional currency or transactions related to intercompany receivables and payables denominated in a currency other than an entity’s functional currency that are not of a long-term investment nature are recognized as g ains or losses on foreign currency transactions. These gains or losses are included in Other (loss) gain, net in our consolidated statements of operations. Share-Based Compensation Certain of our employees participate in our 2017 Omnibus Incentive Plan (the “Stock Plan”) which compensates eligible employees and directors with restricted stock units (“RSUs”), time and performance-vesting restricted stock units (“Performance RSUs” or “PSUs”) and nonqualified stock options (“Options”). We record compensation expense based on the share-based awards granted to our employees. The measurement objective for these equity awards is the estimated fair value at the grant date of the equity instruments that we are obligated to issue when employees have rendered the requisite service and satisfied any other conditions necessary to earn the right to benefit from the instruments. Compensation expense is recognized ratably over the requisite period and the corresponding change is recognized in Additional paid-in capital in our consolidated balance sheets. The requisite service period is the period during which an employee is required to provide service in exchange for an award. We recognize forfeitures of awards as they occur. Income Taxes We account for income taxes using the asset and liability method. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year, to recognize the deferred tax assets and liabilities that relate to tax consequences in future years, which result from differences between the respective tax basis of assets and liabilities and their financial reporting amounts, and tax loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the respective temporary differences or operating loss or tax credit carryforwards are expected to be recovered or settled. The realization of deferred tax assets and tax loss and tax credit carryforwards is contingent upon the generation of future taxable income and other restrictions that may exist under the tax laws of the jurisdiction in which a deferred tax asset exists. Valuation allowances are provided to reduce such deferred tax assets to amounts more likely than not to be ultimately realized. We use a prescribed recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken in a tax return. For all income tax positions, we first determine whether it is “more-likely-than-not” that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. If it is determined that a position meets the more-likely-than-not recognition threshold, the benefit recognized in the financial statements is measured as the largest amount of benefit that is greater than 50% likely of being realized upon settlement. Interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense in the accompanying consolidated statement of operations. Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet. 87 Table of Contents Earnings Per Share Basic earnings per share (“EPS”) is calculated by dividing the earnings available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is calculated to give effect to all potentially dilutive common shares that were outstanding during the reporting period. When there is a year-to-date loss, potential common shares should not be included in the computation of diluted EPS; hence, diluted EPS would equal basic EPS in a period of loss. Defined Contribution Plan We administer and maintain a defined contribution plan for the benefit of all employees meeting certain eligibility requirements who elect to participate in the plan. Contributions are determined based on a specified percentage of salary deferrals by participating employees. We recognized compensation expense for our participating employees totaling $ 19 million, $ 5 million and $ 5 million for the years ended December 31, 2022, 2021 and 2020, respectively. Recently Issued Accounting Pronouncements Adopted Accounting Standards In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2020-04 (“ASU 2020-04”), Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . ASU 2020-04 provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. Further, in December 2022, the FASB issued ASU No. 2022-06 (“ASU 2022-06”), Reference Rate Reform (“Topic 848”). The update deferred the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The guidance was effective as of March 12, 2020 and will apply through December 31, 2024. During the year ended December 31, 2022, we adopted this standard and it did not have a material impact on our consolidated financial statements or results. Accounting Standards Not Yet Adopted In March 2022, the FASB issued Accounting Standards Update 2022-02 (“ASU 2022-02”), Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 provides, under Issue 2 - Vintage Disclosures, that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. For financing receivables, the vintage disclosure is to present the amortized cost basis by credit quality indicator and class of financing receivable for the year of origination. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and is to be applied prospectively. We are currently evaluating the effects of this ASU to our disclosures. In October 2021, the FASB issued Accounting Standards Update 2021-08 (“ASU 2021-08”), Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers . ASU 2021-08 provides that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, the entity should account for the related revenue contracts in accordance with Topic 606 as if the entity had originated the contracts. The guidance is effective for fiscal years beginning after December 15, 2022. We currently plan to implement and evaluate the impacts of this new standard with future acquisitions, if any. Note 3: Diamond Acquisition On August 2, 2021, (the “Acquisition Date”), we completed the Diamond Acquisition by exchanging 100 % of the outstanding equity interests of Diamond to HGV common shares. Following the closing of the Diamond Acquisition, pre-existing HGV shareholders owned approximately 72 % of the combined company after giving effect to the Diamond Acquisition, with Apollo and other minority shareholders holding the remaining approximately 28 % at the time the Diamond Acquisition was completed. On the Acquisition Date, shareholders of Diamond received 0.32 shares of our common stock for each share of Diamond common stock, totaling approximately 28 % of our total common shares outstanding. Additionally, in connection with the Diamond Acquisition, HGV repaid certain existing indebtedness of Diamond. Costs related to the acquisition for the year ended December 31, 2022 and 2021 were $ 67 million and $ 106 million, respectively, which were expensed as incurred, and reflected as Acquisition and integration-related expense in our consolidated statements of operations. 88 Table of Contents The following table presents the fair value of each class of consideration transferred in relation to the Diamond Acquisition at the Acquisition Date. ($ in millions, except stock price amounts) HGV common stock shares issued for outstanding Diamond shares 33.93 HGV common stock price as of Acquisition Date (1) 40.71 Stock purchase price $ 1,381 Repayment of Legacy-Diamond debt $ 2,029 Total consideration transferred $ 3,410 (1) Represents the average of the opening and closing price of HGV stock on August 2, 2021. Fair Values of Assets Acquired and Liabilities Assumed We accounted for the Diamond Acquisition as a business combination, which required us to record the assets acquired and liabilities assumed at fair value as of the Acquisition Date. The following table presents the fair values of the assets that we acquired and the liabilities that we assumed, as finalized. ($ in millions) August 2, 2021 (as finalized) Assets acquired Cash and cash equivalents $ 310 Restricted cash 127 Accounts receivable, net of allowance for doubtful accounts 90 Timeshare financing receivables, net 825 Inventory 488 Property and equipment, net 273 Operating lease right-of-use assets, net 33 Intangible assets, net 1,429 Other assets 261 Total assets acquired $ 3,836 Liabilities assumed Accounts payable, accrued expenses and other $ 520 Non-recourse debt, net 660 Operating lease liabilities 33 Advanced deposits 4 Deferred revenues 140 Deferred income tax liabilities 485 Total liabilities assumed $ 1,842 Net assets acquired $ 1,994 Total consideration transferred $ 3,410 Goodwill (1) $ 1,416 (1) Goodwill is calculated as total consideration transferred less net assets acquired and it primarily represents the value that we expect to obtain from synergies and growth opportunities from our combined Company post-acquisition. The majority of goodwill is not expected to be deductible for tax purposes. Our estimates and assumptions were subject to adjustments during the measurement period, not to exceed one year from the Acquisition Date. During the year ended December 31, 2022, we recognized a net adjustment to goodwill of which $ 39 million, net of impacts of tax adjustments. The adjustments resulted from changes to our estimates of the fair value of the acquired assets and assumed liabilities based on finalizing the valuations of acquired property and equipment, accounts receivable, operating lease right-of-use asset and related lease liabilities, capitalized software and insurance receivables given the ultimate determination of proceeds related to preacquisition business interruption insurance claims as well as deferred income tax liabilities. 89 Table of Contents The net income effects associated with the measurement period adjustments recorded during the years ended December 31, 2022 and 2021 are considered immaterial. Timeshare Financing Receivables We acquired timeshare financing receivables which consist of loans to customers who purchased vacation ownership products and chose to finance their purchases. These timeshare financing receivables are collateralized by the underlying VOIs and generally have 10-year amortizing repayment terms. We estimated the fair value of the timeshare financing receivables using a discounted cash flow model, which calculated a present value of expected future risk-adjusted cash flows over the remaining term of the respective timeshare financing receivables. For purposes of our fair value allocation, we have considered all acquired receivables to be purchase credit deteriorated assets. See Note 7: Timeshare Financing Receivables for further information. Acquired timeshare financing receivables with credit deterioration as of the Acquisition Date were as follows: ($ in millions) As of August 2, 2021 Purchase price $ 825 Allowance for credit losses 512 Premium attributable to other factors ( 97 ) Par value $ 1,240 Inventory We acquired inventory which primarily consists of completed unsold VOIs. We valued acquired inventory using a discounted cash flows method, which included an estimate of cash flows expected to be generated from the sale of VOIs. Significant estimates and assumptions impacting the fair value of the acquired inventory that are subjective and/or require complex judgments include our estimates of operating costs and margins, and the discount rate. Certain other estimates and assumptions impacting the fair value of the acquired inventory involving less subjective and/or less complex judgments include: short-term and long-term revenue growth rates, capital expenditures, tax rates and other factors impacting the discounted cash flows. Property and Equipment We acquired property and equipment, which includes land, building and leasehold improvements, furniture and equipment and construction in progress. We valued the majority of acquired property and equipment using a mix of cost, market and discounted cash flow approaches, which included estimates of future income growth, capitalization rates, discount rates, and capital expenditure needs of the resorts. Intangible Assets The following table presents our fair values of the acquired identified intangible assets and their related remaining useful lives . Estimated Fair Value ($ in millions) Estimated Useful Life (in years) Trade name $ 18 1.5 Management contracts 1,251 35.4 Club member relationships 139 14.4 Computer software 21 1.5 Total intangible assets $ 1,429 We valued the acquired trade name intangible using the relief-from-royalty method, which applies an estimated royalty rate to forecasted future cash flows, discounted to present value. We valued the acquired management contracts intangible and club member relationships intangible using the multi-period excess earnings method, which is a variation of the income approach. This method estimates an intangible asset’s value based on the present value of the incremental after-tax cash flows attributable to the intangible asset. Significant estimates and assumptions impacting the fair value of the acquired management contracts intangible that are subjective and/or require complex judgments include our estimates of operating costs and margins, and the discount rate. Certain other estimates and assumptions impacting the fair value of the acquired management contracts intangible involving less subjective and/or less complex judgments include: short-term and 90 Table of Contents long-term revenue growth rates, attrition rates, capital expenditures, tax rates and other factors impacting the discounted cash flows. Deferred Revenue Deferred revenue primarily relates to deferred sales incentives revenues, mainly related to Bonus Points, which are deferred and recognized upon redemption; and Club membership fees, which are deferred and recognized over the terms of the applicable contract term or membership on a straight-line basis. Additionally, deferred revenue includes maintenance fees collected from owners, in certain cases, which are earned by the relevant property owners’ association over the applicable period. Deferred Income Taxes Deferred income taxes primarily relate to the fair value of assets and liabilities acquired from Diamond, including timeshare financing receivables, inventory, property and equipment, intangible assets, and debt. We calculated deferred income taxes based on statutory rates in the jurisdictions of the legal entities where the acquired assets and liabilities are recorded. Debt As part of the acquisition and consideration transferred, we paid off $ 2,029 million of Diamond’s existing corporate debt, accrued interest and early termination penalties. Non-Recourse Debt We valued the securitized debt from VIEs and warehouse loan facilities, using a discounted cash flow model under the income approach. The significant assumptions in our analysis include default rates, prepayment rates, bond interest rates and other structural factors. Operating Lease Right-of-Use-Assets and Lease Liabilities We have recorded liabilities for those operating leases assumed in connection with the Diamond Acquisition with a remaining term in excess of a year. We valued lease liabilities at the present value of the remaining contractual lease payments based on the guidance in ASC 842 and used a discount rate determined as of the Acquisition Date. The right-of-use assets for such leases were measured at an amount equal to the lease liabilities, adjusted for favorable or unfavorable terms of the lease when compared with market terms. Goodwill We have allocated the acquired goodwill to our segments, Real Estate Sales and Financing and Resort Operations and Club Management, as indicated in the table below. Real Estate Sales and Financing Segment Resort Operations and Club Management Segment Total Consolidated Goodwill $ 1,048 $ 368 $ 1,416 Pro Forma Results of Operations The following unaudited pro forma information presents the combined results of operations of HGV and Diamond as if we had completed the Diamond Acquisition on January 1, 2020, the first day of our 2020 fiscal year, but using our fair values of assets acquired and liabilities assumed as of the Acquisition Date. These unaudited pro forma results do not reflect any synergies from operating efficiencies. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the Diamond Acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations. Year Ended December 31, ($ in millions) 2021 2020 Revenue $ 3,068 $ 1,736 Net income (loss) 337 ( 561 ) 91 Table of Contents Diamond Results of Operations The following table presents the results of Diamond operations included in our statement of operations for the period from the Acquisition Date through the end of 2021. ($ in millions) August 2, 2021 to December 31, 2021 Revenue $ 633 Net income 92 Note 4: Revenue from Contracts with Customers Disaggregation of Revenue The following tables show our disaggregated revenues by product and segment from contracts with customers. We operate our business in the following two segments: (i) Real estate sales and financing and (ii) Resort operations and club management . Please refer to Note 22: Business Segments below for more details related to our segments. ($ in millions) Year Ended December 31, Real Estate Sales and Financing Segment 2022 2021 2020 Sales of VOIs, net $ 1,491 $ 883 $ 108 Sales, marketing, brand and other fees 620 385 221 Interest income 235 157 141 Other financing revenue 32 26 24 Real estate sales and financing segment revenues $ 2,378 $ 1,451 $ 494 ($ in millions) Year Ended December 31, Resort Operations and Club Management Segment 2022 2021 2020 Club management $ 227 $ 168 $ 96 Resort management 307 172 70 Rental (1) 586 315 91 Ancillary services 40 27 7 Resort operations and club management segment revenues $ 1,160 $ 682 $ 264 (1) Excludes intersegment eliminations. See Note 22: Business Segments for additional information. Contract Balances The following table provides information on our accounts receivable with customers which are included in Accounts Receivable, net on our consolidated balance sheets: Year Ended December 31, ($ in millions) 2022 2021 Receivables $ 322 $ 202 The following table presents the composition of our contract liabilities: Year Ended December 31, ($ in millions) 2022 2021 Contract liabilities: Advanced deposits $ 150 $ 112 Deferred sales of VOIs of projects under construction 3 34 Club dues and Club activation fees 76 91 Bonus Point incentive liability and marketing package (1) 106 95 Deferred maintenance fees 14 14 Other deferred revenue 42 47 (1) As of December 31, 2022, the balance includes $ 51 million of bonus point incentive liabilities and $ 55 million for related bonus points and marketing package deferred revenue. The Bonus Point incentive liabilities are included in Accounts payable, accrued expenses and other on our consolidated balance sheets. This liability is comprised of unrecognized revenue for incentives from VOI sales and sales and marketing expenses in conjunction with our fee-for-service arrangements. 92 Table of Contents Revenue earned for the year ended December 31, 2022 that was included in the contract liabilities balance at December 31, 2021 was approximately $ 173 million. Revenue earned for the year ended December 31, 2021 that was included in the contract liabilities balance at December 31, 2020 was approximately $ 355 million. Our accounts receivable that relate to our contracts with customers includes amounts associated with our contractual right to consideration for completed performance obligations related primarily to our fee-for-service arrangements and homeowners’ associations management agreements and are settled when the related cash is received. Accounts receivable are recorded when the right to consideration becomes unconditional and is only contingent on the passage of time. Contract assets relate to incentive fees that can be earned for meeting certain targets on sales of VOIs at properties under our fee-for-service arrangements; however, our right to consideration is conditional upon completing the requirements of the annual incentive fee period. As of December 31, 2022, contract assets were $ 9 million. There were no contract assets as of December 31, 2021. Contract liabilities include payments received or due in advance of satisfying our performance obligations, offset by revenues recognized. Such contract liabilities include advance deposits received on prepaid vacation packages for future stays at our resorts, deferred revenues related to sales of VOIs of projects under construction, Club activation fees and annual dues and the liability for Bonus Points awarded to our customers for purchase of VOIs at our properties or properties under our fee-for-service arrangements that may be redeemed in the future. Transaction Price Allocated to Remaining Performance Obligations Transaction price allocated to remaining performance obligations represents contract revenue that has not yet been recognized. Our contracts with remaining performance obligations primarily include (i) sales of VOIs under construction, (ii) Club activation fees paid at closing of a VOI purchase, (iii) customers’ advanced deposits on prepaid vacation packages and (iv) Bonus Points that may be redeemed in the future. Deferred VOI sales include the deferred revenues associated with: the sales associated with incomplete phases or buildings; the sales of unacquired inventory; and deferred sales associated with our long-term lease product with a reversionary interest. The following table presents the deferred revenue, cost of VOI sales and direct selling costs from sales of VOIs related to projects under construction: Year Ended December 31, ($ in millions) 2022 2021 Sales of VOIs, net $ 3 $ 34 Cost of VOI sales 1 12 Sales and marketing expense 1 5 During the year ended December 31, 2022, we recognized $ 98 million of sales of VOIs, net, offset by deferrals of $ 67 million, related to sales of projects under construction, some of which were completed during the year. We expect to recognize the revenue, costs of VOI sales and direct selling costs related to the projects under construction as of December 31, 2022 upon their completion in 2023. The following table includes the remaining transaction price related to Advanced deposits, Club activation fees and Bonus Points as of December 31, 2022: ($ in millions) Remaining Transaction Price Recognition Period Recognition Method Advanced deposits $ 150 18 months Upon customer stays Club activation fees 64 7 years Straight-line basis over average inventory holding period Bonus Points 106 18 - 30 months Upon redemption Club activation fees are paid at closing of a VOI purchase, which grants access to our points-based Club. The revenue from these fees are deferred and amortized on a straight-line basis over the average inventory holding period. Deferred revenues do not include prepaid vacation packages or other prepayments for future stays at our resorts, which are included in Advanced deposits in our consolidated balance sheets. 93 Table of Contents Note 5: Restricted Cash Restricted cash was as follows: Year Ended December 31, ($ in millions) 2022 2021 Escrow deposits on VOI sales $ 241 $ 152 Reserves related to non-recourse debt (1) 50 67 Other (2) 41 44 Total $ 332 $ 263 (1) See Note 15: Debt & Non-recourse Debt for further information. (2) Other restricted cash primarily includes cash collected on behalf of HOAs, deposits related to servicer arrangements and other deposits. Note 6: Accounts Receivable Accounts receivable within the scope of ASC 326 are measured at amortized cost. The following table represents our accounts receivable, net of allowance for credit losses: ($ in millions) December 31, 2022 December 31, 2021 Fee-for-service commissions $ 91 $ 73 Real estate and financing 59 51 Resort and club operations 179 76 Tax receivables 84 95 Insurance claims receivable 81 — Other receivables 17 7 Total $ 511 $ 302 Our accounts receivable are generally due within one year of origination. We use delinquency status and economic factors such as credit quality indicators to monitor our receivables within the scope of ASC 326 and use these as a basis for how we develop our expected loss estimates. We sell VOIs on behalf of third-party developers using the Hilton Grand Vacations brand in exchange for sales, marketing and brand fees. We use historical losses and economic factors as a basis to develop our allowance for credit losses. Under these fee-for-service arrangements, we earn commission fees based on a percentage of total interval sales. Additionally, the terms of these arrangements include provisions requiring the reduction of fees earned for defaults and cancellations. The changes in our allowance for fee-for-service commissions were as follows during the year ended December 31, 2022: ($ in millions) Balance as of December 31, 2021 $ 18 Current period provision for expected credit losses 7 Write-offs charged against the allowance ( 9 ) Balance at December 31, 2022 $ 16 Note 7: Timeshare Financing Receivables We define our timeshare financing receivables portfolio segments as (i) originated and (ii) acquired. Our originated portfolio includes all Legacy-HGV and Legacy-Diamond timeshare financing receivables originated after the Acquisition Date. Our acquired portfolio includes all timeshare financing receivables acquired from Legacy-Diamond as of the Acquisition Date. 94 Table of Contents The following table presents the components of each portfolio segment by class of timeshare financing receivables: Originated Acquired ($ in millions) December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021 Securitized $ 788 $ 587 $ 262 $ 523 Unsecuritized (1) 971 810 447 515 Timeshare financing receivables, gross $ 1,759 $ 1,397 $ 709 $ 1,038 Unamortized non-credit acquisition premium (2) — — 41 74 Less: allowance for financing receivables losses ( 404 ) ( 280 ) ( 338 ) ( 482 ) Timeshare financing receivables, net $ 1,355 $ 1,117 $ 412 $ 630 (1) Includes amounts used as collateral to secure a non-recourse revolving timeshare receivable credit facility (“Timeshare Facility”) as well as amounts held as future collateral for securitization activities. (2) Non-credit premium of $ 97 million was recognized at the Acquisition Date, of which $ 41 million remains unamortized as of December 31, 2022. In August 2022, we completed a securitization of $ 269 million of gross timeshare financing receivables and issued various notes due January 2037. In April 2022, we completed a securitization of $ 246 million of gross timeshare financing receivables and issued various notes due June 2034. Neither of the securitization transactions qualified as a sale and, accordingly, no gain or loss was recognized. See Note 15: Debt and Non-recourse Debt for additional information. As of December 31, 2022 and 2021, we had timeshare financing receivables with a carrying value of $ 105 million and $ 131 million, respectively, securing the Timeshare Facility. We record an estimate of variable consideration for estimated defaults as a reduction of revenue from VOI sales at the time revenue is recognized on a VOI sale. We record the difference between the timeshare financing receivable and the variable consideration included in the transaction price for the sale of the related VOI as an allowance for financing receivables and record the receivable net of the allowance. We recorded an adjustment to our estimate of variable consideration of $ 140 million and $ 121 million during the years ended December 31, 2022 and 2021, respectively. We recognize interest income on our timeshare financing receivables as earned. As of December 31, 2022 and 2021, we had interest receivable of $ 13 million and $ 9 million, respectively, on our originated timeshare financing receivables. As of December 31, 2022 and 2021, we had interest receivable of $ 4 million and $ 7 million, respectively, on our acquired timeshare financing receivables. Interest receivable is included in Other Assets within our consolidated balance sheets. The interest rate charged on the notes correlates to the risk profile of the customer at the time of purchase and the percentage of the purchase that is financed, among other factors. As of December 31, 2022, our originated timeshare financing receivables had interest rates ranging from 1.5 % to 25.8 %, a weighted-average interest rate of 14.3 %, a weighted-average remaining term of 8.2 years and maturities through 2037. Our acquired timeshare financing receivables had interest rates ranging from 2.0 % to 25.0 %, a weighted-average interest rate of 15.6 %, a weighted-average remaining term of 7.4 years and maturities through 2032 . Acquired Timeshare Financing Receivables with Credit Deterioration As part of the Diamond Acquisition, we acquired existing portfolios of timeshare financing receivables. Acquired timeshare financing receivables include all timeshare financing receivables of Legacy-Diamond as of the Acquisition Date and were deemed to be purchase credit deteriorated financial assets. These notes receivable were initially recognized at their purchase price, represented by the acquisition date fair value, and subsequently “grossed-up” by our acquisition date assessment of the allowance for credit losses. The difference over which par value of the acquired purchased credit deteriorated assets exceeds the purchase price plus the initial allowance for credit losses is reflected as a non-credit premium and is amortized as a reduction to interest income under the effective interest method. See Note 2: Summary of Significant Accounting Policies for additional information on the fair value methodology for our acquired timeshare financing receivables and related allowances for credit losses. 95 Table of Contents Our acquired timeshare financing receivables as of December 31, 2022 mature as follows: Acquired Timeshare Financing Receivables ($ in millions) Securitized Unsecuritized Total Year 2023 $ 30 $ 39 $ 69 2024 32 43 75 2025 34 47 81 2026 36 52 88 2027 36 56 92 Thereafter 94 210 304 Total $ 262 $ 447 $ 709 Originated Timeshare Financing Receivables Originated timeshare financing receivables represent all Legacy-HGV timeshare financing receivables and timeshare financing receivables originated by Legacy-Diamond subsequent to the Acquisition Date. Our originated timeshare financing receivables as of December 31, 2022 mature as follows: Originated Timeshare Financing Receivables ($ in millions) Securitized Unsecuritized Total Year 2023 $ 94 $ 72 $ 166 2024 98 69 167 2025 98 78 176 2026 98 86 184 2027 95 94 189 Thereafter 305 572 877 Total $ 788 $ 971 $ 1,759 Allowance for Financing Receivables Losses The changes in our allowance for financing receivables losses were as follows: ($ in millions) Originated Acquired Balance as of December 31, 2020 $ 211 $ — Initial allowance for PCD financing receivables acquired during the period (2) — 512 Provision for financing receivables losses (1) 121 — Write-offs ( 79 ) ( 11 ) Upgrades (3) 27 ( 19 ) Balance as of December 31, 2021 $ 280 $ 482 Provision for financing receivables losses (1) 140 — Write-offs ( 70 ) ( 119 ) Upgrades (3) 54 ( 25 ) Balance as of December 31, 2022 $ 404 $ 338 (1) Includes incremental provision for financing receivables losses, net of activity related to the repurchase of defaulted and upgraded securitized timeshare financing receivables. (2) The initial gross allowance determined for receivables with credit deterioration was $ 512 million as of the Acquisition Date. Of this amount, approximately $ 249 million relates to net uncollectible balances such as loans that were fully written-off prior to the Acquisition. Therefore, the net impact to the allowance related to acquired loans not previously written off was an increase of $ 263 million. (3) Represents the initial change in allowance resulting from upgrades of Acquired loans. Upgraded Acquired loans and their related allowance are included in the Originated portfolio segment. Credit Quality of Timeshare Financing Receivables Legacy-HGV Timeshare Financing Receivables We evaluate this portfolio collectively for purposes of estimating variable consideration, since we hold a large group of homogeneous timeshare financing receivables which are individually immaterial. We monitor the collectability of 96 Table of Contents our receivables on an ongoing basis. There are no significant concentrations of credit risk with any individual counterparty or groups of counterparties. We use a technique referred to as static pool analysis as the basis for estimating expected defaults and determining our allowance for financing receivables losses on our timeshare financing receivables. For the static pool analysis, we use certain key dimensions to stratify our portfolio, including FICO scores, equity percentage at the time of sale and certain other factors. The adequacy of the related allowance is determined by management through analysis of several factors, such as current economic conditions and industry trends, as well as the specific risk characteristics of the portfolio including assumed default rates, aging and historical write-offs of these receivables. The allowance is maintained at a level deemed adequate by management based on a periodic analysis of the mortgage portfolio. Our gross balances by average FICO score of our Legacy-HGV timeshare financing receivables were as follows: Legacy-HGV Timeshare Financing Receivables ($ in millions) December 31, 2022 December 31, 2021 FICO score 700+ $ 763 $ 703 600-699 270 248 <600 37 35 No score (1) 174 166 Total $ 1,244 $ 1,152 (1) Timeshare financing receivables without a FICO score are primarily related to foreign borrowers. The following table details our gross Legacy-HGV timeshare financing receivables by the origination year and average FICO score as of December 31, 2022: ($ in millions) 2022 2021 2020 2019 2018 Prior Total FICO score 700+ $ 340 $ 140 $ 49 $ 87 $ 61 $ 86 $ 763 600-699 112 52 17 32 23 34 270 <600 14 7 3 5 3 5 37 No score (1) 59 28 18 26 17 26 174 Total $ 525 $ 227 $ 87 $ 150 $ 104 $ 151 $ 1,244 (1) Timeshare financing receivables without a FICO score are primarily related to foreign borrowers. As of December 31, 2022 and 2021, we had ceased accruing interest on timeshare financing receivables with an aggregate principal balance of $ 76 million and $ 83 million, respectively. The following tables detail an aged analysis of our gross timeshare financing receivables balance: Legacy-HGV Timeshare Financing Receivables December 31, 2022 ($ in millions) Securitized Unsecuritized Total Current $ 631 $ 520 $ 1,151 31 - 90 days past due 9 8 17 91 - 120 days past due 3 2 5 121 days and greater past due 4 67 71 Total $ 647 $ 597 $ 1,244 Legacy-HGV Timeshare Financing Receivables December 31, 2021 ($ in millions) Securitized Unsecuritized Total Current $ 569 $ 488 $ 1,057 31 - 90 days past due 6 6 12 91 - 120 days past due 2 2 4 121 days and greater past due 2 77 79 Total $ 579 $ 573 $ 1,152 97 Table of Contents Legacy-Diamond Timeshare Financing Receivables We evaluate these portfolios collectively for purposes of estimating variable consideration, since we hold a large group of homogeneous timeshare financing receivables which are individually immaterial. We monitor the collectability of our receivables on an ongoing basis. There are no significant concentrations of credit risk with any individual counterparty or groups of counterparties. We use a technique referred to as static pool analysis as the basis for estimating expected defaults and determining our allowance for financing receivables losses on our timeshare financing receivables. The adequacy of the related allowance is determined by management through analysis of several factors, such as current economic conditions and industry trends, as well as the specific risk characteristics of the portfolio including assumed default rates, aging and historical write-offs of these receivables. The allowance is maintained at a level deemed adequate by management based on a periodic analysis of the mortgage portfolio. Our gross balances by average FICO score of our Legacy-Diamond acquired and originated timeshare financing receivables were as follows: Legacy-Diamond Acquired Timeshare Financing Receivables ($ in millions) December 31, 2022 December 31, 2021 FICO score 700+ $ 373 $ 601 600-699 265 356 <600 55 70 No score (1) 16 11 Total $ 709 $ 1,038 (1) Timeshare financing receivables without a FICO score are primarily related to foreign borrowers. Legacy-Diamond Originated Timeshare Financing Receivables ($ in millions) December 31, 2022 December 31, 2021 FICO score 700+ $ 321 $ 172 600-699 163 60 <600 26 11 No score (1) 5 2 Total $ 515 $ 245 (1) Timeshare financing receivables without a FICO score are primarily related to foreign borrowers. The following tables details our gross Legacy-Diamond acquired and originated timeshare financing receivables by the origination year and average FICO score as of December 31, 2022: Legacy-Diamond Acquired Timeshare Financing Receivables ($ in millions) 2022 2021 2020 2019 2018 Prior Total FICO score 700+ $ — $ 66 $ 80 $ 96 $ 64 $ 67 $ 373 600-699 — 44 49 68 41 63 265 <600 — 10 13 11 5 16 55 No score (1) — 1 5 2 1 7 16 Total $ — $ 121 $ 147 $ 177 $ 111 $ 153 $ 709 (1) Timeshare financing receivables without a FICO score are primarily related to foreign borrowers. 98 Table of Contents Legacy-Diamond Originated Timeshare Financing Receivables ($ in millions) 2022 2021 2020 2019 2018 Prior Total FICO score 700+ $ 248 $ 73 $ — $ — $ — $ — $ 321 600-699 123 40 — — — — 163 <600 17 9 — — — — 26 No score (1) 4 1 — — — — 5 Total $ 392 $ 123 $ — $ — $ — $ — $ 515 (1) Timeshare financing receivables without a FICO score are primarily related to foreign borrowers. As of December 31, 2022 and 2021, we had ceased accruing interest on Legacy-Diamond timeshare financing receivables with an aggregate principal balance of $ 377 million and $ 369 million, respectively. The following tables detail an aged analysis of our gross timeshare receivables balance: Legacy-Diamond Timeshare Financing Receivables December 31, 2022 ($ in millions) Securitized Unsecuritized Total Current $ 373 $ 442 $ 815 31 - 90 days past due 13 19 32 91 - 120 days past due 4 8 12 121 days and greater past due 13 352 365 Total $ 403 $ 821 $ 1,224 Legacy-Diamond Timeshare Financing Receivables December 31, 2021 ($ in millions) Securitized Unsecuritized Total Current $ 496 $ 385 $ 881 31 - 90 days past due 15 18 33 91 - 120 days past due 6 5 11 121 days and greater past due 14 344 358 Total $ 531 $ 752 $ 1,283 Note 8: Inventory Inventory was comprised of the following: December 31, ($ in millions) 2022 2021 Completed unsold VOIs $ 1,096 $ 1,219 Construction in process 62 20 Land, infrastructure and other 1 1 Total $ 1,159 $ 1,240 The table below presents costs of sales true-ups relating to VOI products and the related impacts to the carrying value of inventory: December 31, ($ in millions) 2022 2021 2020 Cost of sales true-up (1) $ 23 $ ( 2 ) $ 6 (1) For the year ended December 31, 2022, the costs of sales true-up decreased costs of VOI sales and increased inventory. For the year ended December 31, 2021, the costs of sales true-up increased costs of VOI sales and decreased inventory. For the year ended December 31, 2020, the costs of sales true-up decreased costs of VOI sales and increased inventory. 99 Table of Contents The table below presents expenses incurred, recorded in Cost of VOI sales, related to granting credit to customers for their existing ownership when upgrading into fee-for service projects: December 31, ($ in millions) 2022 2021 2020 Cost of VOI sales related to fee-for-service upgrades $ 9 $ 7 $ 9 Note 9: Property and Equipment Property and equipment were comprised of the following: December 31, ($ in millions) 2022 2021 Land $ 235 $ 193 Building and leasehold improvements 403 405 Furniture and equipment 78 82 Construction in progress 251 231 967 911 Accumulated depreciation ( 169 ) ( 155 ) Total $ 798 $ 756 Depreciation expense on property and equipment was $ 52 million, $ 36 million, and $ 30 million for the years ended December 31, 2022, 2021 and 2020 respectively. Land increased by $ 42 million as of December 31, 2022 from December 31, 2021, primarily due to the transfer of assets held for sale to property and equipment. During 2022, we concluded that the parcels of land and infrastructure which were previously classified as held for sale, no longer met the held for sale criteria. Thus, these assets were reclassified to property and equipment as a non-cash transfer. The assets were measured at fair value as of the transfer date as assets held for sale prior to reclassification, principally utilizing market approaches for the land parcels and the cost approach for infrastructure. For the year ended December 31, 2022, we recorded a reversal of impairment expense of $ 7 million corresponding with the asset reclassification and an impairment charge of $ 4 million for retirement of certain assets. See Note 24: Supplemental Disclosures of Cash Flow Information for information regarding non-cash transfers. Note 10: Consolidated Variable Interest Entities As of December 31, 2022 and 2021, we consolidated 8 and 11 VIEs, respectively. The activities of these entities are limited to purchasing qualifying non-recourse timeshare financing receivables from us and issuing debt securities and/or borrowing under a debt facility to facilitate such purchases. The timeshare financing receivables held by these entities are not available to our creditors and are not our legal assets, nor is the debt that is securitized through these entities a legal liability to us. We have determined that we are the primary beneficiaries of the VIEs as we have the power to direct the activities that most significantly affect their economic performance. We are also the servicer of these timeshare financing receivables and often replace or repurchase timeshare financing receivables that are in default at their outstanding principal amounts. Additionally, we have the obligation to absorb their losses and the right to receive benefits that could be significant to them. Only the assets of our VIEs are available to settle the obligations of the respective entities. As part of the Diamond Acquisition, we acquired the variable interests in the entities associated with Diamond’s outstanding timeshare financing receivables securitization transactions. They have been aggregated for disclosure purposes as they are similar in nature to our previously established VIEs. We acquired two conduit facilities that had an outstanding balance of $ 133 million as of December 31, 2021. As of December 31, 2022, all conduit facilities were paid off and terminated. 100 Table of Contents Our consolidated balance sheets included the assets and liabilities of these entities, which primarily consisted of the following: December 31, ($ in millions) 2022 2021 Restricted cash $ 48 $ 62 Timeshare financing receivables, net 883 1,021 Non-recourse debt (1) 1,003 1,195 (1) Net of deferred financing costs. Note 11: Investments in Unconsolidated Affiliates As of December 31, 2022, we have a 25 % and 50 % ownership interests in BRE Ace LLC and 1776 Holdings LLC, respectively, which are VIEs. We do not consolidate BRE Ace LLC and 1776 Holdings LLC because we are not the primary beneficiary. For both VIEs, our investment interests are included in the consolidated balance sheets as Investments in unconsolidated affiliates, and equity earned is included in the consolidated statements of operations as Equity in earnings from unconsolidated affiliates . Our two unconsolidated affiliates have aggregated debt balances of $ 393 million and $ 463 million as of December 31, 2022 and 2021, respectively. The debt is secured by their assets and is without recourse to us. Our maximum exposure to loss as a result of our investment interests in the two unconsolidated affiliates is primarily limited to (i) the carrying amount of the investments which totals $ 72 million and $ 59 million as of December 31, 2022 and December 31, 2021, respectively and (ii) receivables for commission and other fees earned under fee-for-service arrangements. See Note 21: Related Party Transactions for additional information. Note 12: Intangible Assets Intangible assets and related amortization expense were as follows: December 31, 2022 ($ in millions) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Trade name $ 18 $ ( 17 ) $ 1 Management contracts 1,340 ( 230 ) 1,110 Club member relationships 139 ( 37 ) 102 Capitalized software 163 ( 99 ) 64 Total $ 1,660 $ ( 383 ) $ 1,277 December 31, 2021 ($ in millions) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Trade name $ 18 $ ( 5 ) $ 13 Management contracts 1,340 ( 106 ) 1,234 Club member relationships 139 ( 12 ) 127 Capitalized software 138 ( 71 ) 67 Total $ 1,635 $ ( 194 ) $ 1,441 We acquired definite-lived intangible assets as part of the Diamond Acquisition in the amount of $ 1,429 million as of the Acquisition Date. Refer to Note 3: Diamond Acquisition for further information. Prior to the Diamond Acquisition, intangible assets included computer software and management contracts. Amortization expense on intangible assets was $ 192 million, $ 90 million, and $ 15 million for the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, the weighted average life on trade name was 1.5 years, management agreements was 35.2 years, club member relationships was 14.4 years, and capitalized software was 35.2 years. During the year ended December 31, 2022, $ 3 million intangible impairment charges were recognized. No intangible impairment charges were recognized during the years ended December 31, 2021 and 2020. 101 Table of Contents As of December 31, 2022, our future amortization expense for our amortizing intangible assets is estimated to be as follows: ($ in millions) Future Amortization Expense 2023 $ 168 2024 145 2025 124 2026 99 2027 88 Thereafter 653 Total $ 1,277 Note 13: Other Assets Other assets were as follows: December 31, ($ in millions) 2022 2021 Inventory deposits $ 9 $ 3 Deferred selling, marketing, general and administrative expenses 18 23 Prepaid expenses (1) 117 123 Cloud computing arrangements 15 9 Interest receivable 17 16 Deferred income tax assets 8 7 Interest rate swap 63 2 Other 126 97 Total $ 373 $ 280 (1) Net of $ 11 million impairment recognized during the year ended December 31, 2022 due to certain expenses deemed unrecoverable. Note 14: Accounts Payable, Accrued Expenses and Other Accounts payable, accrued expenses and other were as follows: December 31, ($ in millions) 2022 2021 Accrued employee compensation and benefits $ 139 $ 138 Accounts payable 83 63 Bonus point incentive liability 51 44 Due to Hilton 54 33 Income taxes payable 34 23 Sales and other taxes payable 145 100 Accrued legal settlements 124 27 Other accrued expenses (1) 377 245 Total $ 1,007 $ 673 (1) Other accrued expenses includes interest payable, amounts due to HOAs and various accrued liabilities . 102 Table of Contents Note 15: Debt & Non-recourse Debt Debt The following table details our outstanding debt balance and its associated interest rates: December 31, ($ in millions) 2022 2021 Debt (1) Senior secured credit facility Term loan with a rate of 7.384 %, due 2028 $ 1,284 $ 1,297 Revolver with a rate of 6.020 %, due 2026 40 300 Senior notes with a rate of 5.000 %, due 2029 850 850 Senior notes with a rate of 4.875 %, due 2031 500 500 Other debt 29 27 Total debt, gross 2,703 2,974 Less: unamortized deferred financing costs and discounts (2)(3) ( 52 ) ( 61 ) Total debt, net $ 2,651 $ 2,913 (1) As of December 31, 2022 and 2021, weighted-average interest rates were 6.143 % and 4.052 % , respectively. (2) Amount includes unamortized deferred financing costs related to our term loan and senior notes of $ 26 million and $ 19 million, respectively, as of December 31, 2022 and $ 33 million and $ 22 million, respectively, as of December 31, 2021. This amount also includes original issuance discounts of $ 7 million and $ 6 million as of December 31, 2022 and 2021, respectively. (3) Amount does not include unamortized deferred financing costs of $ 4 million and $ 5 million as of December 31, 2022 and 2021, respectively, related to our revolving facility included in Other Assets in our consolidated balance sheets. Senior Secured Credit Facilities During the year ended December 31, 2022, we repaid $ 313 million under the senior secured credit facilities. As of December 31, 2022, we had $ 1 million of letters of credit outstanding under the revolving credit facility and $ 1 million outstanding backed by cash collateral. We were in compliance with all applicable maintenance and financial covenants and ratios as of December 31, 2022. As of December 31, 2022, we have $ 959 million remaining borrowing capacity under the revolver facility. We primarily use interest rate swaps as part of our interest rate risk management strategy for our variable-rate debt. These interest rate swaps are associated with the remaining available LIBOR based senior secured credit facility. Therefore as of December 31, 2022, these interest rate swaps convert the LIBOR based variable rate on our Term Loan to average fixed rates of 1.32 % per annum with maturities between 2023 and 2028, for the balance on this borrowing up to the notional values of our interest rate swaps. As of December 31, 2022, the notional values of the interest rate swaps under our Term Loan was $ 708 million. Our interest rate swaps have been designated and qualify as cash flow hedges of interest rate risk and recorded at their estimated fair value as an asset in Other assets in our consolidated balance sheets. As of December 31, 2022 and 2021, the estimated fair value of our cash flow hedges was $ 63 million and $ 2 million, respectively. We characterize payments we make in connection with these derivative instruments as interest expense and a reclassification of accumulated other comprehensive income for presentation purposes. The following table reflects the activity in accumulated other comprehensive income related to our derivative instruments during the year ended December 31, 2022: Net unrealized gain on derivative instruments Balance as of December 31, 2021 $ 2 Other comprehensive income before reclassifications, net 50 Reclassification to net income ( 4 ) Balance as of December 31, 2022 $ 48 Senior Notes due 2029 and 2031 The Senior Unsecured Notes are guaranteed on a senior unsecured basis by certain of our subsidiaries. We are in compliance with all applicable financial covenants as of December 31, 2022. 103 Table of Contents Non-recourse Debt The following table details our outstanding non-recourse debt balance and its associated interest rates: December 31, ($ in millions) 2022 2021 Non-recourse debt (1) Timeshare Facility with an average rate of 5.320 %, due 2025 (3) $ 98 $ 131 HGV Securitized Debt with a weighted average rate of 2.711 %, due 2028 42 70 HGV Securitized Debt with a weighted average rate of 3.602 %, due 2032 98 143 HGV Securitized Debt with a weighted average rate of 2.431 %, due 2033 101 151 HGV Securitized Debt with a weighted average rate of 3.658 %, due 2034 134 — HGV Securitized Debt with a weighted average rate of 4.826 %, due 2037 251 — HGV Securitized Debt with a weighted average rate of 4.304 %, due 2039 168 193 Diamond Resorts Premium Yield Facility with an average rate of 4.766 %, due 2031 — 8 Diamond Resorts Conduit Facility with an average rate of 2.250 %, due 2023 — 125 Diamond Resorts Conduit Facility with an average rate of 3.00 %, due 2024 — 8 Diamond Resorts Owner Trust 2017 with a weighted average rate of 3.504 %, due 2029 — 41 Diamond Resorts Owner Trust 2018 with a weighted average rate of 4.061 %, due 2031 — 92 Diamond Resorts Owner Trust 2019 with a weighted average rate of 3.255 %, due 2032 87 148 Diamond Resorts Owner Trust 2021 with a weighted average rate of 2.160 %, due 2033 134 224 Total face value 1,113 1,334 Less: unamortized deferred financing costs (2) ( 11 ) ( 6 ) Total non-recourse debt, net $ 1,102 $ 1,328 (1) As of December 31, 2022 and 2021, weighted-average interest rates were 3.539 % and 2.876 %, respectively. (2) Amount relates to securitized debt only and does not include unamortized deferred financing costs of $ 4 million and $ 2 million as of December 31, 2022 and 2021, respectively, relating to our Timeshare Facility included in Other Assets in our consolidated balance sheets. (3) In connection with the amended and restated Timeshare Facility executed in May 2022, the revolving commitment period of the Timeshare Facility terminates in May 2024, however the repayment maturity date extends 12 months beyond the commitment termination date to May 2025. During the year ended December 31, 2022, we repaid and terminated our conduit facilities due in 2023 and 2024. The Timeshare Facility is a non-recourse obligation payable solely from the pool of timeshare financing receivables pledged as collateral and related assets. In May 2022, we amended and restated our Timeshare Facility agreement under new terms, which include increasing the borrowing capacity from $ 450 million to $ 750 million, allowing us to borrow up to the maximum amount until May 2024 and requiring all amounts borrowed to be repaid in 2025. Under the amendment, the Timeshare Facility is subject to an interest rate of 0.910 % plus one-month Secured Overnight Financing Rate ("SOFR") plus a SOFR adjustment of 0.110 %. In connection with the amendment, we incurred $ 4 million in debt issuance costs. In August 2022, we completed a securitization of $ 269 million of gross timeshare financing receivables and issued approximately $ 153 million of 4.30 % notes, $ 73 million of 4.74 % notes, $ 26 million of 5.57 % notes, and $ 17 million of 8.73 % notes due January 2037. The securitized debt is backed by pledged assets, consisting primarily of a pool of timeshare financing receivables secured by first mortgages or deeds of trust on timeshare interest. The securitized debt is a non-recourse obligation and is payable solely from the pool of timeshare financing receivables pledged as collateral to the debt. The proceeds were primarily used to pay down the Timeshare Facility and general corporate operating expenses. In connection with the securitization, we incurred $ 5 million in debt issuance costs. In April 2022, we completed a securitization of $ 246 million of gross timeshare financing receivables and issued approximately $ 107 million of 3.61 % notes, $ 84 million of 4.10 % notes, $ 22 million of 4.69 % notes, and $ 33 million of 6.79 % notes due June 2034. The securitized debt is backed by pledged assets, consisting primarily of a pool of timeshare financing receivables secured by first mortgages or deeds of trust on timeshare interest and initially by a $ 34 million cash deposit. As of December 31, 2022, the cash deposit has been withdrawn due to subsequent collateralization of additional timeshare financing receivables. The securitized debt is a non-recourse obligation and is payable solely from the pool of timeshare financing receivables pledged as collateral to the debt. The proceeds were primarily used to pay down the remaining borrowings on one of our conduit facilities and general corporate operating expenses. In connection with the securitization, we incurred $ 4 million in debt issuance costs. 104 Table of Contents During the year ended December 31, 2022, we repaid $ 162 million on the Timeshare facility, $ 8 million on the Premium Yield Facility, $ 258 million on the conduit facilities, and $ 562 million on Securitized Debt. We are required to deposit payments received from customers on the timeshare financing receivables securing the Timeshare Facility and Securitized Debt into depository accounts maintained by third parties. On a monthly basis, the depository accounts are utilized to make required principal, interest and other payments due under the respective loan agreements. The balances in the depository accounts were $ 50 million and $ 67 million as of December 31, 2022 and 2021, respectively, and were included in Restricted Cash in our consolidated balance sheets. Debt Maturities The contractual maturities of our debt and non-recourse debt as of December 31, 2022 were as follows: ($ in millions) Debt Non-recourse Debt Total Year 2023 $ 16 $ 266 $ 282 2024 15 214 229 2025 14 257 271 2026 53 130 183 2027 13 93 106 Thereafter 2,592 153 2,745 Total $ 2,703 $ 1,113 $ 3,816 Note 16: Fair Value Measurements The carrying amounts and estimated fair values of our financial assets and liabilities, which are required for disclosure, were as follows: December 31, 2022 Hierarchy Level ($ in millions) Carrying Amount Level 1 Level 3 Assets: Timeshare financing receivables, net (1) $ 1,767 $ — $ 1,910 Liabilities: Debt, net (2) 2,651 2,413 76 Non-recourse debt, net (2) 1,102 957 97 December 31, 2021 Hierarchy Level ($ in millions) Carrying Amount Level 1 Level 3 Assets: Timeshare financing receivables, net (1) $ 1,747 $ — $ 1,905 Liabilities: Debt, net (2) 2,913 2,663 340 Non-recourse debt, net (2) 1,328 1,080 270 (1) Carrying amount net of allowance for financing receivables losses. (2) Carrying amount net of unamortized deferred financing costs and discounts Our estimates of the fair values were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop the estimated fair values. The table above excludes cash and cash equivalents, restricted cash, accounts receivable, accounts payable, advance deposits and accrued liabilities, all of which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments. 105 Table of Contents The estimated fair values of our originated and acquired timeshare financing receivables were determined using a discounted cash flow model. Our model incorporates default rates, coupon rates, credit quality and loan terms respective to the portfolio based on current market assumptions for similar types of arrangements. The estimated fair value of our Level 2 derivative financial instruments was determined utilizing projected future cash flows discounted based on an expectation of future interest rates derived from observable market interest rate curves and market volatility. Refer to Note 15: Debt and Non-recourse Debt above. The estimated fair values of our Level 1 debt and non-recourse debt were based on prices in active debt markets. The estimated fair value of our Level 3 debt and non-recourse debt were based on the following: • Debt – based on indicative quotes obtained for similar issuances and projected future cash flows discounted at risk-adjusted rates • Non-recourse debt – based on projected future cash flows discounted at risk-adjusted rates. Non-recurring fair value measurements We measure certain assets at fair value on a non-recurring basis, including land and infrastructure, as a result of their classification as held for sale. Refer to Note 2: Significant Accounting Policie s for further information on the held for sale classification. We utilized the market approach for the land and cost approach for infrastructure to determine their respective fair values. The fair value calculations involve judgement and are sensitive to key assumptions utilized, including comparative sales for land (level 2) and replacement costs for infrastructure (level 3). The estimated fair value of land and infrastructure held for sale was $ 45 million as of December 31, 2021, excluding costs to sell. As of December 31, 2022, we did not have assets held for sale. Note 17: Leases We lease sales centers, office space and equipment under operating leases, some of which we acquired as part of the Diamond Acquisition. Our leases expire at various dates from 2023 through 2034, with varying renewal and termination options. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. As part of our integration of business operations from the Diamond Acquisition, we ceased utilizing certain offices 2022, which the Company considered to be triggering events for impairment analysis. We recognized impairments on the related right-of-use assets of $ 6 million during the year ended December 31, 2022. We recognize rent expense on leases with both contingent and non-contingent lease payment terms. Rent associated with non-contingent lease payments are recognized on a straight-line basis over the lease term. Rent expense for all operating leases for the year ended December 31, 2022, 2021 and 2020 was as follows: Year Ended December 31, ($ in millions) 2022 (1) 2021 (1) 2020 (1) Minimum rentals $ 34 $ 20 $ 19 Contingent rentals 4 2 1 Total $ 38 $ 22 $ 20 (1) These amounts include short term and variable rent of $ 4 million, $ 2 million, and $ 5 million for the years December 31, 2022, 2021 and 2020, respectively. Supplemental cash flow information related to operating leases was as follows: Year Ended December 31, ($ in millions) 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 27 $ 21 Right-of-use assets obtained in exchange for new lease liabilities: Operating leases 25 35 106 Table of Contents Supplemental balance sheet information related to operating leases was as follows: December 31, 2022 2021 Weighted-average remaining lease term of operating leases (in years) 6 4 Weighted-average discount rate of operating leases 4.57 % 4.35 % The future minimum rent payments under non-cancelable operating leases as of December 31, 2022 are as follows: ($ in millions) Operating Leases Year 2023 $ 26 2024 19 2025 16 2026 13 2027 7 Thereafter 28 Total future minimum lease payments 109 Less: imputed interest ( 15 ) Present value of lease liabilities $ 94 Note 18: Income Taxes Our tax provision includes federal, state and foreign income taxes payable. The domestic and foreign components of our income (loss) before taxes were as follows: Year Ended December 31, ($ in millions) 2022 2021 2020 U.S. income (loss) before tax $ 384 $ 195 $ ( 287 ) Foreign income before tax 97 74 7 Total income (loss) before taxes $ 481 $ 269 $ ( 280 ) The components of our provision for income taxes were as follows: Year Ended December 31, ($ in millions) 2022 2021 2020 Current: Federal $ 102 $ ( 5 ) $ 36 State 19 9 5 Foreign 46 31 3 Total current 167 35 44 Deferred: Federal ( 21 ) 61 ( 98 ) State ( 16 ) ( 1 ) ( 23 ) Foreign ( 1 ) ( 2 ) ( 2 ) Total deferred ( 38 ) 58 ( 123 ) Total provision for income taxes $ 129 $ 93 $ ( 79 ) 107 Table of Contents Reconciliations of our tax provision at the U.S. statutory rate to the provision for income taxes were as follows: Year Ended December 31, ($ in millions) 2022 2021 2020 Statutory U.S. federal income tax provision $ 101 $ 57 $ ( 59 ) State and local income taxes, net of U.S. federal tax benefit 4 8 ( 17 ) Impact of foreign operations 21 14 ( 5 ) Interest on installment sales, net of U.S. federal tax benefit 1 3 1 Transaction costs — 5 — Share-based compensation, net of IRC § 162(m) limitation 3 5 1 Other ( 1 ) 1 — Provision for income taxes $ 129 $ 93 $ ( 79 ) Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities plus carryforward items. The compositions of net deferred tax balances were as follows: December 31, ($ in millions) 2022 2021 Deferred tax assets $ 8 $ 7 Deferred tax liabilities ( 659 ) ( 670 ) Net deferred tax liability $ ( 651 ) $ ( 663 ) The tax effects of the temporary differences and carryforwards that give rise to our net deferred tax liability were as follows: December 31, ($ in millions) 2022 2021 Deferred tax assets: Compensation $ 18 $ 22 Domestic tax loss and credit carryforwards 37 100 Foreign tax loss carryforwards 38 47 Other reserves 152 179 245 348 Valuation allowance ( 78 ) ( 74 ) Deferred tax assets 167 274 Deferred tax liabilities: Property and equipment ( 138 ) ( 165 ) Amortizable intangible assets ( 284 ) ( 309 ) Deferred income ( 396 ) ( 463 ) Deferred tax liabilities ( 818 ) ( 937 ) Net deferred tax liability $ ( 651 ) $ ( 663 ) As of December 31, 2022, we have $ 49 million federal, $ 145 million foreign, and $ 149 million state tax loss carryforwards with varying expiration dates. The federal losses will expire between 2023 and 2034, while the majority of the foreign tax losses can be carried forward indefinitely. The majority of state tax losses have expiration periods between fifteen years and twenty years . We have foreign tax credit carryforwards of $ 9 million and state tax credit carryforwards of $ 5 million. The credit carryforwards will generally expire between five and fifteen years . We establish valuation allowances for financial reporting purposes to offset certain deferred tax assets due to uncertainty regarding our ability to realize them in the future. The valuation allowance increased from $ 74 million as of December 31, 2021, to $ 78 million as of December 31, 2022, primarily as a result of tax credits generated in the current year that we expect to expire unused. 108 Table of Contents Reconciliations of the amounts of unrecognized tax benefits were as follows: December 31, ($ in millions) 2022 2021 2020 Unrecognized tax benefits at beginning of year $ 12 $ — $ — Current period tax position increases 2 1 — Prior period tax position increases 11 18 — Decreases due to lapse in applicable statute of limitations ( 2 ) ( 7 ) — Unrecognized tax benefits at end of year $ 23 $ 12 $ — We recorded $ 23 million and $ 12 million as of December 31, 2022 and 2021, respectively, excluding interest and penalties, as a liability for unrecognized tax benefits in Accounts payable, accrued expenses and other in the consolidated balance sheet. Had we recognized these tax benefits, $ 23 million and $ 12 million, along with related interest and penalties, it would have favorably impacted the annual effective tax rate. The total liability accrued for interest and penalties was $ 31 million and $ 12 million as of December 31, 2022 and 2021, respectively. We do not anticipate any significant increases or decreases in our unrecognized tax benefits within the next twelve months. We file federal, state and foreign income tax returns in jurisdictions with varying statute of limitations. We are currently under audit in several tax jurisdictions. The open tax years for major tax jurisdictions are 2006 through 2022. While there is no assurance as to the results, we believe we are adequately reserved for these audits. Although the Tax Cuts and Jobs Act of 2017 generally eliminates U.S. federal income tax on dividends from foreign subsidiaries, foreign withholding taxes may be incurred if these profits are distributed. No income or deferred taxes have been accrued on foreign earnings or other outside basis differences, as we intend to indefinitely reinvest these amounts in our foreign operations. An estimate of these amounts is not practicable due to the inherent complexity of the multi-jurisdictional tax environment in which the Company operates. Note 19: Share-Based Compensation Stock Plan We issue RSUs, Options, and Performance RSUs to certain employees and directors. We recognized share-based compensation expense of $ 46 million, $ 48 million and $ 15 million during the years ended December 31, 2022, 2021 and 2020, respectively. The total tax benefit recognized related to this compensation was $ 6 million, $ 4 million and $ 4 million for the years ended December 31, 2022, 2021 and 2020, respectively. In addition, we withheld common stock shares associated with net share settlements to cover tax withholding obligations upon the vesting of awards under our employee equity incentive program. For the years ended December 31, 2022, 2021 and 2020, we withheld approximately 147,000 , 131,000 and 152,000 shares at a total cost of $ 8 million, $ 6 million and $ 4 million, respectively, through net share settlements. Shares withheld to cover tax withholding obligations are retired. As of December 31, 2022, unrecognized compensation cost for unvested awards was approximately $ 36 million, which is expected to be recognized over a weighted average period of 1.7 years. As of December 31, 2022, there were 2,659,206 shares of common stock available for future issuance under this plan. RSUs RSUs vest in annual installments over three years from the date of grant, subject to the individual’s continued employment through the applicable vesting date. Vested RSUs generally will be settled for common stock. The grant date fair value is equal to closing stock price on the date of grant. The following table provides information about our RSU grants for the last three fiscal years: Year Ended December 31, 2022 2021 2020 Number of shares granted 800,378 588,930 672,123 Weighted average grant date fair value per share $ 44.12 $ 38.50 $ 25.14 Fair value of shares vested (in millions) $ 25 $ 19 $ 10 109 Table of Contents The following table summarizes the activity of our RSUs during the year ended December 31, 2022: Number of Shares Weighted Average Grant Date Fair Value Outstanding, beginning of period 1,029,638 33.55 Granted 800,378 44.12 Vested ( 486,326 ) 32.82 Forfeited ( 43,106 ) 40.86 Outstanding, end of period 1,300,584 40.09 Options Options vest over three years in annual installments from the date of grant, subject to the individual’s continued employment through the applicable vesting date and will terminate 10 years from the date of grant or earlier on the unvested portion of an individual whose service was terminated. The exercise price is equal to the closing price of the common stock on the date of grant. The following table provides information about our option grants for the last three fiscal years: Year Ended December 31, 2022 2021 2020 Number of options granted 389,536 542,793 566,401 Weighted average exercise price per share $ 44.09 $ 38.22 $ 25.80 Weighted average grant date fair value per share $ 20.08 $ 18.41 $ 9.14 The weighted-average grant date fair value of each of these options were determined using the Black-Scholes-Merton option-pricing model with the following assumptions: Year Ended December 31, 2022 2021 2020 Expected volatility (1) 45.8 % 50.5 % 35.4 % Dividend yield (2) — % — % — % Risk-free rate (3) 1.7 % 1.1 % 1.0 % Expected term (in years) (4) 6.0 6.0 6.0 (1) During the year ended December 31, 2020, due to limited trading history for our common stock, we did not have sufficient information available on which to base a reasonable and supportable estimate of the expected volatility of its share price. As a result, we used an average historical volatility of our peer group over a time period consistent with its expected term assumption. Our peer group was determined based upon companies in our industry with similar business models and is consistent with those used to benchmark our executive compensation. (2) At the date of grant we had no plans to pay dividends during the expected term of these options. (3) Based on the yields of U.S. Department of Treasury instruments with similar expected lives. (4) Estimated using the average of the vesting periods and the contractual term of the options. The following table summarizes the activity of our options during the year ended December 31, 2022: Number of Shares Weighted Average Exercise Price Per Share Outstanding, beginning of period 2,086,724 $ 32.39 Granted 389,536 44.09 Exercised ( 58,345 ) 28.76 Forfeited, canceled or expired ( 5,683 ) 38.96 Outstanding, end of period 2,412,232 34.35 Exercisable, end of period 1,510,974 31.87 As of December 31, 2022, we had 1,510,974 options outstanding that were exercisable with an aggregate intrinsic value of $ 12 million and weighted average remaining contractual term of approximately 7 years. The intrinsic value of all options exercised during the year was $ 0.9 million. Performance RSUs In March 2022, we issued 93,064 Performance RSUs with a grant date fair value of $ 44.09 . The Performance RSUs are settled at the end of a two-year performance period, with 50 % of the Performance RSUs subject to achievement 110 Table of Contents based on the Company’s adjusted earnings before interest expense, taxes and depreciation and amortization further adjusted for net deferral and recognition of revenues and related direct expenses related to sales of VOIs of projects under construction. The remaining 50 % of the Performance RSUs are subject to the achievement of certain contract sales targets. In March 2021, we issued 124,711 Performance RSUs with a grant date fair value of $ 38.22 . The Performance RSUs are settled at the end of a two-year performance period, with 50 % of the Performance RSUs subject to achievement based on the Company’s adjusted earnings before interest expense, taxes and depreciation and amortization further adjusted for net deferral and recognition of revenues and related direct expenses related to sales of VOIs of projects under construction. The remaining 50 % of the Performance RSUs issued are subject to the achievement of certain contract sales targets. In August 2021, and in conjunction with the Diamond Acquisition, we issued 351,118 Performance RSUs with a grant date fair value of $ 40.27 . The Performance RSUs are settled at the end of the performance period which is from the Acquisition Date through December 31, 2023, with 67 % of the Performance RSUs subject to achievement based on certain run rate cost savings. The remaining 33 % of the Performance RSUs issued are subject to the achievement of the Company’s adjusted earnings before interest expense, taxes and depreciation and amortization further adjusted for net deferral and recognition of revenues and related direct expenses related to sales of VOIs of projects under construction. During the year ended December 31, 2020, we issued 168,529 Performance RSUs with a grant date fair value of $ 25.69 . The Performance RSUs are settled at the end of a three-year performance period, with 70 % of the Performance RSUs subject to achievement based on the Company’s adjusted earnings before interest expense, taxes and depreciation and amortization further adjusted for net deferral and recognition of revenues and related direct expenses related to sales of VOIs of projects under construction. The remaining 30 % of the Performance RSUs are subject to the achievement of certain contract sales targets. During the fourth quarter of 2021, the Compensation Committee approved the modification of the performance conditions for the Performance RSUs issued in 2020 and March 2021, to reflect the results of HGV's and Diamond's operations subsequent to the Acquisition Date. We estimated that the performance conditions for the 2020 Performance RSU awards remain improbable of achievement under the modified performance conditions. As such, the Company did not accrue expenses related to the Performance RSUs granted in 2020. In regards to the Performance RSUs granted in March 2021, we determined that under the modified performance conditions, the awards issued were probable of achievement. During 2021, we did not incur incremental compensation expense resulting from the modification which was applied to the Performance RSUs of 28 grantees. For all other performance-based awards, compensation expense will be recorded through the end of the performance period if it is deemed probable that the performance goals will be met. If the performance goals are not met, no compensation cost will be recognized and any previously recognized compensation cost will be reversed. The following table provides information about our Performance RSU grants, which is based on our Adjusted EBITDA metric described in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K, further adjusted by net deferral and recognition of revenues and related direct expenses related to sales of VOIs of projects under construction for the last three fiscal years: Year Ended December 31, 2022 2021 2020 Number of shares granted 46,532 178,224 117,975 Weighted average grant date fair value per share $ 44.09 $ 39.55 $ 25.69 Fair value of shares vested (in millions) — — 2 The following table provides information about our Performance RSU grants, which is based on contract sales for the last three fiscal years: Year Ended December 31, 2022 2021 2020 Number of shares granted 46,532 62,356 50,554 Weighted average grant date fair value per share $ 44.09 $ 38.22 $ 25.69 Fair value of shares vested (in millions) — — 1 111 Table of Contents During fiscal 2021, 235,249 Performance RSU grants, which are based on achieving certain run rate cost savings initiatives, were granted with a weighted average grant date fair value per share of $ 40.27 . There were no Performance RSU grants based on achieving certain run rate cost savings initiatives for the 2022 and 2020 fiscal years, respectively. The following table summarizes the activity of our Performance RSUs during the year ended December 31, 2022: Adjusted EBITDA (1) Contract Sales Run Rate Cost Savings Number of Shares Weighted Average Grant Date Fair Value per Share Number of Shares Weighted Average Grant Date Fair Value per Share Number of Shares Weighted Average Grant Date Fair Value per Share Outstanding, beginning of period 374,243 $ 34.07 146,352 $ 32.98 235,249 $ 40.27 Granted 46,532 44.09 46,532 44.09 — — Vested — — — — — — Forfeited, canceled or expired ( 85,542 ) 33.32 ( 36,656 ) 33.32 — — Outstanding, end of period 335,233 35.12 156,228 36.20 235,249 40.27 (1) Represents our Adjusted EBITDA metric described in Part 1 of this Form 10-K, further adjusted by net recognition and deferral activity from sales of VOIs under construction. Employee Stock Purchase Plan In March 2017, the Board of Directors adopted the Hilton Grand Vacations Inc. Employee Stock Purchase Plan (the “ESPP”), which became effective during 2017. In connection with the Plan, we reserved 2.5 million shares of common stock which may be purchased under the ESPP. Under the ESPP, eligible employees can purchase common stock twice per year at the end of a six-month payment period (a "Purchase Period"). The ESPP allows eligible employees to purchase shares of our common stock at a price per share not less than 95 % of the fair market value per share of common stock on the last day of the Purchase Period, up to a maximum threshold established by the plan administrator for the offering period. For the year ended December 31, 2022 and 2021, we issued 121,095 and 39,985 shares, respectively, and recognized less than $ 1 million of compensation expense in both periods related to this plan. In November 2022, the Board of Directors amended the ESPP plan to allow eligible employees to purchase shares of our common stock at a price per share not less than 85 % of the fair market value per share of common stock on the first day of the Purchase Period or the last day of the Purchase Period, whichever is lower, up to a maximum threshold established by the plan administrator for the offering period. The amendment will become effective in 2023. Note 20: Earnings (Loss) Per Share The following tables present the calculation of our basic and diluted EPS and the corresponding weighted average shares outstanding referenced in these calculations for the years ended December 31, 2022, 2021, and 2020. Year Ended December 31, ($ and shares outstanding in millions, except per share amounts) 2022 2021 2020 Basic EPS: Numerator: Net income (loss) $ 352 $ 176 $ ( 201 ) Denominator: Weighted average shares outstanding 118 100 85 Basic EPS (1) $ 2.98 $ 1.77 $ ( 2.36 ) Diluted EPS: Numerator: Net income (loss) $ 352 $ 176 $ ( 201 ) Denominator: Weighted average shares outstanding 120 101 85 Diluted EPS (1) $ 2.93 $ 1.75 $ ( 2.36 ) (1) Earnings per share amounts are calculated using whole numbers. The dilutive effect of outstanding share-based compensation awards is reflected in diluted earnings per common share by application of the treasury stock method using average market prices during the period. 112 Table of Contents For the years ended December 31, 2022, 2021 and 2020, we excluded 759,627 , 651,748 and 2,192,591 of share-based compensation awards, respectively, because their effect would have been anti-dilutive under the treasury stock method. Share Repurchases On May 4, 2022, our Board of Directors approved a share repurchase program authorizing us to repurchase up to an aggregate of $ 500 million of our outstanding shares of common stock over a two-year period through any combination of open market repurchases, accelerated share repurchases or privately negotiated transactions. The timing and actual number of shares repurchased will depend on a variety of factors, including the stock price, corporate and regulatory requirements and other market and economic conditions. The shares are retired upon repurchase. The stock repurchase program may be suspended or discontinued at any time and will automatically expire at the end of the two-year term. As of December 31, 2022, $ 228 million remains available to be repurchased under the share repurchase program. The following table summarizes stock repurchase activity under the share repurchase program as of December 31, 2022: (in millions) Shares Cost As of December 31, 2021 — $ — Repurchases 7 272 As of December 31, 2022 7 $ 272 Note 21: Related Party Transactions BRE Ace LLC and 1776 Holding, LLC We hold a 25 % ownership interest in BRE Ace LLC, a VIE, which owns a timeshare resort property and related operations, commonly known as “Elara, by Hilton Grand Vacations.” We hold a 50 % ownership interest in 1776 Holdings, LLC, a VIE, which owns a timeshare resort property and related operations, known as “Liberty Place Charleston, by Hilton Club.” We record Equity in earnings from our unconsolidated affiliates in our consolidated statements of operations. See Note 11: Investments in Unconsolidated Affiliates for further information. Additionally, we earn commissions and other fees related to fee-for-service agreements with the investees to sell VOIs at Elara, by Hilton Grand Vacations and Liberty Place Charleston, by Hilton Club. These amounts are summarized in the following table and are included in Sales, marketing, brand, and other fees on our consolidated statements of operations as of the date they became related parties. December 31, ($ in millions) 2022 2021 2020 Equity in earnings from unconsolidated affiliates $ 13 $ 10 $ 5 Commissions and other fees 200 105 55 We also had $ 23 million and $ 20 million of outstanding receivables related to the fee-for-service agreements included in Accounts receivable, net on our consolidated balance sheets as of December 31, 2022 and 2021, respectively. Apollo Global Management Inc. As part of the Diamond Acquisition as described above in Note 3: Diamond Acquisition , Apollo obtained more than 20 % of our common stock during 2021. Outside of agreements related to the Diamond Acquisition, we did not have any transactions with Apollo during the year ended December 31, 2021 and do not have any outstanding balances or agreements with Apollo as of December 31, 2021. During 2021, we made one payment to Apollo subsequent to the Diamond Acquisition, of approximately $ 2 million, for amounts that were accrued for periods prior to the completion of the Diamond Acquisition and were included in Accounts payable, accrued expenses and other as of the Acquisition Date. We did not have outstanding balances or any transactions due to/from Apollo as of and for the year ended December 31, 2022, respectively. 113 Table of Contents Note 22: Business Segments We operate our business through the following two segments: • Real estate sales and financing – We market and sell VOIs that we own. We also source VOIs through fee-for-service agreements with third-party developers. Related to the sales of the VOIs that we own, we provide consumer financing, which includes interest income generated from the origination of consumer loans to customers to finance their purchase of VOIs and revenue from servicing the loans. We also generate fee revenue from servicing the loans provided by third-party developers to purchasers of their VOIs. • Resort operations and club management – We manage the Clubs and earn activation fees, annual dues and transaction fees from member exchanges for other vacation products. We also earn fees for managing the timeshare properties. We generate rental revenue from unit rentals of unsold inventory and inventory made available due to ownership exchanges under our Clubs programs. We also earn revenue from food and beverage, retail and spa outlets at our timeshare properties. The performance of our operating segments is evaluated primarily based on adjusted earnings before interest expense (excluding non-recourse debt), taxes, depreciation and amortization (“EBITDA”). We define Adjusted EBITDA as EBITDA, 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 transactions; (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. We do not include equity in earnings (losses) from unconsolidated affiliates in our measures of segment operating performance. Below is the presentation of our reportable segment results which include the acquired Diamond operations within both segments since the Acquisition Date. The following table presents revenues for our reportable segments reconciled to consolidated amounts: Year Ended December 31, ($ in millions) 2022 2021 2020 Revenues: Real estate sales and financing $ 2,378 $ 1,451 $ 494 Resort operations and club management (1) 1,197 700 276 Total segment revenues 3,575 2,151 770 Cost reimbursements 297 202 137 Intersegment eliminations (1) ( 37 ) ( 18 ) ( 13 ) Total revenues $ 3,835 $ 2,335 $ 894 (1) Includes charges to the real estate sales and financing segment from the resort operations and club management segment for fulfillment of discounted marketing package stays at resorts and for the rental of model units to show prospective buyers. These charges totaled $ 37 million, $ 18 million and $ 13 million for the years ended December 31, 2022, 2021, and 2020, respectively. 114 Table of Contents The following table presents Adjusted EBITDA for our reportable segments reconciled to net income (loss): Year Ended December 31, ($ in millions) 2022 2021 2020 Adjusted EBITDA: Real estate sales and financing (1) $ 865 $ 537 $ 33 Resort operations and club management (1) 463 353 136 Segment Adjusted EBITDA 1,328 890 169 Acquisition and integration-related expense ( 67 ) ( 106 ) — General and administrative ( 212 ) ( 151 ) ( 92 ) Depreciation and amortization ( 244 ) ( 126 ) ( 45 ) License fee expense ( 124 ) ( 80 ) ( 51 ) Other (loss) gain, net ( 1 ) ( 26 ) 3 Interest expense ( 142 ) ( 105 ) ( 43 ) Income tax (expense) benefit ( 129 ) ( 93 ) 79 Equity in earnings from unconsolidated affiliates 13 10 5 Impairment expense ( 17 ) ( 2 ) ( 209 ) Other adjustment items (2) ( 53 ) ( 35 ) ( 17 ) Net income (loss) $ 352 $ 176 $ ( 201 ) (1) Includes intersegment transactions. Refer to our table presenting revenues by reportable segment above for additional discussion. (2) This amount includes costs associated with restructuring, one-time charges and other non-cash items included within our reportable segments. The following table presents total assets for our reportable segments, reconciled to consolidated amounts: December 31, ($ in millions) 2022 2021 Real estate sales and financing $ 5,755 $ 5,544 Resort operations and club management 1,986 2,145 Total segment assets 7,741 7,689 Corporate 263 278 Land and infrastructure held for sale — 41 Total assets $ 8,004 $ 8,008 The following table presents capital expenditures for property and equipment (including inventory and leases) for our reportable segments, reconciled to consolidated amounts: December 31, ($ in millions) 2022 2021 2020 Real estate sales and financing $ 26 $ 60 $ 18 Resort operations and club management 2 — — Total segment capital expenditures 28 60 18 Corporate 65 12 8 Total capital expenditures $ 93 $ 72 $ 26 Note 23: Commitments and Contingencies Commitments We have entered into certain arrangements with developers whereby we have committed to purchase vacation ownership units or other real estate at a future date to be marketed and sold under our Hilton Grand Vacations brand. As of December 31, 2022, we were committed to purchase approximately $ 195 million of inventory and land over a period of 2 years and $ 15 million of other commitments in the normal course of business. We are also committed to an agreement to exchange parcels of land in Hawaii, subject to the successful completion of zoning, land use requirements and other applicable regulatory requirements. The actual amount and timing of the acquisitions are subject to change pursuant to the terms of the respective arrangements, which could also allow for cancellation in certain circumstances. 115 Table of Contents During the years ended December 31, 2022 and 2021, we fulfilled $ 92 million and $ 132 million, respectively, of purchases required under our inventory-related purchase commitments. As of December 31, 2022, our remaining obligations pursuant to these arrangements were expected to be incurred as follows: ($ in millions) 2023 2024 2025 2026 2027 Thereafter Total Inventory purchase obligations (1) $ 138 $ 57 $ — $ — $ — $ — $ 195 Other commitments (2) 11 4 — — — — 15 Total $ 149 $ 61 $ — $ — $ — $ — $ 210 (1) Includes commitments for properties in New York, South Carolina, and Japan. (2) Primarily relates to commitments related to information technology and sponsorships. Litigation Contingencies We are involved in litigation arising from the normal course of business, some of which includes claims for substantial sums. We evaluate these legal proceedings and claims at each balance sheet date to determine the degree of probability of an unfavorable outcome and, when it is probable that a liability has been incurred, our ability to reasonably estimate the amount of loss. We record a contingent litigation liability when it is determined that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. As of December 31, 2022, we accrued liabilities of approximately $ 124 million for legal matters. Approximately $ 96 million of these accrued liabilities relate to a judgment entered against Diamond in March 2022 in connection with a case filed in 2015 that was not deemed probable and estimable as of the Acquisition Date. This matter is subject to insurance coverage and, as a result, as of December 31, 2022, we recorded an insurance claim receivable of $ 81 million within Accounts receivable, net in our consolidated balance sheet. During the year ended December 31, 2022, we recognized a charge of $ 15 million to General and administrative in our consolidated statement of operations that represents the amount of the settlement liability not deemed probable of recovery from the insurance carriers. While we currently believe that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material effect on the Company’s financial condition, cash flows, or materially adversely affect overall trends in our results of operations, legal proceedings are inherently uncertain and unfavorable rulings could, individually or in aggregate, have a material adverse effect on the Company’s business, financial condition or results of operations. Surety Bonds 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 $ 327 million as of December 31, 2022, which primarily consist of escrow and subsidy related bonds. Note 24: Supplemental Disclosures of Cash Flow Information Cash paid for interest was $ 177 million, $ 118 million and $ 64 million for the years ended December 31, 2022, 2021 and 2020, respectively. Cash paid for income taxes, net of refunds, was $ 141 million, $ 54 million and $ 54 million for the years ended December 31, 2022, 2021 and 2020, respectively. The following non-cash activities were excluded from the consolidated statements of cash flows: • In 2022, we recorded non-cash operating activity transfer of $ 48 million related certain undeveloped land and infrastructure that was previously recorded within the classification of Land and infrastructure held for sale to Property and equipment, net . • In 2021, we recorded non-cash issuance of stock of $ 1,381 million related to our acquisition of Diamond. See note 3: Diamond Acquisition for additional information. • In 2021, we recorded non-cash operating activity transfers of $ 55 million related to related to the registrations for timeshare units under construction from Property and equipment to Inventory . • In 2020, we recorded non-cash operating activity transfers of $ 41 million related to the classification of certain undeveloped land and infrastructure as available for sale from Inventory to Land and infrastructure held for sale and $ 16 million related to the classification of certain undeveloped land and infrastructure from Inventory to Property and equipment • In 2020, we recorded non-cash operating activity transfers of $ 301 million related to the registrations for timeshare units under construction from Property and equipment to Inventory. 116 Table of Contents Note 25: Subsequent Events Management has evaluated all subsequent events through March 1, 2023, the date the audited 2022 10-K was available to be issued. The results of management’s analysis indicated no significant subsequent events have occurred that required consideration or adjustments to our disclosures in the audited financial statements. 117 Table of Contents ITEM 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with our accountants on accounting and financial disclosure matters.