MARRIOTT VACATIONS WORLDWIDE Corp 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements We make forward-looking statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Quarterly Report on Form 10-Q based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include, among other things, the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance improvements, the effects of competition, and the ongoing effect of the COVID-19 pandemic and actions we or others may take in response to the pandemic, including, among others, reductions in planned spending for inventory and property and equipment for the rest of 2020. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “continue,” “may,” “might,” “should,” “could” or the negative of these terms or similar expressions. The Company cautions you that these statements are not guarantees and are subject to numerous risks and uncertainties, such as: the effects of the COVID-19 pandemic, including reduced demand for vacation ownership and exchange products and services, volatility in the international and national economy and credit markets, worker absenteeism, quarantines or other travel or health-related restrictions; the length and severity of the COVID-19 pandemic; the pace of recovery following the COVID-19 pandemic; competitive conditions; the availability of capital to finance growth, and other matters referred to under the heading “Risk Factors” contained herein and also in our most recent Annual Report on Form 10-K filed March 2, 2020, our Current Report on Form 8-K filed May 6, 2020 and our Quarterly Report on Form 10-Q filed on May 22, 2020, in each case with the U.S. Securities and Exchange Commission (the “SEC”), any of which could cause actual results to differ materially from those expressed in or implied in this press release. We do not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. The risk factors discussed in “Risk Factors” in our most recent Annual Report on Form 10-K filed March 2, 2020, our Current Report on Form 8-K filed May 6, 2020, our Quarterly Report on Form 10-Q filed May 22, 2020 and which may be discussed in subsequent Quarterly Reports on Form 10-Q or other filings with the SEC could cause our results to differ materially from those expressed in forward-looking statements. There may be other risks and uncertainties that we cannot predict at this time or that we currently do not expect will have a material adverse effect on our financial position, results of operations or cash flows. Any such risks could cause our results to differ materially from those we express in forward-looking statements. Our Financial Statements (as defined below), which we discuss below, reflect our historical financial condition, results of operations and cash flows. The financial information discussed below and included in this Quarterly Report on Form 10-Q may not necessarily reflect what our financial condition, results of operations or cash flows may be in the future. In order to make this report easier to read, we refer to (i) our Interim Consolidated Financial Statements as our “Financial Statements,” (ii) our Interim Consolidated Statements of Income as our “Income Statements,” (iii) our Interim Consolidated Balance Sheets as our “Balance Sheets” and (iv) our Interim Consolidated Statements of Cash Flows as our “Cash Flows.” In addition, references throughout to numbered “Footnotes” refer to the numbered Notes to our Financial Statements that we include in the Financial Statements of this Quarterly Report on Form 10-Q. Business Overview We are a leading global vacation company that offers vacation ownership, exchange, rental, and resort and property management, along with related businesses, products and services. Our business operates in two reportable segments: Vacation Ownership and Exchange & Third-Party Management. Our Vacation Ownership segment includes seven vacation ownership brands licensed under exclusive, long-term relationships with Marriott International and Hyatt Hotels Corporation. We are the exclusive worldwide developer, marketer, seller and manager of vacation ownership and related products under the Marriott Vacation Club, Grand Residences by Marriott, Sheraton Vacation Club, Westin Vacation Club, and Hyatt Residence Club brands, as well as under Marriott Vacation Club Pulse, an extension to the Marriott Vacation Club brand. We are also the exclusive worldwide developer, marketer and seller of vacation ownership and related products under The Ritz-Carlton Destination Club brand, we have the non-exclusive right to develop, market and sell whole ownership residential products under The Ritz-Carlton Residences brand and we have a license to use the St. Regis brand for specified fractional ownership resorts. Our Vacation Ownership segment generates most of its revenues from four primary sources: selling vacation ownership products; managing vacation ownership resorts, clubs and owners’ associations; financing consumer purchases of vacation ownership products; and renting vacation ownership inventory. 40 Table of Contents Our Exchange & Third-Party Management segment includes exchange networks and membership programs, as well as management of resorts and lodging properties. We provide these services through a variety of brands including Interval International, Trading Places International (“TPI”), Vacation Resorts International (“VRI”), and Aqua-Aston. Exchange & Third-Party Management revenue generally is fee-based and derived from membership, exchange and rental transactions, property and association management, and other related products and services. Corporate and other represents that portion of our results that are not allocable to our segments, including those relating to property owners’ associations consolidated under the voting interest model (“Consolidated Property Owners’ Associations”). COVID-19 Pandemic Update The COVID-19 pandemic (as discussed further in Footnote 1 “Basis of Presentation” of the Financial Statements) has caused significant disruptions in international and U.S. economies and markets. We discuss the COVID-19 pandemic and its current and potential future implications in this report; however, the COVID-19 pandemic is evolving and its potential impact on our business in the future remains uncertain. Significant Accounting Policies Used in Describing Results of Operations Sale of Vacation Ownership Products We recognize revenues from the sale of vacation ownership products (“VOIs”) when control of the vacation ownership product is transferred to the customer and the transaction price is deemed collectible. Based upon the different terms of the contracts with the customer and business practices, control of the vacation ownership product is transferred to the customer at closing for Legacy-MVW transactions and upon expiration of the statutory rescission period for Legacy-ILG transactions. Sales of vacation ownership products may be made for cash or we may provide financing. In addition, we recognize settlement fees associated with the transfer of vacation ownership products and commission revenues from sales of vacation ownership products on behalf of third parties, which we refer to as “resales revenue.” We also provide sales incentives to certain purchasers. These sales incentives typically include Marriott Bonvoy points, World of Hyatt points or an alternative sales incentive that we refer to as “plus points.” These plus points are redeemable for stays at our resorts or for use in other third-party offerings, generally up to two years from the date of issuance. Typically, sales incentives are only awarded if the sale is closed. There may be timing differences between the date of the contract with the customer and when revenue is recognized. When comparing results year-over-year, this timing difference may generate significant variances, which we refer to as the impact of revenue reportability. Finally, as more fully described in “ Financing ” below, we record the difference between the vacation ownership note receivable and the consideration to which we expect to be entitled (also known as a vacation ownership notes receivable reserve or a sales reserve) as a reduction of revenues from the sale of vacation ownership products at the time we recognize revenues from a sale. We report, on a supplemental basis, contract sales for our Vacation Ownership segment. Contract sales consist of the total amount of vacation ownership product sales under contract signed during the period where we have generally received a down payment of at least ten percent of the contract price, reduced by actual rescissions during the period, inclusive of contracts associated with sales of vacation ownership products on behalf of third-parties, which we refer to as “resales contract sales.” In circumstances where a customer applies any or all of their existing ownership interests as part of the purchase price for additional interests, we include only the incremental value purchased as contract sales. Contract sales differ from revenues from the sale of vacation ownership products that we report on our income statements due to the requirements for revenue recognition described above. We consider contract sales to be an important operating measure because it reflects the pace of sales in our business. Cost of vacation ownership products includes costs to develop and construct our projects (also known as real estate inventory costs), other non-capitalizable costs associated with the overall project development process and settlement expenses associated with the closing process. For each project, we expense real estate inventory costs in the same proportion as the revenue recognized. Consistent with the applicable accounting guidance, to the extent there is a change in the estimated sales revenues or inventory costs for the project in a period, a non-cash adjustment is recorded on our income statements to true-up costs in that period to those that would have been recorded historically if the revised estimates had been used. These true-ups, which we refer to as product cost true-up activity, can have a positive or negative impact on our income statements. We refer to revenues from the sale of vacation ownership products less the cost of vacation ownership products and marketing and sales costs as development margin. Development margin percentage is calculated by dividing development margin by revenues from the sale of vacation ownership products. 41 Table of Contents Management and Exchange Our management and exchange revenues include revenues generated from fees we earn for managing each of our vacation ownership resorts, providing property management, property owners’ association management and related services to third-party vacation ownership resorts and fees we earn for providing rental services and related hotel, condominium resort, and property owners’ association management services to vacation property owners. In addition, we earn revenue from ancillary offerings, including food and beverage outlets, golf courses and other retail and service outlets located at our Vacation Ownership resorts. We also receive annual membership fees, club dues and certain transaction-based fees from members, owners and other third parties. Management and exchange expenses include costs to operate the food and beverage outlets and other ancillary operations and to provide overall customer support services, including reservations, and certain transaction-based expenses relating to external exchange service providers. In our Vacation Ownership segment and Consolidated Property Owners’ Associations, we refer to these activities as “Resort Management and Other Services.” Financing We offer financing to qualified customers for the purchase of most types of our vacation ownership products. The average FICO score of customers who were U.S. citizens or residents who financed a vacation ownership purchase was as follows: Six Months Ended June 30, 2020 June 30, 2019 Average FICO score 737 739 The typical financing agreement provides for monthly payments of principal and interest with the principal balance of the loan fully amortizing over the term of the related vacation ownership note receivable, which is generally ten years. Included within our vacation ownership notes receivable are originated vacation ownership notes receivable and vacation ownership notes receivable acquired in connection with the ILG Acquisition. The interest income earned from the originated vacation ownership financing arrangements is earned on an accrual basis on the principal balance outstanding over the contractual life of the arrangement and is recorded as Financing revenues on our Income Statements. Financing revenues also include fees earned from servicing the existing vacation ownership notes receivable portfolio. Financing expenses include costs in support of the financing, servicing and securitization processes and changes in expected credit losses related to acquired vacation ownership notes receivable. The amount of interest income earned in a period depends on the amount of outstanding vacation ownership notes receivable, which, for originated vacation ownership notes receivable, is impacted positively by the origination of new vacation ownership notes receivable and negatively by principal collections. We calculate financing propensity as contract sales volume of finance contracts originated in the period divided by contract sales volume of all contracts originated in the period. We do not include resales contract sales in the financing propensity calculation. Financing propensity was 62 percent in the second quarter of 2019 and 37 percent in the second quarter of 2020 as a result of the various sales programs that incented cash purchases over financed purchases in the quarter, in response to the COVID-19 pandemic. We do not expect these incentives to continue at the same level going forward. We expect to continue to offer financing incentive programs and that interest income will continue to increase as new originations of vacation ownership notes receivable outpace the decline in principal of existing vacation ownership notes receivable. In the event of a default, we generally have the right to foreclose on or revoke the underlying VOI. We return VOIs that we reacquire through foreclosure or revocation back to inventory. As discussed above, for originated vacation ownership notes receivable, we record a reserve at the time of sale and classify the reserve as a reduction to revenues from the sale of vacation ownership products on our Income Statements. Historical default rates, which represent defaults as a percentage of each year’s beginning gross vacation ownership notes receivable balance, were as follows: Six Months Ended June 30, 2020 June 30, 2019 Historical default rates 2.9% 2.1% Financing expenses include consumer financing interest expense, which represents interest expense associated with the securitization of our vacation ownership notes receivable. We distinguish consumer financing interest expense from all other interest expense because the debt associated with the consumer financing interest expense is secured by vacation ownership notes receivable that have been sold to bankruptcy remote special purpose entities and is generally non-recourse to us. 42 Table of Contents Rental In our Vacation Ownership segment, we operate a rental business to provide owner flexibility and to help mitigate carrying costs associated with our inventory. We generate revenue from rentals of inventory that we hold for sale as interests in our vacation ownership programs, inventory that we control because our owners have elected alternative usage options permitted under our vacation ownership programs and rentals of owned-hotel properties. We also recognize rental revenue from the utilization of plus points under our points-based Marriott Vacation Club Destinations program when the points are redeemed for rental stays at one of our resorts or in other third-party offerings. We obtain rental inventory from unsold inventory and inventory we control because owners have elected alternative usage options offered through our vacation ownership programs. For rental revenues associated with vacation ownership products which we own and which are registered and held for sale, to the extent that the revenues from rental are less than costs, revenues are reported net in accordance with ASC Topic 978, “ Real Estate - Time-Sharing Activities ” (“ASC 978”). The rental activity associated with discounted vacation packages requiring a tour (“preview stays”) is not included in transient rental metrics, and because the majority of these preview stays are sourced directly or indirectly from unsold inventory, the associated revenues and expenses are reported net in Marketing and sales expense. In our Exchange & Third-Party Management segment, we offer vacation rental opportunities at managed properties through VRI, TPI, and Aqua-Aston Hospitality. We also offer vacation rental offers knows as Getaways to members of the Interval International Network and certain other membership programs. The offering of Getaways allows us to monetize excess availability of resort accommodations within the applicable exchange network, as well as provide additional vacation opportunities to members. Resort accommodations available as Getaways typically result from seasonal oversupply or underutilized space in the applicable exchange program, as well as resort accommodations specifically sourced for the Getaway program. Rental expenses include: • Maintenance fees on unsold inventory; • Costs to provide alternative usage options, including Marriott Bonvoy points, World of Hyatt points and offerings available as part of third-party offerings, for owners who elect to exchange their inventory; • Marketing costs and direct operating and related expenses in connection with the rental business (such as housekeeping, credit card expenses and reservation services); and • Costs to secure resort accommodations for use in Getaways. Rental metrics, including the average daily transient rate or the number of transient keys rented, may not be comparable between periods given fluctuation in available occupancy by location, unit size (such as two bedroom, one bedroom or studio unit), owner use and exchange behavior. In addition, rental metrics may not correlate with rental revenues due to the requirement to report certain rental revenues net of rental expenses in accordance with ASC 978 (as discussed above). Further, as our ability to rent certain luxury and other inventory is often limited on a site-by-site basis, rental operations may not generate adequate rental revenues to cover associated costs. Our Vacation Ownership segment units are either “full villas” or “lock-off” villas. Lock-off villas are units that can be separated into a master unit and a guest room. Full villas are “non-lock-off” villas because they cannot be separated. A “key” is the lowest increment for reporting occupancy statistics based upon the mix of non-lock-off and lock-off villas. Lock-off villas represent two keys and non-lock-off villas represent one key. The “transient keys” metric represents the blended mix of inventory available for rent and includes all of the combined inventory configurations available in our resort system. Cost Reimbursements Cost reimbursements include direct and indirect costs that are reimbursed to us by customers under management contracts. All costs, with the exception of taxes assessed by a governmental authority, reimbursed to us by customers are reported on a gross basis. We recognize cost reimbursements when we incur the related reimbursable costs. Cost reimbursements consist of actual expenses with no added margin. Interest Expense Interest expense consists of all interest expense other than consumer financing interest expense, which is included within Financing expense. 43 Table of Contents Other Items We measure operating performance using the following key metrics: • Contract sales from the sale of vacation ownership products; • Total contract sales include contract sales from the sale of vacation ownership products including joint ventures • Consolidated contract sales exclude contract sales from the sale of vacation ownership products for non-consolidated joint ventures • Development margin percentage; • Volume per guest (“VPG”), which we calculate by dividing consolidated vacation ownership contract sales, excluding fractional sales, telesales, resales, joint venture sales and other sales that are not attributed to a tour at a sales location, by the number of tours at sales locations in a given period (which we refer to as “tour flow”). We believe that this operating metric is valuable in evaluating the effectiveness of the sales process as it combines the impact of average contract price with the number of touring guests who make a purchase; ◦ For the second quarter of 2020, as a result of the COVID-19 pandemic, VPG is not a meaningful measure of our operating performance given that the majority of the sales in the quarter were from our enhanced phone sales program (which do not count as a tour in our VPG calculation) and there were limited site-based tours due to sales center closures. • Average revenue per member, which we calculate by dividing membership fee revenue, transaction revenue and other member revenue for the Interval International network by the monthly weighted average number of Interval International network active members during the applicable period; and • Total active members, which is the number of Interval International network active members at the end of the applicable period. 44 Table of Contents Consolidated Results Three Months Ended Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 REVENUES Sale of vacation ownership products $ 53 $ 341 $ 311 $ 634 Management and exchange 145 231 372 470 Rental 18 150 153 297 Financing 70 69 142 137 Cost reimbursements 194 252 512 539 TOTAL REVENUES 480 1,043 1,490 2,077 EXPENSES Cost of vacation ownership products 23 91 83 169 Marketing and sales 57 189 240 375 Management and exchange 77 123 215 256 Rental 73 97 171 177 Financing 23 21 61 43 General and administrative 19 64 89 131 Depreciation and amortization 31 36 63 73 Litigation charges — 1 2 2 Royalty fee 23 26 49 52 Impairment 1 — 96 26 Cost reimbursements 194 252 512 539 TOTAL EXPENSES 521 900 1,581 1,843 Gains (losses) and other income (expense), net 14 2 (42) 10 Interest expense (42) (35) (75) (69) ILG acquisition-related costs (12) (36) (33) (62) Other — — (3) — (LOSS) INCOME BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS (81) 74 (244) 113 Benefit (provision) for income taxes 19 (25) 77 (40) NET (LOSS) INCOME (62) 49 (167) 73 Net income attributable to noncontrolling interests (8) — (9) — NET (LOSS) INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (70) $ 49 $ (176) $ 73 Operating Statistics 2020 Second Quarter Three Months Ended (Contract sales $ in millions) June 30, 2020 June 30, 2019 Change % Change Vacation Ownership Total contract sales $ 30 $ 398 $ (368) (93%) Consolidated contract sales $ 30 $ 386 $ (356) (92%) Exchange & Third-Party Management Total active members at end of period (000's) (1) 1,571 1,691 (120) (7%) Average revenue per member (1) $ 30.17 $ 43.23 $ (13.06) (30%) _______________ (1) Only includes members of the Interval International exchange network. 45 Table of Contents 2020 First Half Six Months Ended (Contract sales $ in millions) June 30, 2020 June 30, 2019 Change % Change Vacation Ownership Total contract sales $ 345 $ 763 $ (418) (55%) Consolidated contract sales $ 336 $ 740 $ (404) (55%) Exchange & Third-Party Management Total active members at end of period (000's) (1) 1,571 1,691 (120) (7%) Average revenue per member (1) $ 71.74 $ 89.38 $ (17.64) (20%) _______________ (1) Only includes members of the Interval International exchange network. Revenues 2020 Second Quarter The following table presents our revenues for the second quarter of 2020 compared to the second quarter of 2019. Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Vacation Ownership $ 405 $ 924 $ (519) (56%) Exchange & Third-Party Management 58 116 (58) (50%) Total Segment Revenues 463 1,040 (577) (56%) Consolidated Property Owners’ Associations 17 3 14 482% Total Revenues $ 480 $ 1,043 $ (563) (54%) 2020 First Half The following table presents our revenues for the first half of 2020 compared to the first half of 2019. Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Vacation Ownership $ 1,313 $ 1,829 $ (516) (28%) Exchange & Third-Party Management 165 240 (75) (31%) Total Segment Revenues 1,478 2,069 (591) (29%) Consolidated Property Owners’ Associations 12 8 4 79% Total Revenues $ 1,490 $ 2,077 $ (587) (28%) 46 Table of Contents Earnings Before Interest Expense, Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA EBITDA, a financial measure that is not prescribed by GAAP, is defined as earnings, or net income attributable to common shareholders, before interest expense (excluding consumer financing interest expense associated with term loan securitization transactions), income taxes, depreciation and amortization. Adjusted EBITDA reflects additional adjustments for certain items described below, and excludes share-based compensation expense to address considerable variability among companies in recording compensation expense because companies use share-based payment awards differently, both in the type and quantity of awards granted. We evaluate Adjusted EBITDA as an indicator of operating performance because it allows for period-over-period comparisons of our on-going core operations before the impact of the excluded items. Together, EBITDA and Adjusted EBITDA facilitate our comparison of results from our on-going core operations before the impact of these items with results from other vacation ownership companies, and we believe this makes these figures helpful for investors. For purposes of our EBITDA and Adjusted EBITDA calculations, we do not adjust for consumer financing interest expense because we consider it to be an operating expense of our business. We consider EBITDA and Adjusted EBITDA to be indicators of operating performance, which we use to measure our ability to service debt, fund capital expenditures and expand our business. We also use EBITDA and Adjusted EBITDA, as do analysts, lenders, investors and others, because these measures exclude certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company’s capital structure, debt levels and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provision for income taxes can vary considerably among companies. EBITDA and Adjusted EBITDA also exclude depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies. EBITDA and Adjusted EBITDA have limitations and should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. In addition, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do or may not calculate them at all, limiting their usefulness as comparative measures. The table below shows our EBITDA and Adjusted EBITDA calculation and reconciles these measures with Net (loss) income attributable to common shareholders, which is the most directly comparable GAAP financial measure. 2020 Second Quarter Three Months Ended Change ($ in millions) June 30, 2020 June 30, 2019 Net (loss) income attributable to common shareholders $ (70) $ 49 $ (119) Interest expense 42 35 7 Tax (benefit) provision (19) 25 (44) Depreciation and amortization 31 36 (5) EBITDA (16) 145 (161) Share-based compensation expense 9 11 (2) Certain items (3) 39 (42) Adjusted EBITDA $ (10) $ 195 $ (205) Certain items for the second quarter of 2020 consisted of $2 million related to the charge for VAT interest (the true-up to the offsetting charge is included in the Interest expense line) and $14 million of gains and other income (including $8 million related to foreign currency translation, $1 million related to a true-up to a Marriott International indemnification receivable upon settlement (the true-up to the offsetting accrual is included in the Benefit (provision) for income taxes line), $4 million related to net insurance proceeds from the final settlement of Legacy-MVW business interruption insurance claims arising from a prior year hurricane, and $1 million related to miscellaneous gains and other income), partially offset by $12 million of ILG acquisition-related costs and $1 million related to an asset impairment charge. Certain items for the second quarter of 2019 consisted of $36 million of ILG acquisition-related costs, $4 million of purchase price adjustments and $1 million of litigation charges, partially offset by $2 million of gains and other income. 47 Table of Contents 2020 First Half Six Months Ended Change ($ in millions) June 30, 2020 June 30, 2019 Net (loss) income attributable to common shareholders $ (176) $ 73 $ (249) Interest expense 75 69 6 Tax (benefit) provision (77) 40 (117) Depreciation and amortization 63 73 (10) EBITDA (115) 255 (370) Share-based compensation expense 13 20 (7) Certain items 230 86 144 Adjusted EBITDA $ 128 $ 361 $ (233) Certain items for the first half of 2020 consisted of $33 million of ILG acquisition-related costs, $2 million of litigation charges, $42 million of losses and other expense (including $24 million related to foreign currency translation and $32 million related to a true-up to a Marriott International indemnification receivable upon settlement (the true-up to the offsetting accrual is included in the Benefit (provision) for income taxes line), partially offset by $4 million related to net insurance proceeds from the final settlement of Legacy-MVW business interruption insurance claims arising from a prior year hurricane, $3 million related to other insurance proceeds, $6 million related to an indemnification receivable from Marriott International for certain VAT charges, and $1 million related to miscellaneous gains and other income), $96 million of impairment charges, $2 million of purchase accounting adjustments, $3 million related to transaction costs related to our asset light inventory arrangements, $48 million of other charges (including $37 million related to the net sales reserve adjustment and $11 million related to an accrual for the health and welfare costs for furloughed associates), and $4 million related to the charge for VAT penalties and interest (see offset included in indemnification above). The reduction in share-based compensation expense in the first half of 2020 includes a $4 million true-up for projected expense associated with our performance based share awards based upon the projected impact of the COVID-19 pandemic on financial metrics for the programs. Certain items for the first half of 2019 consisted of $62 million of ILG acquisition-related costs, $26 million of asset impairments, $5 million of purchase accounting adjustments, $2 million of litigation charges and $1 million of other severance costs, partially offset by $10 million of gains and other income. Segment Adjusted EBITDA 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change Vacation Ownership $ (19) $ 203 $ (222) Exchange & Third-Party Management 19 46 (27) Segment adjusted EBITDA — 249 (249) General and administrative (13) (56) 43 Consolidated property owners’ associations 3 2 1 Adjusted EBITDA $ (10) $ 195 $ (205) 2020 First Half Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change Vacation Ownership $ 128 $ 375 $ (247) Exchange & Third-Party Management 60 100 (40) Segment adjusted EBITDA 188 475 (287) General and administrative (64) (117) 53 Consolidated property owners’ associations 4 3 1 Adjusted EBITDA $ 128 $ 361 $ (233) 48 Table of Contents The following tables present Adjusted EBITDA for our reportable segments reconciled to segment financial results. Vacation Ownership 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change Segment adjusted EBITDA $ (19) $ 203 $ (222) Depreciation and amortization (18) (17) (1) Share-based compensation expense (1) (2) 1 Certain items 4 (6) 10 Segment financial results $ (34) $ 178 $ (212) Certain items in the Vacation Ownership segment for the second quarter of 2020 consisted of $5 million of gains and other income, partially offset by a $1 million asset impairment charge. Certain items in the Vacation Ownership segment for the second quarter of 2019 consisted of $4 million of purchase accounting adjustments, $1 million of litigation charges and $1 million of losses and other expense. 2020 First Half Six Months Ended Change ($ in millions) June 30, 2020 June 30, 2019 Segment adjusted EBITDA $ 128 $ 375 $ (247) Depreciation and amortization (36) (34) (2) Share-based compensation expense (2) (4) 2 Certain items (43) (25) (18) Segment financial results $ 47 $ 312 $ (265) Certain items in the Vacation Ownership segment for the first half of 2020 consisted of $2 million of litigation charges, $3 million related to transaction costs associated with our asset light inventory arrangements, $5 million of asset impairment charges, $37 million related to the net sales reserve adjustment due primarily to the impact of the COVID-19 pandemic, and $2 million of purchase accounting adjustments, partially offset by $6 million of gains and other income. Certain items in the Vacation Ownership segment for the first half of 2019 consisted of $26 million of asset impairment charges, $5 million of purchase accounting adjustments and $2 million of litigation charges, partially offset by $8 million of gains and other income. Exchange & Third-Party Management 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change Segment adjusted EBITDA $ 19 $ 46 $ (27) Depreciation and amortization (4) (12) 8 Share-based compensation expense — (1) 1 Certain items (1) — (1) Segment financial results $ 14 $ 33 $ (19) Certain items in the Exchange & Third-Party Management segment for the second quarter of 2020 consisted of $1 million of losses and other expense. 49 Table of Contents 2020 First Half Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change Segment adjusted EBITDA $ 60 $ 100 $ (40) Depreciation and amortization (9) (24) 15 Non-cash share-based compensation expense (1) (2) 1 Certain items (91) (1) (90) Segment financial results $ (41) $ 73 $ (114) Certain items in the Exchange & Third-Party Management segment for the first half of 2020 consisted of $91 million of impairment charges related to the decrease in the fair value of Goodwill and certain trademarks resulting from the impact of the COVID-19 pandemic. See Footnote 10 “Goodwill and Intangibles” to our Financial Statements for additional information. Certain items in the Exchange & Third-Party Management segment for the first half of 2019 consisted of $1 million of purchase accounting adjustments. Business Segments Our business is grouped into two reportable business segments: Vacation Ownership and Exchange & Third-Party Management. See Footnote 17 “Business Segments” to our Financial Statements for further information on our segments. Vacation Ownership Three Months Ended Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 REVENUES Sale of vacation ownership products $ 53 $ 341 $ 311 $ 634 Resort management and other services 73 124 185 249 Rental 12 133 134 262 Financing 69 68 140 135 Cost reimbursements 198 258 543 549 TOTAL REVENUES 405 924 1,313 1,829 EXPENSES Cost of vacation ownership products 23 91 83 169 Marketing and sales 49 176 219 348 Resort management and other services 22 54 78 117 Rental 87 102 194 187 Financing 23 20 60 42 Depreciation and amortization 18 17 36 34 Litigation charges — 1 2 2 Royalty fee 23 26 49 52 Impairment 1 — 5 26 Cost reimbursements 198 258 543 549 TOTAL EXPENSES 444 745 1,269 1,526 Gains (losses) and other income (expense), net 5 (1) 6 8 Other — — (3) — SEGMENT FINANCIAL RESULTS BEFORE NONCONTROLLING INTERESTS (34) 178 47 311 Net loss attributable to noncontrolling interests — — — 1 SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (34) $ 178 $ 47 $ 312 50 Table of Contents Contract Sales 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Total consolidated contract sales $ 30 $ 386 $ (356) (92%) Joint venture contract sales — 12 (12) (100%) Total contract sales $ 30 $ 398 $ (368) (93%) 2020 First Half Six Months Ended June 30, 2020 June 30, 2019 Change % Change Total consolidated contract sales $ 336 $ 740 $ (404) (55%) Joint venture contract sales 9 23 (14) (59%) Total contract sales $ 345 $ 763 $ (418) (55%) Sale of Vacation Ownership Products 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Total contract sales $ 30 $ 398 $ (368) (93%) Less resales contract sales (1) (8) 7 Less joint venture contract sales — (12) 12 Consolidated contract sales, net of resales 29 378 (349) Plus: Settlement revenue 2 7 (5) Resales revenue 1 4 (3) Revenue recognition adjustments: Reportability 32 (8) 40 Sales reserve (9) (27) 18 Other (1) (2) (13) 11 Sale of vacation ownership products $ 53 $ 341 $ (288) (84%) _______________ (1) Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue and other adjustments to Sale of vacation ownership products revenue. Sale of vacation ownership products decreased $288 million due to $349 million of lower contract sales volumes, partially offset by a $40 million favorable change in revenue reportability and $18 million of lower sales reserve activity. Lower contract sales performance was primarily due to the closure in March 2020 of all of our sales centers in response to the COVID-19 pandemic. In the second quarter of 2020, only eight of our sales centers were open. Since the end of the second quarter, we have re-opened 34 additional sales centers and, as a result, expect contract sales to increase from levels as of the end of the second quarter. Revenue reportability was significantly positive in the second quarter of 2020 as a result of contract sales late in the first quarter of 2020 that we recognized as revenue in the second quarter. However, it was not offset by the shift of revenues from sales late in the second quarter into the third quarter, given the low sales volumes in June 2020 resulting from the response to the COVID-19 pandemic. The lower sales reserve recorded in the second quarter of 2020 reflects the lower overall contract sales in the quarter, offset partially by higher projected default activity, primarily in our Legacy-ILG brands. 51 Table of Contents 2020 First Half Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Total contract sales $ 345 $ 763 $ (418) (55%) Less resales contract sales (8) (16) 8 Less joint venture contract sales (9) (23) 14 Consolidated contract sales, net of resales 328 724 (396) Plus: Settlement revenue 8 12 (4) Resales revenue 5 7 (2) Revenue recognition adjustments: Reportability 66 (38) 104 Sales reserve (80) (46) (34) Other (1) (16) (25) 9 Sale of vacation ownership products $ 311 $ 634 $ (323) (51%) _______________ (1) Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue and other adjustments to Sale of vacation ownership products revenue. Sale of vacation ownership products decreased $323 million due to $396 million of lower contract sales volumes and $34 million of higher sales reserve activity, partially offset by a $104 million favorable change in revenue reportability. The lower contract sales performance as well as the higher sales reserve activity were primarily due to by the response to the COVID-19 pandemic. Contract sales and VPG as of March 13, 2020 were 10 percent and 11 percent higher, respectively, than the same period during the first quarter of 2019. However, as the virus continued to spread throughout the United States and as we began closing our sales centers during the second half of March, contract sales volumes declined significantly through the end of the second quarter. In the second quarter of 2020, only eight of our sales centers were open. Since the end of the second quarter, we have re-opened 34 additional sales centers and expect contract sales to increase from levels as of the end of the second quarter. The higher sales reserve recorded in the first half of 2020 reflects an estimate of future default activity to the extent our notes receivable portfolio performs similar to how it performed during the financial crisis of 2009 and 2010, offset partially by the lower contract sales in the first half of 2020. We will continue to evaluate our estimate of future default activity and compare it to actual activity as we proceed throughout the year and may adjust our sales reserve based on changes in actual default activity and other factors. Revenue reportability was significantly positive in the first half of 2020 as a result of contract sales late in the fourth quarter of 2019 that we recognized as revenue in 2020. However, it was not offset by the shift of revenues from sales late in the second quarter into the third quarter, given the low sales volumes in June 2020 resulting from the response to the COVID-19 pandemic. Development Margin 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Sale of vacation ownership products $ 53 $ 341 $ (288) (84%) Cost of vacation ownership products (23) (91) 68 75% Marketing and sales (49) (176) 127 73% Development margin $ (19) $ 74 $ (93) (125%) Development margin decreased $93 million year-over-year. The change in margin reflected $111 million of lower sales volumes and less efficient marketing and sales spending due to the inability to leverage fixed costs (as a result of the 52 Table of Contents COVID-19 pandemic), $5 million of unfavorable product cost true-up activity, and $3 million related to higher sales reserve activity in the quarter. These declines were partially offset by $26 million of favorable revenue reportability year-over-year. 2020 First Half Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Sale of vacation ownership products $ 311 $ 634 $ (323) (51%) Cost of vacation ownership products (83) (169) 86 51% Marketing and sales (219) (348) 129 37% Development margin $ 9 $ 117 $ (108) (92%) Development margin decreased $108 million year-over-year. The change in margin reflected $135 million of lower sales volumes and less efficient marketing and sales spending due to the inability to leverage fixed costs as a result of the COVID-19 pandemic and $55 million of higher sales reserve activity due primarily to higher estimated defaults as a result of the COVID-19 pandemic. These declines were partially offset by $71 million of favorable revenue reportability compared to the first half of 2019 and $11 million of lower product costs, primarily due to lower revenue as a result of the sales reserve adjustment as well as a favorable mix of inventory being sold compared to the first half of 2019. Resort Management and Other Services Revenues, Expenses and Margin 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Management fee revenues $ 38 $ 37 $ 1 4% Ancillary revenues 6 57 (51) (91%) Other management and exchange revenues 29 30 (1) —% Resort management and other services revenues 73 124 (51) (41%) Resort management and other services expenses (22) (54) 32 58% Resort management and other services margin $ 51 $ 70 $ (19) (28%) Resort management and other services margin percentage 69.5% 56.9% 12.6 pts Resort management and other services revenues reflected lower ancillary revenues, including revenues from food and beverage and golf offerings, as a result of the impact of the COVID-19 pandemic. These declines were partially offset by higher management fees resulting from the cumulative increase in the number of vacation ownership products sold and higher operating costs across the system. The decrease in resort management and other services margin reflected the decrease in ancillary revenues partially offset by lower ancillary expenses as a result of the lower ancillary revenues mentioned above. 2020 First Half Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Management fee revenues $ 76 $ 73 $ 3 4% Ancillary revenues 52 114 (62) (55%) Other management and exchange revenues 57 62 (5) (7%) Resort management and other services revenues 185 249 (64) (26%) Resort management and other services expenses (78) (117) 39 33% Resort management and other services margin $ 107 $ 132 $ (25) (19%) Resort management and other services margin percentage 58.0% 53.2% 4.8 pts 53 Table of Contents Resort management and other services revenues reflected lower ancillary revenues, including revenues from food and beverage and golf offerings, and lower other revenues earned in conjunction with our exchange programs, all as a result of the impact of the COVID-19 pandemic. These declines were partially offset by higher management fees resulting from the cumulative increase in the number of vacation ownership products sold and higher operating costs across the system. The decrease in the resort management and other services margin reflected the decrease in revenues partially offset by lower ancillary expenses as a result of the lower ancillary revenues mentioned above. Rental Revenues, Expenses and Margin 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Rental revenues $ 12 $ 133 $ (121) (91%) Rental expenses (87) (102) 15 14% Rental margin $ (75) $ 31 $ (106) (340%) Rental margin percentage NM 23.6% Three Months Ended June 30, 2020 June 30, 2019 Change % Change Transient keys rented (1) 44,985 619,212 (574,227) (93%) Average transient key rate $ 191.61 $ 224.76 $ (33.15) (15%) Resort occupancy 24.5% 88.6% (64.1 pts) _________________________ (1) Transient keys rented exclude those occupied through the use of plus points and preview stays. The decline in rental margin resulted from a decline in keys rented and a decline in average transient rate resulting from the COVID-19 pandemic. In response to quickly evolving travel restrictions and restrictions on business operations, beginning March 25, 2020, we closed our resorts for rental guests with stays at our branded North America vacation ownership resorts. In late May, as many government restrictions were beginning to be relaxed, we began reopening resorts to rental guests. Since the end of the second quarter, we have reopened more resorts to rental guests and expect rental revenues to increase from current levels. 2020 First Half Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Rental revenues $ 134 $ 262 $ (128) (49%) Rental expenses (194) (187) (7) (4%) Rental margin $ (60) $ 75 $ (135) (180%) Rental margin percentage NM 28.8% Six Months Ended June 30, 2020 June 30, 2019 Change % Change Transient keys rented (1) 578,655 1,230,966 (652,311) (53%) Average transient key rate $ 238.68 $ 234.71 $ 3.97 2% Resort occupancy 52.4% 88.6% (36.2 pts) _________________________ (1) Transient keys rented exclude those occupied through the use of plus points and preview stays. The decline in rental margin resulted from a decline in keys rented resulting from the COVID-19 pandemic. Rental margin as of the end of February 2020 was nearly $4 million higher than the comparable period of 2019. In response to quickly evolving travel restrictions and restrictions on business operations, beginning March 25, 2020, we closed our resorts for rental guests with stays at our branded North America vacation ownership resorts. In late May, as many government restrictions were 54 Table of Contents beginning to be relaxed, we began reopening resorts to rental guests. Since the end of the second quarter, we have reopened more resorts to rental guests and expect rental revenues to increase from current levels. Financing Revenues, Expenses and Margin 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Interest income $ 67 $ 65 $ 2 2% Other financing revenues 2 3 (1) (45%) Financing revenues 69 68 1 —% Financing expenses (9) (6) (3) (38%) Consumer financing interest expense (14) (14) — 2% Financing margin $ 46 $ 48 $ (2) (5%) Financing propensity 37.3% 61.9% Financing expenses increased due to a higher s ales reserve for our acquired Legacy ILG notes and slightly higher technology spend year over year, partially offset by lower salaries and wages associated with the furlough and reduced work week programs in the current year quarter implemented as a result of the pandemic. The lower financing propensity in the second quarter of 2020 reflected the impact of the sales programs that incented cash purchases over financed purchases in the quarter. 2020 First Half Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Interest income $ 136 $ 130 $ 6 4% Other financing revenues 4 5 (1) (27%) Financing revenues 140 135 5 3% Financing expenses (31) (14) (17) (116%) Consumer financing interest expense (29) (28) (1) (4%) Financing margin $ 80 $ 93 $ (13) (15%) Financing propensity 53.6% 61.9% Financing revenues increased due to a $177 million increase in the average gross vacation ownership notes receivable balance. The higher financing expenses including $11 million related to the higher reserve on the acquired vacation ownership notes receivable balance due primarily to higher estimated defaults as result of the COVID-19 pandemic and higher technology related costs year over year, partially offset by lower salaries and wages associated with the furlough and reduced work week programs in the current year. Higher consumer financing interest expense resulted from higher overall securitized debt balances . Litigation Charges 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Litigation charges $ — $ 1 $ (1) (19%) 2020 First Half Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Litigation charges $ 2 $ 2 $ — 18% 55 Table of Contents Royalty Fee 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Royalty fee $ 23 $ 26 $ (3) (15%) Royalty fee expense declined in the second quarter of 2020 as a result of lower contract closings due to the lower contract sales compared to the prior year quarter. 2020 First Half Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Royalty fee $ 49 $ 52 $ (3) (7%) Royalty fee expense remained flat in the first half of 2020 as the amount of contract closings, in dollars, was similar to the prior year comparable period. Depreciation and Amortization 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Depreciation and amortization $ 18 $ 17 $ 1 2% 2020 First Half Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Depreciation and amortization $ 36 $ 34 $ 2 6% Impairment 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Impairment $ 1 $ — $ 1 9,827% During the second quarter of 2020, we recorded a non-cash impairment of $1 million related to our Asia Pacific inventory as a result of the COVID-19 pandemic. 2020 First Half Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Impairment $ 5 $ 26 $ (21) (82%) During the first half of 2020, we recorded a non-cash impairment of $5 million related to our Asia Pacific inventory as a result of the COVID-19 pandemic. During the first half of 2019, we recorded a non-cash impairment of $26 million as a result of entering into a contract to sell land and land improvements associated with a future phase of an existing resort located in Orlando, Florida, for $10 million, which was less than the carrying value of the land and land improvements. The impairment was primarily attributable to the fact that the book value of the assets to be sold exceeded the sales price because the book value included allocations of common costs incurred when we built the infrastructure for the resort, including future phases. 56 Table of Contents Cost Reimbursements 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Cost reimbursements $ 198 $ 258 $ (60) (23%) 2020 First Half Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Cost reimbursements $ 543 $ 549 $ (6) (1%) Gains / Losses and Other Income / Expense 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Gains (losses) and other income (expense), net $ 5 $ (1) $ 6 (3,174%) In the second quarter of 2020, we recorded $5 million of gains and other income including $4 million of net insurance proceeds related to the settlement of Legacy-MVW business interruption insurance claims arising from a prior year hurricane. 2020 First Half Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Gains and other income, net $ 6 $ 8 $ (2) (28%) In the first half of 2020, we recorded $6 million of gains and other income including $4 million of net insurance proceeds related to the settlement of Legacy-MVW business interruption insurance claims arising from a prior year hurricane. In the first half of 2019, we recorded $9 million of gains and other income related to net insurance proceeds from the settlement of Legacy-MVW business interruption insurance claims arising from prior year hurricanes, partially offset by $1 million of miscellaneous losses and other expense. 57 Table of Contents Exchange & Third-Party Management Three Months Ended Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 REVENUES Management and exchange $ 39 $ 76 $ 111 $ 158 Rental 6 17 19 34 Financing 1 1 2 2 Cost reimbursements 12 22 33 46 TOTAL REVENUES 58 116 165 240 EXPENSES Marketing and sales 8 13 21 27 Management and exchange 18 26 45 52 Rental 1 9 6 17 Financing — 1 1 1 Depreciation and amortization 4 12 9 24 Impairment — — 91 0 Cost reimbursements 12 22 33 46 TOTAL EXPENSES 43 83 206 167 Losses and other expense, net (1) — — — SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 14 $ 33 $ (41) $ 73 Management and Exchange Margin 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Management and exchange revenue $ 39 $ 76 $ (37) (48%) Management and exchange expense (18) (26) 8 30% Management and exchange margin $ 21 $ 50 $ (29) (58%) Management and exchange margin percentage 52.9% 65.0% (12.1 pts) The decline in management and exchange revenue and margin reflects lower exchange activity and lower average exchange transaction fees primarily due to the closure of a large number of resorts, and the fact that additional resorts stopped taking reservations, in response to COVID-19 pandemic. Lower management and exchange expense reflects lower costs associated with the furlough and reduced work week programs and lower print and postage costs. 2020 First Half Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Management and exchange revenue $ 111 $ 158 $ (47) (30%) Management and exchange expense (45) (52) 7 13% Management and exchange margin $ 66 $ 106 $ (40) (38%) Management and exchange margin percentage 59.1% 66.9% (7.8 pts) The decline in management and exchange revenue and margin reflects lower exchange activity and lower average exchange transaction fees primarily due to the closure of a large number of resorts, and the fact that additional resorts stopped taking reservations, in response to COVID-19 pandemic. Lower management and exchange expense reflects lower costs associated with the furlough and reduced work week programs and lower print and postage costs. 58 Table of Contents Rental Revenues, Expenses and Margin 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Rental revenues $ 6 $ 17 $ (11) (66%) Rental expenses (1) (9) 8 84% Rental margin $ 5 $ 8 $ (3) (51%) Rental margin percentage 78.7% 54.9% 23.8 pts The decline in rental revenue reflects lower Getaway program transactions and lower average Getaway program transaction fees driven by supply challenges in certain markets and fewer bookings into purchased inventory as well as cancellations and resort closures in response to the COVID-19 pandemic. The decline in rental margin reflects the declines in rental revenue, partially offset by a reduction in space procurement costs resulting from fewer bookings into purchased inventory and adjustments for cancellations and resorts closing for rental stays in response to the COVID-19 pandemic. 2020 First Half Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Rental revenues $ 19 $ 34 $ (15) (46%) Rental expenses (6) (17) 11 66% Rental margin $ 13 $ 17 $ (4) (28%) Rental margin percentage 69.9% 52.8% 17.1 pts The decline in rental revenue reflects lower Getaway program transactions and lower average Getaway program transaction fees as a result of resort closures in response to the COVID-19 pandemic. The decline in rental margin reflects the declines in rental revenue, partially offset by a reduction in space procurement costs resulting from fewer bookings into purchased inventory and adjustments for cancellations and resorts closing for rental stays in response to the COVID-19 pandemic. Impairment 2020 First Half Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Impairment $ 91 $ — $ 91 NM During the first quarter of 2020, we recorded a non-cash impairment charge of $91 million related to a decrease in the fair value of Goodwill and certain trademarks resulting from the impact of the COVID-19 pandemic. See Footnote 10 “Goodwill and Intangibles” to our Financial Statements for additional information. 59 Table of Contents Corporate and Other Corporate and Other consists of results that are not allocable to our segments, including company-wide general and administrative costs, corporate interest expense, ILG acquisition-related costs and provision for income taxes. In addition, Corporate and Other includes the revenues and expenses from the Consolidated Property Owners’ Associations. Three Months Ended Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 REVENUES Resort management and other services $ 33 $ 31 $ 76 $ 63 Rental — — — 1 Cost reimbursements (16) (28) (64) (56) TOTAL REVENUES 17 3 12 8 EXPENSES Resort management and other services 37 43 92 87 Rental (15) (14) (29) (27) General and administrative 19 64 89 131 Depreciation and amortization 9 7 18 15 Cost reimbursements (16) (28) (64) (56) TOTAL EXPENSES 34 72 106 150 Gains (losses) and other income (expense), net 10 3 (48) 2 Interest expense (42) (35) (75) (69) ILG acquisition-related costs (12) (36) (33) (62) FINANCIAL RESULTS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS (61) (137) (250) (271) Benefit (provision) for income taxes 19 (25) 77 (40) FINANCIAL RESULTS BEFORE NONCONTROLLING INTERESTS (42) (162) (173) (311) Net income attributable to noncontrolling interests (8) — (9) (1) FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (50) $ (162) $ (182) $ (312) 60 Table of Contents Consolidated Property Owners’ Associations The following table illustrates the impact of the Consolidated Property Owners’ Associations of the acquired Legacy-ILG vacation ownership properties under the voting interest model, which represents the portion related to individual or third-party VOI owners. Three Months Ended Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 REVENUES Resort management and other services $ 33 $ 31 $ 76 $ 63 Rental — — — 1 Cost reimbursements (16) (28) (64) (56) TOTAL REVENUES 17 3 12 8 EXPENSES Resort management and other services 37 43 92 87 Rental (15) (14) (29) (27) Cost reimbursements (16) (28) (64) (56) TOTAL EXPENSES 6 1 (1) 4 FINANCIAL RESULTS BEFORE NONCONTROLLING INTERESTS 11 2 13 4 Net income attributable to noncontrolling interests (8) — (9) (1) FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 3 $ 2 $ 4 $ 3 General and Administrative 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change General and administrative $ 19 $ 64 $ (45) (72%) General and administrative expenses decreased $45 million due to $14 million of savings related to synergy efforts and lower costs associated with the furlough and reduced work week programs, $10 million related to lower bonus expense, a $6 million credit related to the incentive under the CARES Act for companies to continue paying associates' benefit costs while they are not working, and $15 million of lower overall spending across the business on technology, travel, training and other costs that we have deferred due to the COVID-19 pandemic. 2020 First Half Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change General and administrative $ 89 $ 131 $ (42) (33%) General and administrative expenses decreased $42 million due to $16 million of savings related to synergy efforts and lower costs associated with the furlough and reduced work week programs, $18 million related to lower bonus expense, a $6 million credit related to the incentive under the CARES Act for companies to continue paying associates' benefit costs while they are not working, and $17 million of lower overall spending across the business on technology, travel, training and other costs that we have deferred due to the COVID-19 pandemic, partially offset by an $11 million accrual for health and welfare costs for furloughed associates, higher VAT charges ($4 million of which is expected to be indemnified by Marriott International), and other inflationary costs increases. 61 Table of Contents Depreciation and Amortization 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Depreciation and amortization $ 9 $ 7 $ 2 31% 2020 First Half Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Depreciation and amortization $ 18 $ 15 $ 3 22% Gains / Losses and Other Income / Expense 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Gains and other income, net $ 10 $ 3 $ 7 NM In the second quarter of 2020, we recorded a gain of $9 million related to foreign currency translation and other income of $1 million for the true-up of an indemnification receivable from Marriott International as a result of the settlement of the indemnified liability with a taxing authority (the true-up to the offsetting accrual is included in the Benefit (provision) for income taxes line). 2020 First Half Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change (Losses) gains and other (expense) income, net $ (48) $ 2 $ (50) NM In the first half of 2020, we recorded a loss of $22 million related to foreign currency translation and $32 million of other expense for the true-up to an indemnification receivable from Marriott International as a result of the settlement of the indemnifed liability with a taxing authority (the true-up to the offsetting accrual is included in the Benefit (provision) for income taxes line), partially offset by $6 million of other income related to an indemnification from Marriott International for VAT penalties and interest. Interest Expense 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Interest expense $ (42) $ (35) $ (7) (21%) 2020 First Half Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Interest expense $ (75) $ (69) $ (6) (8%) 62 Table of Contents ILG Acquisition-Related Costs 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change ILG acquisition-related costs $ (12) $ (36) $ 24 67% 2020 First Half Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change ILG acquisition-related costs $ (33) $ (62) $ 29 47% ILG acquisition-related costs include transaction costs, employee termination costs and integration costs. Transaction costs represent costs related to the planning and execution of the ILG Acquisition, primarily for financial advisory, legal, and other professional service fees, as well as certain tax related accruals. Employee termination costs represent charges for employee severance, retention and other termination related benefits. Acquisition and integration costs primarily represent integration employee salaries and share-based compensation, fees paid to change management consultants and technology-related costs. As a result of the COVID-19 pandemic, we have scaled back spending on integration efforts. Income Tax 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Benefit (provision) for income taxes $ 19 $ (25) $ 44 NM The change in the provision for income taxes is predominately attributable to a pre-tax loss and a change in our projected mix of earnings in international jurisdictions with differing tax rates and jurisdictions where valuation allowances are recorded. 2020 First Half Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Benefit (provision) for income taxes $ 77 $ (40) $ 117 NM The increase in the benefit for income taxes is predominately attributable to a pre-tax loss, a reduction in uncertain tax benefits predominately related to a settlement with a taxing authority (for which an offset of $32 million relating to an indemnification asset from Marriott International is recorded in Gains (losses) and other income (expense), net), and a change in our projected mix of earnings in international jurisdictions with differing tax rates and jurisdictions where valuation allowances are recorded. Noncontrolling Interest 2020 Second Quarter Three Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Net income attributable to noncontrolling interests $ (8) $ — $ (8) NM 2020 First Half Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Change % Change Net income attributable to noncontrolling interests $ (9) $ (1) $ (8) NM 63 Table of Contents Recent Accounting Pronouncements See Footnote 2 “Significant Accounting Policies and Recent Accounting Standards” to our Financial Statements for a discussion of recently issued accounting pronouncements, including information on new accounting standards and the future adoption of such standards. Liquidity and Capital Resources Typically, our capital needs are supported by cash on hand ($566 million at the end of the second quarter of 2020), cash generated from operations, our ability to raise capital through securitizations in the ABS market and, to the extent necessary, funds available under the Warehouse Credit Facility and the Revolving Corporate Credit Facility with a borrowing capacity of $600 million. As a precautionary measure to provide additional liquidity for a sustained period, during the second quarter of 2020, we issued $500 million in aggregate principal amount of senior secured notes and we amended our Warehouse Credit Facility to increase the borrowing capacity by approximately $181 million, bringing the total capacity to approximately $531 million, of which $308 million was outstanding as of the end of the second quarter. The revolving period for the additional $181 million will terminate in March 2021, if not renewed or terminated earlier. We also entered into the Waiver to suspend the requirement to comply with the leverage covenant in our Revolving Corporate Credit Facility for up to four quarters, commencing with the fiscal quarter ending June 30, 2020. See Footnote 13 “Debt” to our Financial Statements for further information on the Waiver. In addition, during the second quarter of 2020, we repaid $596 million, the entire amount outstanding at March 31, 2020, on the Revolving Corporate Credit Facility. We took these proactive measures to help increase our liquidity position and preserve financial flexibility in light of the impact on global markets resulting from the COVID-19 pandemic. Further, we significantly reduced cash spending by: ◦ Reducing executive leadership team salaries by 50%; ◦ Early in the second quarter, furloughing approximately 65% of our associates and reducing work weeks by roughly 25%, on average, for our remaining associates. As of the end of July 2020, 40% of our associates are still on furlough and 16% of our remaining associates have a reduced work week or reduced pay. Of the associates who have returned from furlough, 80% are in the resort operations area. ◦ Deferring merit increases and 401(k) match contributions; ◦ Deferring inventory and other investments, substantially reducing other operating costs, and temporarily suspending share repurchases and dividends, all of which is expected to save up to $300 million of cash in 2020. We began reopening our sales centers and allowing rentals / transient occupancy at our vacation ownership resorts in the second quarter of 2020 and expect to continue doing so through the remainder of 2020. We believe these actions will enable us to generate additional revenue in the third quarter of 2020 compared to the second quarter of 2020. However, even if we are required to close sales centers and limit rentals / transient occupancy at our resorts again, we believe we have adequate liquidity to fund our operations and debt service payments through at least 2021. At June 30, 2020, we had $4.6 billion of total gross debt outstanding, which included $1.9 billion of non-recourse debt associated with vacation ownership notes receivable securitizations, $1.1 billion of senior unsecured notes, $0.9 billion of debt under Corporate Credit Facility, $500 million of senior secured notes, $230 million of Convertible Notes and $10 million related to financed lease obligations. At June 30, 2020, we had $760 million of real estate inventory on hand, comprised of $750 million of finished goods and $10 million of work in progress. In addition, we had $174 million of completed vacation ownership units that have been classified as a component of Property and equipment until the time at which they are legally registered and held for sale as vacation ownership products. The following table summarizes the changes in cash, cash equivalents and restricted cash: Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Cash, cash equivalents and restricted cash provided by (used in): Operating activities $ (73) $ 56 Investing activities (38) 15 Financing activities 320 (170) Effect of change in exchange rates on cash, cash equivalents and restricted cash (3) 1 Net change in cash, cash equivalents and restricted cash $ 206 $ (98) 64 Table of Contents Cash from Operating Activities Our primary sources of funds from operations are (1) cash sales and down payments on financed sales, (2) cash from our financing operations, including principal and interest payments received on outstanding vacation ownership notes receivable, (3) cash from fee-based membership, exchange and rental transactions and (4) net cash generated from our rental and resort management and other services operations. Outflows include spending for the development of new phases of existing resorts, the acquisition of additional inventory, enhancement of our inventory exchange network of resorts and related technology infrastructure and funding our working capital needs. We minimize our working capital needs through cash management, strict credit-granting policies and disciplined collection efforts. Our working capital needs fluctuate throughout the year given the timing of annual maintenance fees on unsold inventory we pay to property owners’ associations and certain annual compensation-related outflows. In addition, our cash from operations varies due to the timing of our owners’ repayment of vacation ownership notes receivable, the closing or recording of sales contracts for vacation ownership products, financing propensity and cash outlays for inventory acquisition and development. In the first half of 2020, we had $73 million of cash outflows for operating activities, compared to cash inflows of $56 million in the first half of 2019. Excluding the impact of changes in net (loss) income and adjustments for non-cash items, the change in cash flows from operations reflected higher inventory spending combined with lower sales and rentals deposits due to the COVID-19 pandemic, partially offset by higher collections due to an increasing portfolio of outstanding vacation ownership notes receivable. In addition to net (loss) income and adjustments for non-cash items, the following operating activities are key drivers of our cash flow from operating activities: Inventory Spending (In Excess of) Less Than Cost of Sales Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Inventory spending $ (69) $ (67) Purchase of vacation ownership units for future transfer to inventory (61) — Inventory costs 67 144 Inventory spending (in excess of) less than cost of sales $ (63) $ 77 Our Vacation Ownership segment product offerings allow us to utilize our inventory efficiently. The majority of our sales are of points-based products, which permits us to sell vacation ownership products at most of our sales locations, including those where little or no weeks-based inventory remains available for sale. Because we do not need specific resort-based inventory at each sales location, we need to have only a few resorts under construction at any given time and can leverage successful sales locations at completed resorts. This allows us to maintain long-term sales locations and reduces the need to develop and staff on-site sales locations at smaller projects in the future. We believe our points-based programs enable us to align our inventory acquisitions with the pace of sales of vacation ownership products. As part of our long-term strategy, we selectively pursue growth opportunities in our Vacation Ownership segment by targeting high-quality inventory that allows us to add desirable new destinations to our systems with new on-site sales locations through transactions that limit our up-front capital investment and allow us to purchase finished inventory closer to the time it is needed for sale. These capital efficient deal structures may consist of the development of new inventory, or the conversion of previously built units by third parties, just prior to sale. We measure our real estate inventory capital efficiency by comparing the cash outflow for real estate inventory spending (a cash item) to the amount of real estate inventory costs charged to expense on our Income Statements related to sale of vacation ownership products (a non-cash item). Our spending for real estate inventory in the first half of 2020 was higher than the amount of real estate inventory costs given the timing of payments to satisfy our remaining commitments to purchase vacation ownership units. We entered into these commitments in prior periods as part of our capital efficiency strategy to limit our up-front capital investment and purchase finished inventory closer to the time it is needed for sale. See Footnote 11 “Contingencies and Commitments” to our Financial Statements for additional information regarding our remaining commitments. Given the impact of the COVID-19 pandemic, we expect to significantly reduce our planned inventory spending for the remainder of 2020. 65 Table of Contents Through our existing vacation ownership interest repurchase program, we proactively buy back previously sold vacation ownership interests at lower costs than would be required to develop new inventory. By repurchasing inventory, we expect to be able to stabilize the future cost of vacation ownership products. However, given the impact of the COVID-19 pandemic, we have temporarily discontinued the majority of this repurchase activity. Vacation Ownership Notes Receivable Collections In Excess of (Less Than) Originations Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Vacation ownership notes receivable collections — non-securitized $ 113 $ 88 Vacation ownership notes receivable collections — securitized 221 221 Vacation ownership notes receivable originations (197) (423) Vacation ownership notes receivable collections in excess of (less than) originations $ 137 $ (114) Vacation ownership notes receivable collections include principal from non-securitized and securitized vacation ownership notes receivable. Vacation ownership notes receivable collections increased during the first half of 2020, as compared to the first half of 2019, due to an increase in the portfolio of outstanding vacation ownership notes receivable. Vacation ownership notes receivable originations in the first half of 2020 decreased due to lower sales in the first half of 2020 due to the COVID-19 pandemic and a lower financing propensity. Financing propensity declined to 54 percent for the first half of 2020 compared to 62 percent for the first half of 2019. Cash from Investing Activities Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Capital expenditures for property and equipment (excluding inventory) $ (34) $ (19) Proceeds from collection of notes receivable — 38 Purchase of company owned life insurance (4) (4) Net cash, cash equivalents and restricted cash (used in) provided by investing activities $ (38) $ 15 Capital Expenditures for Property and Equipment Capital expenditures for property and equipment relate to spending for technology development, buildings and equipment used at sales locations and ancillary offerings, such as food and beverage offerings, at locations where such offerings are provided. Additionally, it includes spending related to maintenance of buildings and equipment used in common areas at some of our resorts. In the first half of 2020, capital expenditures for property and equipment of $34 million included $30 million to support business operations (including $20 million for ancillary and other operations assets and $10 million for sales locations) and $4 million for technology spending. Given the impact of the COVID-19 pandemic, we expect to significantly reduce our planned spending for property and equipment for the remainder of 2020. In the first half of 2019, capital expenditures for property and equipment of $19 million included $7 million to support business operations (including $4 million for ancillary and other operations assets and $3 million for sales locations) and $12 million for technology spending. Proceeds from Collection of Notes Receivable During the first half of 2019, we collected $23 million of notes receivable related to the disposition of our interest in VRI Europe in the fourth quarter of 2018. In addition, we collected a $15 million note receivable acquired in the ILG Acquisition. Purchase of Company Owned Life Insurance To support our ability to meet a portion of our obligations under the Marriott Vacations Worldwide Corporation Deferred Compensation Plan (the “Deferred Compensation Plan”), we acquired company owned insurance policies on the lives of certain participants in the Deferred Compensation Plan, the proceeds of which are intended to be aligned with the investment alternatives elected by plan participants. We paid $4 million to acquire these policies during each of the first half of 2020 and the first half of 2019. 66 Table of Contents Cash from Financing Activities Six Months Ended ($ in millions) June 30, 2020 June 30, 2019 Borrowings from securitization transactions $ 315 $ 574 Repayment of debt related to securitization transactions (302) (496) Proceeds from debt 1,166 310 Repayments of debt (701) (266) Finance lease payment (8) — Debt issuance costs (9) (6) Repurchase of common stock (82) (215) Payment of dividends (45) (61) Payment of withholding taxes on vesting of restricted stock units (14) (10) Net cash, cash equivalents and restricted cash provided by (used in) financing activities $ 320 $ (170) Borrowings from / Repayment of Debt Related to Securitization Transactions We reflect proceeds from securitizations of vacation ownership notes receivable, including draw downs on the Warehouse Credit Facility, as “Borrowings from securitization transactions.” We reflect repayments of bonds associated with vacation ownership notes receivable securitizations and repayments on the Warehouse Credit Facility (including vacation ownership notes receivable repurchases) as “Repayment of debt related to securitization transactions.” As of June 30, 2020, $47 million of gross vacation ownership notes receivable were eligible for securitization. During the first half of 2020, we securitized vacation ownership notes receivable under our Warehouse Credit Facility. The total carrying amount of the vacation ownership notes receivable securitized was $372 million. The average advance rate was 85 percent, which resulted in total gross proceeds of $315 million. Total net proceeds were $313 million due to the funding of reserve accounts of $2 million. Subsequent to the end of the second quarter of 2020, we completed the securitization of a pool of $383 million of vacation ownership notes receivable. Approximately $368 million of the vacation ownership notes receivable were purchased on July 22, 2020 by MVW 2020-1 LLC (the “2020-1 LLC”), and all or a portion of the remaining loans may be purchased by the 2020-1 LLC prior to October 1, 2020. In connection with the securitization, investors purchased $375 million in vacation ownership loan backed notes from the 2020-1 LLC in a private placement. Four classes of vacation ownership loan backed notes were issued by the 2020-1 LLC: $238 million of Class A Notes, $72 million of Class B Notes, $44 million of Class C Notes, and $21 million of Class D Notes. The Class A Notes have an interest rate of 1.74 percent, the Class B Notes have an interest rate of 2.73 percent, the Class C Notes have an interest rate of 4.21 percent, and the Class D Notes have an interest rate of 7.14 percent, for an overall weighted average interest rate of 2.53 percent. Of the $375 million in proceeds from the transaction, $15 million will be held by the 2020-1 LLC until it purchases all or a portion of the remaining loans or, if not used for that purpose, returned to the investors. In addition, $300 million was used to repay all outstanding amounts previously drawn under the Warehouse Credit Facility, $7 million was used to pay transaction expenses and fund required reserves, and the remaining $53 million will be used for general corporate purposes. During the first half of 2019, we completed the securitization of a pool of $459 million of vacation ownership notes receivable. In connection with the securitization, investors purchased $450 million in vacation ownership loan backed notes from the 2019-1 LLC in a private placement. Three classes of vacation ownership loan backed notes were issued by the 2019-1 LLC: $350 million of Class A Notes, $67 million of Class B Notes and $33 million of Class C Notes. The Class A Notes have an interest rate of 2.89 percent, the Class B Notes have an interest rate of 3.00 percent and the Class C Notes have an interest rate of 3.33 percent, for an overall weighted average interest rate of 2.94 percent. We also securitized vacation ownership notes receivable under our Warehouse Credit Facility. The carrying amount of the vacation ownership notes receivable securitized was $146 million. The advance rate was 85 percent, which resulted in gross proceeds of $124 million. Net proceeds were $123 million due to the funding of reserve accounts of $1 million. A portion of the proceeds from the securitization were used to repay the advance received on the Warehouse Credit Facility and there were no amounts outstanding as of June 30, 2019. 67 Table of Contents Proceeds from / Repayments of Debt Borrowings from / Repayment of Corporate Credit Facility During the first half of 2020, we borrowed an additional $666 million under our Revolving Corporate Credit Facility to facilitate the funding of our short-term working capital needs and to increase our cash position and preserve financial flexibility in light of the impact on global markets resulting from the COVID-19 pandemic. We later repaid $696 million during the first half of 2020 and had no amounts outstanding as of June 30, 2020. During the first half of 2020, we also repaid $5 million of the amount outstanding under the Term Loan, which is part of our Corporate Credit Facility. In the second quarter of 2020, we issued the 2025 Notes, as discussed in Footnote 13 “Debt” to our Financial Statements. The 2025 Notes are pari passu with and secured by the same collateral as our Corporate Credit Facility. After deducting offering expenses and the underwriting discount, we received net proceeds of approximately $493 million from the offering of the 2025 Notes, which were used to repay all amounts outstanding at that time on the Revolving Corporate Credit Facility. During the first half of 2019, we borrowed $310 million under our Revolving Corporate Credit Facility to facilitate the funding of our short-term working capital needs, $230 million of which was repaid during the first half of 2019 and $80 million of which was outstanding as of June 30, 2019. During the first half of 2019, we also repaid $5 million of the amount outstanding under the Term Loan. See Footnote 13 “Debt” to our Financial Statements for additional information regarding our Corporate Credit Facility that includes our Revolving Corporate Credit Facility and the Term Loan. Finance Lease Payment During the first half of 2020, in conjunction with the acquisition of the 57 completed vacation ownership units at our Marriott Vacation Club Pulse, New York City property, we made finance lease payments of $7 million related to the purchase of the accompanying ancillary and office space. Additionally, we paid $1 million related to our financed lease obligations for technology and business operations equipment. Debt Issuance Costs During the first half of 2020, we paid $9 million of debt issuance costs, which included $7 million associated with the 2025 Notes, $1 million associated with the Waiver and $1 million associated with the amendment of our Warehouse Credit Facility. During the first half of 2019, we paid $6 million of debt issuance costs associated with the 2019-1 vacation ownership notes receivable securitization. Share Repurchase Program The following table summarizes share repurchase activity under our current share repurchase program: ($ in millions, except per share amounts) Number of Shares Repurchased Cost of Shares Repurchased Average Price Paid per Share As of December 31, 2019 16,418,950 $ 1,258 $ 76.60 For the first half of 2020 769,935 82 106.60 As of June 30, 2020 17,188,885 $ 1,340 $ 77.95 See Footnote 14 “Shareholders' Equity” to our Financial Statements for further information related to our share repurchase program. Due to the impact of the COVID-19 pandemic, we temporarily suspended repurchasing shares of our common stock. Future share repurchases will be subject to the restrictions imposed under the Waiver. Dividends We distributed cash dividends to holders of common stock during the first half of 2020 as follows: Declaration Date Shareholder Record Date Distribution Date Dividend per Share December 9, 2019 December 23, 2019 January 6, 2020 $0.54 February 14, 2020 February 27, 2020 March 12, 2020 $0.54 68 Table of Contents Given the impact of the COVID-19 pandemic, we temporarily suspended cash dividends. In addition, our Corporate Credit Facility and the indentures governing our senior notes contain restrictions on our ability to pay dividends. Future dividend payments will also be subject to both the restrictions imposed under the Waiver and Board approval, which will depend on our financial condition, results of operations and capital requirements, as well as applicable law, regulatory constraints, industry practice and other business considerations that our Board of Directors considers relevant. The payment of certain cash dividends may also result in an adjustment to the conversion rate of the Convertible Notes in a manner adverse to us. Accordingly, there can be no assurance that we will pay dividends in the future at the same rate or at all. Supplemental Guarantor Information The 2026 Notes are guaranteed by MVWC, Marriott Ownership Resorts, Inc. (“MORI”), and certain other subsidiaries whose voting securities are wholly owned directly or indirectly by MORI (such subsidiaries collectively, the “Senior Notes Guarantors”). These guarantees are full and unconditional and joint and several. The guarantees of the Senior Notes Guarantors are subject to release in limited circumstances only upon the occurrence of certain customary conditions. The following tables present consolidating financial information as of June 30, 2020 and for the six months ended June 30, 2020 for MVWC and MORI on a stand-alone basis (collectively, the “Issuers”), the Senior Notes Guarantors, the combined non-guarantor subsidiaries of MVW and MVW on a consolidated basis. Condensed Consolidating Balance Sheet As of June 30, 2020 Issuers Senior Notes Guarantors Non-Guarantor Subsidiaries Total Eliminations MVW Consolidated ($ in millions) MVWC MORI Cash and cash equivalents $ 65 $ 320 $ 84 $ 97 $ — $ 566 Restricted cash — 19 19 303 — 341 Accounts receivable, net 94 40 62 100 (9) 287 Vacation ownership notes receivable, net — 66 81 1,867 — 2,014 Inventory — 308 370 93 — 771 Property and equipment — 223 362 250 — 835 Goodwill — — 2,817 — — 2,817 Intangibles, net — — 920 57 — 977 Investments in subsidiaries 2,732 4,462 — — (7,194) — Other 41 93 256 146 (27) 509 Total assets $ 2,932 $ 5,531 $ 4,971 $ 2,913 $ (7,230) $ 9,117 Accounts payable $ 21 $ 43 $ 41 $ 38 $ 8 $ 151 Advance deposits — 72 60 21 — 153 Accrued liabilities 1 76 153 105 (18) 317 Deferred revenue — 4 173 295 (2) 470 Payroll and benefits liability — 79 59 15 — 153 Deferred compensation liability — 93 18 1 — 112 Securitized debt, net — — — 1,887 — 1,887 Debt, net 211 2,466 1 2 — 2,680 Other — 46 117 22 — 185 Deferred taxes — 133 135 21 — 289 MVW shareholders' equity 2,699 2,519 4,214 485 (7,218) 2,699 Noncontrolling interests — — — 21 — 21 Total liabilities and equity $ 2,932 $ 5,531 $ 4,971 $ 2,913 $ (7,230) $ 9,117 69 Condensed Consolidating Statements of Income Six Months Ended June 30, 2020 Issuers Senior Notes Guarantors Non-Guarantor Subsidiaries Total Eliminations MVW Consolidated ($ in millions) MVWC MORI Revenues $ — $ 186 $ 926 $ 393 $ (15) $ 1,490 Expenses (10) (341) (1,063) (335) 15 (1,734) Benefit (provision) for income taxes 1 28 50 (2) — 77 Equity in net (loss) income of subsidiaries (167) (23) — — 190 — Net income (loss) (176) (150) (87) 56 190 (167) Net income attributable to noncontrolling interests — — — (9) — (9) Net income (loss) attributable to common shareholders $ (176) $ (150) $ (87) $ 47 $ 190 $ (176) Contractual Obligations and Off-Balance Sheet Arrangements The following table summarizes our contractual obligations as of June 30, 2020: Payments Due by Period ($ in millions) Total Remainder of 2020 Years 2021 - 2022 Years 2023 - 2024 Thereafter Contractual Obligations Debt (1) $ 5,655 $ 207 $ 1,000 $ 952 $ 3,496 Purchase obligations (2) 418 35 337 46 — Operating lease obligations 250 15 47 37 151 Finance lease obligations (3) 10 2 6 1 1 Other long-term obligations (4) 33 10 17 3 3 Total contractual obligations $ 6,366 $ 269 $ 1,407 $ 1,039 $ 3,651 _________________________ (1) Includes principal as well as interest payments and excludes unamortized debt discount and issuance costs. (2) Arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure, and approximate timing of the transaction. Amounts reflected represent expected funding under such contracts. Amounts reflected on the consolidated balance sheet as accounts payable and accrued liabilities are excluded from the table above. (3) Includes interest. (4) Primarily relates to future guaranteed purchases of rental inventory, operational support services, marketing related benefits, membership fulfillment benefits and other commitments. Critical Accounting Policies and Estimates Our preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. We have discussed those policies and estimates that we believe are critical and require the use of complex judgment in their application in our most recent Annual Report on Form 10-K. Since the date of our most recent Annual Report on Form 10-K, there have been no material changes to our critical accounting policies or the methodologies or assumptions we apply under them, except those resulting from Accounting for acquired vacation ownership notes receivable , which is discussed in Footnote 2 “Significant Accounting Policies and Recent Accounting Standards” and Footnote 6 “Vacation Ownership Notes Receivable” to our interim consolidated financial statements presented in Part 1, Item 1 of this Quarterly Report on Form 10-Q. Item 3. Quantitative and Qualitative Disclosures About Market Risk Our exposure to market risk has not changed materially from that disclosed in Part I, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2019. 70 Table of Contents