Item 1A. Risk Factors
Item 1A. Risk Factors
There have been no material changes from the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “2019 Annual Report”), other than in our Current Report on Form 8-K filed on May 6, 2020, our Quarterly Report on Form 10-Q filed on May 22, 2020, and the risk factor below. The COVID-19 pandemic has heightened, and in some cases, manifested, certain of the risks we normally face in our business, including those disclosed in the 2019 Annual Report, as updated by the risk factors disclosed on our Current Report on Form 8-K filed on May 6, 2020 and on our Quarterly Report on Form 10-Q filed on May 22, 2020.
The COVID-19 pandemic has severely and adversely affected our sales and our operations and will continue to have serious adverse effects on our business, financial condition and results of operations for an unknown period of time.
In March 2020, the World Health Organization declared the coronavirus (“COVID-19 pandemic”) outbreak a pandemic. In the wake of this declaration, our operations have been impacted by recommendations and/or mandates from national, federal, state, and local authorities to stay home and to avoid non-essential contact and gatherings of people, and to self-quarantine. As a result, since March 16, 2020, we have seen marked declines in occupancy, rentals, and contract sales because of the temporary closure of substantially all of our sales centers internationally, the temporary closure of many of our resorts, the temporary closure of our resorts for rental guests with stays at our branded North America vacation ownership resorts, and the reduction in operations and amenities at all of our resorts based on various government mandates and advisories. We have implemented furloughs, reduced work hours and reduced salaries for our associates, and have instituted “work from home” measures for many of our associates. In addition, to minimize the risk of the COVID-19 pandemic to our associates and customers and to prevent the continued spread of the virus, we have implemented social distancing and enhanced hygiene protocols at our resorts, sales centers, and corporate offices in accordance with the guidelines from national, federal, state, and local authorities. These measures, while intended to protect human life, have resulted in additional costs, operational inefficiencies, and fewer revenue opportunities. The impact of these protocols adopted to combat the COVID-19 pandemic, such as canceling, or implementing alternatives to, in-person sales tours and customized presentations, could result in lesser
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effectiveness of customer-associate interaction and diminished customer satisfaction, which could adversely impact our financial condition. We have begun to reopen our sales centers and resorts and increase operations and amenities; however, extended or further closures may be required nationally, regionally, or in specific locations in the event of a resurgence of the virus. This situation is unprecedented and rapidly changing and has unknown duration and severity.
The COVID-19 pandemic has had a material adverse impact, and is expected to continue to have a material adverse impact, on global economies and financial markets, which has resulted in an economic downturn that has reduced demand for our products and services. The success of our business and our profitability depend, in substantial part, upon the health of the travel industry, which has been adversely affected by the COVID-19 pandemic. A substantial amount of our sales activity occurs at our resorts, and the number of prospective and current owners who visit our resorts has an impact on sales volume. Fear of exposure to the COVID-19 pandemic, as well as government restrictions, has caused travelers to cancel or delay travel plans to our resorts. These changes in vacation and travel patterns due to the COVID-19 pandemic have adversely affected our cash flows, revenues and profits. Moreover, as travel advisories and restrictions have been lifted, there has been a resurgence of the virus, and, as a result, travel demand has remained weak, and could remain so for a significant length of time. We cannot predict if or when demand for our resorts will return to pre-COVID-19 pandemic levels. Adverse changes in the perceived or actual economic climate, including higher unemployment rates, declines in income levels and loss of personal wealth resulting from the impact of the COVID-19 pandemic are expected to negatively affect travel demand for a prolonged period of time.
The COVID-19 pandemic has led to an increase in payment delinquencies for our vacation ownership notes receivable. The number of delinquencies may increase over time if the duration of the pandemic or its effect on economic conditions continues for a long period and could lead to defaults on financing that we provide to purchasers of our products. Purchaser defaults may cause us to foreclose on vacation ownership notes receivable and reclaim ownership of the financed interests and could impact our ability to secure ABS or warehouse credit facility financing on terms that are acceptable to us, or at all. In addition, the transactions in which we have securitized vacation ownership notes receivable contain certain portfolio performance requirements related to default and delinquency rates, which, if not met, would result in loss or disruption of cash flow until portfolio performance sufficiently improves to satisfy the requirements.
The duration and extent of the impact of the COVID-19 pandemic on our business and financial results will largely depend on future developments, including the duration and spread of the pandemic, the extent and severity of any resurgences of the pandemic in the future, the response by all levels of government in their efforts to contain the pandemic and to mitigate the economic disruptions, the related impact on consumer confidence and spending, and how quickly economies and demand for our products and services recover after the pandemic subsides, all of which are highly uncertain, rapidly changing and cannot be predicted. Such impacts are expected to adversely affect our profitability, cash flows, financial results, and capital resources for a significant period of time. Further, the COVID-19 pandemic may also adversely affect our operating and financial results in a manner that is not presently known to us or that we currently do not consider to present significant risks to our operations.
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