What changed in this filing

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Item 1. Financial Statements

2020-11-05 compared with 2020-08-05 · 225 added, 176 removed, 1094 unchanged (27% of the section changed)

3 unchanged sentences

(In millions, except per share amounts)

Three Months Ended Six Months Ended

June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Three Months Ended Nine Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Sale of vacation ownership products $ 98 $ 341 $ 409 $ 975

12 unchanged sentences

Litigation charges 2 3 4 5

Restructuring 20 — 20 —

Royalty fee 23 27 72 79

2 unchanged sentences

TOTAL EXPENSES 673 996 2,254 2,839

Gains (losses) and other income (expense), net 14 2 ( 42 ) 10

(Losses) gains and other (expense) income, net — ( 5 ) ( 42 ) 5

Interest expense ( 37 ) ( 31 ) ( 112 ) ( 100 )

14 unchanged sentences

(In millions)

Three Months Ended Six Months Ended

June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Three Months Ended Nine Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

NET (LOSS) INCOME $ ( 58 ) $ ( 7 ) $ ( 225 ) $ 66

10 unchanged sentences

(In millions, except share and per share data)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Cash and cash equivalents $ 660 $ 287

42 unchanged sentences

(In millions)

Six Months Ended

June 30, 2020 June 30, 2019

Nine Months Ended

September 30, 2020 September 30, 2019

OPERATING ACTIVITIES

7 unchanged sentences

Deferred income taxes 1 24

Net change in assets and liabilities, net of the effects of acquisition:

Net change in assets and liabilities:

Accounts receivable 24 16

10 unchanged sentences

Other, net ( 6 ) 10

Net cash, cash equivalents and restricted cash (used in) provided by operating activities ( 73 ) 56

Net cash, cash equivalents and restricted cash provided by operating activities 158 180

INVESTING ACTIVITIES

2 unchanged sentences

Purchase of company owned life insurance ( 3 ) ( 5 )

Dispositions, net 15 —

Net cash, cash equivalents and restricted cash (used in) provided by investing activities ( 24 ) 1

3 unchanged sentences

(In millions)

Six Months Ended

June 30, 2020 June 30, 2019

Nine Months Ended

September 30, 2020 September 30, 2019

FINANCING ACTIVITIES

18 unchanged sentences

Non-cash issuance of treasury stock for employee stock purchase plan 1 2

Dividends payable — 19

Interest paid, net of amounts capitalized 140 135

22 unchanged sentences

75.2 BALANCE AT JUNE 30, 2020 1 ( 1,334 ) 3,736 ( 75 ) 371 2,699 21 2,720

— Net (loss) income — — — — ( 62 ) ( 62 ) 4 ( 58 )

— Foreign currency translation adjustments — — — 5 — 5 — 5

— Derivative instrument adjustment — — — 3 — 3 — 3

0.1 Share-based compensation plans — — 13 — — 13 — 13

75.3 BALANCE AT SEPTEMBER 30, 2020 $ 1 $ ( 1,334 ) $ 3,749 $ ( 67 ) $ 309 $ 2,658 $ 25 $ 2,683

See Notes to Interim Consolidated Financial Statements

27 unchanged sentences

57.9 BALANCE AT JUNE 30, 2019 1 ( 1,004 ) 3,730 ( 11 ) 548 3,264 6 3,270

— Net (loss) income — — — — ( 9 ) ( 9 ) 2 ( 7 )

— ILG Acquisition purchase accounting adjustment — — — — — — 2 2

— Foreign currency translation adjustments — — — ( 4 ) — ( 4 ) — ( 4 )

— Derivative instrument adjustment — — — ( 4 ) — ( 4 ) — ( 4 )

— Share-based compensation plans — — 10 — — 10 — 10

— Repurchase of common stock — ( 127 ) — — — ( 127 ) — ( 127 )

— Dividends — — — — ( 19 ) ( 19 ) — ( 19 )

— Employee stock plan issuance — 1 — — — 1 — 1

57.9 BALANCE AT SEPTEMBER 30, 2019 $ 1 $ ( 1,130 ) $ 3,740 $ ( 19 ) $ 520 $ 3,112 $ 10 $ 3,122

See Notes to Interim Consolidated Financial Statements

11 unchanged sentences

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes.

Such estimates include, but are not limited to, revenue recognition, allocations of the purchase price paid in business combinations, cost of vacation ownership products, inventory valuation, goodwill and intangibles valuation, property and equipment valuation, accounting for acquired vacation ownership notes receivable, vacation ownership notes receivable reserves, income taxes and loss contingencies.

Such estimates include, but are not limited to, revenue recognition, cost of vacation ownership products, inventory valuation, goodwill and intangibles valuation, property and equipment valuation, accounting for acquired vacation ownership notes receivable, vacation ownership notes receivable reserves, income taxes and loss contingencies.

The uncertainty created by the COVID-19 pandemic (defined below), and efforts to mitigate it, has made it more challenging to make these estimates.

11 unchanged sentences

The speed with which the effects of the COVID-19 pandemic have changed the global economic landscape, outlook and, in particular, the travel and hospitality industries, has been swift and unexpected.

The results of operations during the first half of 2020 include impacts related to the COVID-19 pandemic, which have been significantly adverse for our business, and the overall hospitality industry in general.

The results of operations during the first three quarters of 2020 include impacts related to the COVID-19 pandemic, which have been significantly adverse for our business, and the overall travel and hospitality industry in general.

We began to see an adverse impact on occupancy in our Vacation Ownership business in mid-March 2020, which quickly accelerated later that month and continued into May 2020.

While many of our resorts remained open for owner occupancy throughout April and May, most owners chose to postpone their arrival until a later date, which resulted in low-single-digit overall resort occupancy for the second quarter of 2020.

In addition, in response to quickly evolving travel restrictions and restrictions on business operations,

we closed all of our sales centers, and beginning March 25, 2020, we closed our resorts for rental guests with stays at our branded North America vacation ownership resorts.

While many of our resorts remained open for owner occupancy throughout April and May, most owners chose to postpone their arrival until a later date, which resulted in substantially lower than normal resort occupancy in the second and third quarters of 2020.

In response to quickly evolving travel restrictions and restrictions on business operations, we closed all of our sales centers in March 2020, and beginning March 25, 2020, we closed our resorts for rental guests with stays at our branded North America vacation ownership resorts.

Further, due to low occupancy rates and based on various governmental mandates and advisories, we closed several of our resorts and reduced operations and amenities at our resorts that remained open.

The closure of our sales centers and low occupancy levels led to a material decrease in contract sales and rental revenues from our vacation ownership business beginning in the second quarter.

Based on these events and the uncertainty they created, we immediately began to focus on our liquidity, including quickly and substantially enhancing our cash holdings.

1 unchanged sentence

We issued senior secured debt in May, which we used to repay amounts outstanding on our Revolving Corporate Credit Facility.

As of June 30, 2020, we had $ 566 million in cash and cash equivalents on hand, and $ 597 million of availability on our Revolving Corporate Credit Facility.

As of September 30, 2020, we had $ 660 million in cash and cash equivalents on hand, and $ 597 million of availability on our Revolving Corporate Credit Facility.

In addition to accessing the capital markets, we believe we have made significant progress in bolstering our liquidity through cost reduction.

These efforts include reducing capital expenditures;

suspending hiring, salary increases and our 2019 401(k) match;

suspending hiring and salary increases;

reducing executive and other associate salaries;

2 unchanged sentences

In late-May, as many government restrictions were beginning to be relaxed, owner occupancy at our resorts began to grow and we began reopening resorts to rental guests.

As of September 30, 2020, over 95 percent of our vacation ownership resorts were open to owners and rental guests.

We reopened certain sales centers in June and continued to open additional sales centers in July.

However, based on the resurgence of the virus in many of the locations in which our resorts and sales centers are located, extended or further closures of our sales centers may be required.

In our Exchange & Third-Party Management business, the closures of certain affiliated resorts and managed properties had a significant adverse impact on our business in the second quarter of 2020, with a large number of resorts closed or not taking reservations at the beginning of the quarter, but by the end of June, over half of those resorts had reopened.

However, based on the resurgence of the virus in many of the locations in which these resorts and managed properties are located, further closures may be required.

The COVID-19 pandemic has depressed the demand for vacation rentals due to “stay-at-home” recommendations or requirements, quarantines, and the reluctance of consumers to travel.

During the second quarter of 2020, we continued the temporary adjustments implemented in the first quarter of 2020 to cancellation policies for near-term travel for customers who were unable or unwilling to travel due to the COVID-19 pandemic.

As of September 30, 2020, over 80 percent of our sales centers had re-opened.

However, extended or further closures of our sales centers may be required if demand declines again or if we are again impacted by government regulations requiring resort closures or restricting travel.

In our Exchange & Third-Party Management business, the closures of certain affiliated resorts and managed properties had a significant adverse impact on our business in the second quarter of 2020, with a large number of resorts closed or not taking reservations at the beginning of the second quarter, but by the end of September, over 90 percent of those affiliated resorts and managed properties had reopened.

The closure of affiliated resorts and managed properties led to a decrease in management and exchange revenues.

Our Aqua-Aston business was also negatively impacted by travel restrictions that significantly impacted the majority of the properties in Hawaii.

Further resort and property closures may be required if demand declines again or if we are again impacted by government regulations requiring resort closures or restricting travel.

The COVID-19 pandemic continues to depress the demand for vacation rentals due to “stay-at-home” recommendations or requirements, quarantines, and the reluctance of consumers to travel.

During the second and third quarters of 2020, we continued the temporary adjustments implemented in the first quarter of 2020 to cancellation policies for near-term travel for customers who were unable or unwilling to travel due to the COVID-19 pandemic.

We continue to monitor this unprecedented and rapidly evolving situation and are unable to predict its duration or severity.

As a result of the COVID-19 pandemic, in September 2020, a workforce reduction plan was approved, which is expected to impact approximately 3,000 associates.

We expect that we will incur approximately $ 25 to $ 30 million in restructuring and related charges primarily related to employee severance and benefit costs.

In connection with this plan,we have recorded the following on our Income Statement for both the three and nine months ended September 30, 2020:

($ in millions) Vacation Ownership Exchange & Third-Party Management Corporate and Other Total

Cost reimbursement revenues $ 5 $ 2 $ — $ 7

Cost reimbursement expenses $ ( 5 ) $ ( 2 ) $ — $ ( 7 )

Restructuring $ ( 11 ) $ ( 3 ) $ ( 6 ) $ ( 20 )

Reclassifications

12 unchanged sentences

In addition, we recorded a noncredit discount of $ 2 million, which represents the difference between the amortized cost basis and the par value of our acquired vacation ownership notes receivable.

The noncredit discount will be amortized to interest expense over the contractual life of the acquired vacation ownership notes receivable and is recorded as

Financing expenses on our Income Statements.

The noncredit discount will be amortized to interest expense over the contractual life of the acquired vacation ownership notes receivable and is recorded as Financing expenses on our Income Statements.

For additional information on our vacation ownership notes receivable, including information on the related reserves, see Footnote 6 “Vacation Ownership Notes Receivable.”

5 unchanged sentences

Write-offs of interest receivable are recorded as a reversal of previously recorded interest income.

There was no material impact to our financial statements or disclosures as a result of our adoption of ASU 2016-13 for accounts receivable, and no material change in our allowance for credit losses during the first half of 2020.

Securities and Exchange Commission (“SEC”) Final Rule Release No.

6 unchanged sentences

We early adopted the reporting requirements of the SEC Final Rule in the first quarter of 2020 and elected to provide these disclosures within Item 2:

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Quarterly Report on Form 10-Q.

Future Adoption of Accounting Standards

2 unchanged sentences

In December 2019, the FASB issued ASU 2019-12, which amends and simplifies existing guidance in an effort to reduce the complexity of accounting for income taxes while maintaining or enhancing the helpfulness of information provided to financial statement users.

This update is effective for fiscal years beginning after December 15, 2020, including interim periods therein, with early adoption permitted.

This update is effective for fiscal years beginning after December 15, 2020, including interim

periods therein, with early adoption permitted.

We expect to adopt ASU 2019-12 commencing in fiscal year 2021 and continue to evaluate the impact that adoption of this update will have on our financial statements and disclosures.

3 unchanged sentences

We expect to adopt ASU 2020-04 in fiscal year 2022 and continue to evaluate the impact that adoption of this update will have on our financial statements and disclosures.

Accounting Standards Update 2020-06 – “ Debt — Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”)

In August 2020, the FASB issued ASU 2020-06, which amends and simplifies existing guidance in an effort to reduce the complexity of accounting for convertible instruments and to provide financial statement users with more meaningful information.

ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods therein, with early adoption permitted.

This update may be applied retrospectively or on a modified retrospective basis with the cumulative effect recognized as an adjustment to the opening balance of retained earnings on the date of adoption.

Additionally, this update provides for a one-time irrevocable election by entities to apply the fair value option in accordance with ASC 825-10 for any liability-classified convertible securities, with the difference between the carrying amount and the fair value recorded as a cumulative-effect adjustment to opening retained earnings as of the beginning of the period of adoption.

We are evaluating the impact that ASU 2020-06, including the timing of implementation, will have on our financial statements and disclosures.

ACQUISITIONS AND DISPOSITIONS

7 unchanged sentences

See Footnote 11 “Contingencies and Commitments” for information on our remaining commitment to purchase future inventory and Footnote 16 “Variable Interest Entities” for additional information on this transaction and our activities relating to the VIE involved in this transaction.

During the third quarter of 2019, we acquired 78 completed vacation ownership units and a sales gallery located at our Marriott Vacation Club Pulse, San Francisco property for $ 58 million.

We accounted for the transaction as an asset acquisition with the purchase price allocated to Inventory ($ 48 million) and Property & equipment ($ 10 million).

During the third quarter of 2020, we recorded a loss of $ 5 million in the (Losses) gains and other (expense) income, net line on our Income Statement for the three and nine months ended September 30, 2020 relating to the redemption of our interest in a joint venture in our Exchange & Third-Party Management segment which was consolidated under the voting interest model.

We received nominal cash proceeds and a note receivable which we measured at a fair value of $ 1 million using Level 3 inputs.

Additionally, during the third quarter of 2020, we disposed of excess Vacation Ownership segment land parcels in Orlando, Florida and Steamboat Springs, Colorado for combined proceeds of $ 15 million, as part of our strategic decision to reduce holdings in markets where we have excess supply.

We recorded a combined net gain of $ 6 million in the (Losses) gains and other (expense) income, net line on our Income Statement for the three and nine months ended September 30, 2020 relating to these transactions.

REVENUE AND RECEIVABLES

1 unchanged sentence

The following tables detail the sources of revenue by segment for the time periods presented.

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

($ in millions) Vacation Ownership Exchange & Third-Party Management Corporate and Other Total

9 unchanged sentences

Total Revenues $ 571 $ 71 $ 7 $ 649

Three Months Ended June 30, 2019

Three Months Ended September 30, 2019

($ in millions) Vacation Ownership Exchange & Third-Party Management Corporate and Other Total

9 unchanged sentences

Total Revenues $ 940 $ 111 $ 15 $ 1,066

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

($ in millions) Vacation Ownership Exchange & Third-Party Management Corporate and Other Total

9 unchanged sentences

Total Revenues $ 1,884 $ 236 $ 19 $ 2,139

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

($ in millions) Vacation Ownership Exchange & Third-Party Management Corporate and Other Total

11 unchanged sentences

The following tables detail the timing of revenue from contracts with customers by segment for the time periods presented.

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

($ in millions) Vacation Ownership Exchange & Third-Party Management Corporate and Other Total

2 unchanged sentences

Revenue from contracts with customers $ 507 $ 71 $ 7 $ 585

Three Months Ended June 30, 2019

Three Months Ended September 30, 2019

($ in millions) Vacation Ownership Exchange & Third-Party Management Corporate and Other Total

2 unchanged sentences

Revenue from contracts with customers $ 869 $ 110 $ 15 $ 994

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

($ in millions) Vacation Ownership Exchange & Third-Party Management Corporate and Other Total

2 unchanged sentences

Revenue from contracts with customers $ 1,680 $ 234 $ 19 $ 1,933

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

($ in millions) Vacation Ownership Exchange & Third-Party Management Corporate and Other Total

3 unchanged sentences

Sale of Vacation Ownership Products

Revenues were reduced during the second quarter and first half of 2020 by $ 9 million and $ 55 million, respectively, due to changes in our estimates of variable consideration for performance obligations that were satisfied in prior periods.

Revenues were reduced during the third quarter and first three quarters of 2020 by $ 3 million and $ 58 million, respectively, due to changes in our estimates of variable consideration for performance obligations that were satisfied in prior periods.

See Footnote 6 “Vacation Ownership Notes Receivable” for information on increases to our vacation ownership notes receivable reserve attributable to the COVID-19 pandemic.

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The following table shows the composition of our receivables from contracts with customers and contract liabilities.

We had no contract assets at either June 30, 2020 or December 31, 2019.

($ in millions) At June 30, 2020 At December 31, 2019

We had no contract assets at either September 30, 2020 or December 31, 2019.

($ in millions) At September 30, 2020 At December 31, 2019

Receivables from Contracts with Customers

5 unchanged sentences

Deferred revenue 488 433

Revenue recognized during the second quarter and first half of 2020 that was included in our contract liabilities balance at December 31, 2019 was $ 45 million and $ 162 million, respectively.

Revenue recognized during the third quarter and first three quarters of 2020 that was included in our contract liabilities balance at December 31, 2019 was $ 69 million and $ 231 million, respectively.

Remaining Performance Obligations

Our remaining performance obligations represent the expected transaction price allocated to our contracts that we expect to recognize as revenue in future periods when we perform under the contracts.

At June 30, 2020, approximately 80 percent of this amount is expected to be recognized as revenue over the next two years .

At September 30, 2020, approximately 80 percent of this amount is expected to be recognized as revenue over the next two years .

Accounts Receivable

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The following table shows the composition of our accounts receivable balances:

($ in millions) At June 30, 2020 At December 31, 2019

($ in millions) At September 30, 2020 At December 31, 2019

Receivables from contracts with customers $ 147 $ 166

4 unchanged sentences

However, discrete items related to prior year tax items are treated separately.

Our interim effective tax rate was 23.3 percent and 33.0 percent for the three months ended June 30, 2020 and June 30, 2019, respectively.

The change in the effective tax rate 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.

Our interim effective tax rate was 31.4 percent and 35.6 percent for the six months ended June 30, 2020 and June 30, 2019, respectively.

The change in the effective tax rate is predominately attributable to a pre-tax loss and a release in uncertain tax benefits for the six months ended June 30, 2020, and a change in our projected mix of earnings in international jurisdictions with differing tax rates and jurisdictions where valuation allowances are recorded.

Our interim effective tax rate was 19.8 percent and 404.4 percent for the three months ended September 30, 2020 and September 30, 2019, respectively.

The change in the effective tax rate is predominately attributable to a pre-tax loss and benefits from the CARES Act (as defined below).

Our interim effective tax rate was 28.7 percent and 43.2 percent for the nine months ended September 30, 2020 and September 30, 2019, respectively.

The change in the effective tax rate is predominately attributable to a pre-tax loss, a release in uncertain tax benefits, and benefits from the CARES Act (as defined below).

We have considered the income tax accounting and disclosure implications of the relief provided by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted on March 27, 2020.

As of June 30, 2020, we evaluated the income tax provisions of the CARES Act and have determined there to be no effect on either the June 30, 2020 tax rate or the computation of the estimated effective tax rate for the year ended December 31, 2020.

We will continue to evaluate the income tax provisions of the CARES Act and monitor the developments in the jurisdictions where we have significant operations for tax law changes that could have income tax accounting and disclosure implications.

As of September 30, 2020, we have evaluated the income tax provisions of the CARES Act and determined there to be a 4.4 percent benefit to the September 30, 2020 tax rate and a 3.9 percent benefit to the computation of the estimated effective tax rate for the year ended December 31, 2020.

Unrecognized Tax Benefits

The following table summarizes the activity related to our unrecognized tax benefits (excluding interest and penalties) during the six months ended June 30, 2020.

The following table summarizes the activity related to our unrecognized tax benefits (excluding interest and penalties) during the nine months ended September 30, 2020.

($ in millions) Unrecognized Tax Benefits

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Decreases related to tax positions taken during a prior period ( 1 )

Balance at June 30, 2020 $ 7

The total unrecognized tax benefits related to uncertain income tax positions, which would affect the effective tax rate if recognized, was $ 7 million at June 30, 2020 and $ 21 million at December 31, 2019.

The total amount of gross interest and penalties accrued was $ 16 million at June 30, 2020 and $ 41 million at December 31, 2019.

The decrease in our unrecognized tax benefits, including interest and penalties, is offset by a $ 30 million expense to (Losses) gains and other (expense) income, net for amounts previously recorded as indemnified pursuant to a Tax Matters Agreement dated May 11, 2016 (the “Tax Matters Agreement”) by and among Starwood Hotels & Resorts Worldwide, Inc., Vistana Signature Experiences, Inc., and Interval Leisure Group, Inc.

We anticipate $ 4 million of unrecognized tax benefits, including interest and penalties, to be indemnified pursuant to the Tax Matters Agreement and consequently have recorded a corresponding indemnification asset.

Balance at September 30, 2020 $ 7

The total unrecognized tax benefits related to uncertain income tax positions, which would affect the effective tax rate if recognized, was $ 7 million at September 30, 2020 and $ 21 million at December 31, 2019.

The total amount of gross interest and penalties accrued was $ 18 million at September 30, 2020 and $ 41 million at December 31, 2019.

We anticipate $ 4 million of unrecognized tax benefits, including interest and penalties, to be indemnified pursuant to a Tax Matters Agreement dated May 11, 2016 by and among Starwood Hotels & Resorts Worldwide, Inc., Vistana Signature Experiences, Inc., and Interval Leisure Group, Inc., and consequently have recorded a corresponding indemnification asset.

The unrecognized tax benefits, including accrued interest and penalties, are included in other liabilities on our Balance Sheet.

4 unchanged sentences

The following table shows the composition of our vacation ownership notes receivable balances, net of reserves.

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

($ in millions) Originated Acquired Total Originated Acquired Total

11 unchanged sentences

The following table summarizes interest income associated with vacation ownership notes receivable.

Three Months Ended Six Months Ended

($ in millions) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Three Months Ended Nine Months Ended

($ in millions) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Interest income associated with vacation ownership notes receivable — securitized $ 59 $ 58 $ 186 $ 176

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As a result, we increased our vacation ownership notes receivable reserves by $ 52 million in the first quarter of 2020.

This was reflected as a $ 42 million reduction to Sale of vacation ownership products, a $ 10 million increase in Financing expenses, and a $ 15 million reduction in Cost of vacation ownership products on our Income Statement for the first half of 2020.

Acquired Vacation Ownership Notes Receivable

11 unchanged sentences

Securitizations ( 1 ) 1 —

Clean-up call 1 ( 1 ) —

Write-offs ( 16 ) — ( 16 )

1 unchanged sentence

Increase in vacation ownership notes receivable reserve (1)

Balance at June 30, 2020 $ 28 $ 33 $ 61

Balance at September 30, 2020 $ 35 $ 26 $ 61

_________________________

(1) Increase in vacation ownership notes receivable reserve includes $ 10 million ($ 2 million non-securitized and $ 8 million securitized) attributable to the increased reserve as a result of the COVID-19 pandemic.

The following table shows future contractual principal payments, as well as interest rates, for our non-securitized and securitized acquired vacation ownership notes receivable at June 30, 2020.

The following table shows future contractual principal payments, as well as interest rates, for our non-securitized and securitized acquired vacation ownership notes receivable at September 30, 2020.

Acquired Vacation Ownership Notes Receivable

2 unchanged sentences

Thereafter 18 128 146

Balance at June 30, 2020 $ 29 $ 334 $ 363

Balance at September 30, 2020 $ 35 $ 302 $ 337

Weighted average stated interest rate 13.4 % 13.5 % 13.4 %

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Originated vacation ownership notes receivable represent vacation ownership notes receivable originated by Legacy-ILG subsequent to the Acquisition Date and all Legacy-MVW vacation ownership notes receivable.

The following table shows future principal payments, net of reserves, as well as interest rates, for our originated non-securitized and securitized originated vacation ownership notes receivable at June 30, 2020.

Originated Vacation Ownership Notes Receivable

6 unchanged sentences

Thereafter 121 754 875

Balance at June 30, 2020 $ 188 $ 1,463 $ 1,651

Balance at September 30, 2020 $ 228 $ 1,348 $ 1,576

Weighted average stated interest rate 12.3 % 12.7 % 12.6 %

9 unchanged sentences

Securitizations ( 70 ) 70 —

Clean-up call 37 ( 37 ) —

Write-offs ( 27 ) — ( 27 )

Defaulted vacation ownership notes receivable repurchase activity (2)

Balance at June 30, 2020 $ 110 $ 150 $ 260

Balance at September 30, 2020 $ 151 $ 123 $ 274

_________________________

3 unchanged sentences

Legacy-MVW Vacation Ownership Notes Receivable

For both Legacy-MVW non-securitized and securitized vacation ownership notes receivable, we estimated average remaining default rates of 8.22 percent as of June 30, 2020 (includes 1.51 percent attributed to the additional expected defaults as a result of the COVID-19 pandemic), and 7.04 percent as of December 31, 2019.

A 0.5 percentage point increase in the estimated default rate would have resulted in an increase in the related vacation ownership notes receivable reserve of $ 7 million as of June 30, 2020, and $ 8 million as of December 31, 2019.

For both Legacy-MVW non-securitized and securitized vacation ownership notes receivable, we estimated average remaining default rates of 7.35 percent as of September 30, 2020, and 7.04 percent as of December 31, 2019.

A 0.5 percentage point increase in the estimated default rate would have resulted in an increase in the related vacation ownership notes receivable reserve of $ 7 million as of September 30, 2020, and $ 8 million as of December 31, 2019.

The following table shows our recorded investment in non-accrual Legacy-MVW vacation ownership notes receivable, which are vacation ownership notes receivable that are 90 days or more past due.

1 unchanged sentence

($ in millions) Non-Securitized Securitized Total

Investment in vacation ownership notes receivable on non-accrual status at June 30, 2020 $ 62 $ 19 $ 81

Investment in vacation ownership notes receivable on non-accrual status at September 30, 2020 $ 86 $ 11 $ 97

Investment in vacation ownership notes receivable on non-accrual status at December 31, 2019 $ 43 $ 11 $ 54

The following table shows the aging of the recorded investment in principal, before reserves, in Legacy-MVW vacation ownership notes receivable as of June 30, 2020.

The following table shows the aging of the recorded investment in principal, before reserves, in Legacy-MVW vacation ownership notes receivable as of September 30, 2020.

Legacy-MVW Vacation Ownership Notes Receivable

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Total vacation ownership notes receivable $ 272 $ 1,298 $ 1,570

The following table details the origination year of our Legacy-MVW vacation ownership notes receivable as of June 30, 2020 .

The following table details the origination year of our Legacy-MVW vacation ownership notes receivable as of September 30, 2020 .

Legacy-MVW Vacation Ownership Notes Receivable

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2017 20 167 187

2016 10 78 88

2015 and Prior 34 129 163

1 unchanged sentence

Legacy-ILG Vacation Ownership Notes Receivable

At June 30, 2020 and December 31, 2019, the weighted average FICO score within our consolidated Legacy-ILG vacation ownership notes receivable pools was 709 and 712 , respectively, based upon the outstanding vacation ownership notes receivable balance at time of origination.

The average estimated rate for all future defaults for our Legacy-ILG consolidated outstanding pool of vacation ownership notes receivable was 17.07 percent as of June 30, 2020 (includes 2.89 percent attributed to additional expected defaults as a result of the COVID-19 pandemic) and 12.65 percent as of December 31, 2019.

A 0.5 percentage point increase in the estimated default rate on the Legacy-ILG originated vacation ownership notes receivable would have resulted in an increase in the related vacation ownership notes receivable reserve of $ 3 million as of June 30, 2020, and $ 2 million as of December 31, 2019.

At September 30, 2020 and December 31, 2019, the weighted average FICO score within our consolidated Legacy-ILG vacation ownership notes receivable pools was 708 and 712 , respectively, based upon the outstanding vacation ownership notes receivable balance at time of origination.

The average estimated rate for all future defaults for our Legacy-ILG consolidated outstanding pool of vacation ownership notes receivable was 14.71 percent as of September 30, 2020 and 12.65 percent as of December 31, 2019.

A 0.5 percentage point increase in the estimated default rate on the Legacy-ILG vacation ownership notes receivable would have resulted in an increase in the related vacation ownership notes receivable reserve of $ 3 million as of September 30, 2020, and $ 2 million as of December 31, 2019.

The following table shows our recorded investment in non-accrual Legacy-ILG vacation ownership notes receivable, which are vacation ownership notes receivable that are 90 days or more past due.

1 unchanged sentence

($ in millions) Non-Securitized Securitized Total

Investment in vacation ownership notes receivable on non-accrual status at June 30, 2020 $ 68 $ 17 $ 85

Investment in vacation ownership notes receivable on non-accrual status at September 30, 2020 $ 96 $ 12 $ 108

Investment in vacation ownership notes receivable on non-accrual status at December 31, 2019 $ 40 $ 9 $ 49

The following table shows the aging of the recorded investment in principal, before reserves, in Legacy-ILG vacation ownership notes receivable as of June 30, 2020.

The following table shows the aging of the recorded investment in principal, before reserves, in Legacy-ILG vacation ownership notes receivable as of September 30, 2020.

Legacy-ILG Vacation Ownership Notes Receivable

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resident borrowers.

Acquired Vacation Ownership Notes Receivable as of June 30, 2020

Acquired Vacation Ownership Notes Receivable as of September 30, 2020

($ in millions) 700 + 600 - 699 < 600 No Score Total

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$ 216 $ 151 $ 20 $ 52 $ 439

The following table details the origination year of our Legacy-ILG acquired vacation ownership notes receivable by brand and FICO score as of June 30, 2020 .

The following table details the origination year of our Legacy-ILG acquired vacation ownership notes receivable by brand and FICO score as of September 30, 2020 .

Vacation ownership notes receivable with no FICO score primarily relate to non-U.S.

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resident borrowers.

Originated Vacation Ownership Notes Receivable as of June 30, 2020

Originated Vacation Ownership Notes Receivable as of September 30, 2020

($ in millions) 700 + 600 - 699 < 600 No Score Total

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$ 235 $ 113 $ 18 $ 62 $ 428

The following tables detail the origination year of our Legacy-ILG originated vacation ownership notes receivable by brand and FICO score as of June 30, 2020.

The following tables detail the origination year of our Legacy-ILG originated vacation ownership notes receivable by brand and FICO score as of September 30, 2020.

Vacation ownership notes receivable with no FICO score primarily relate to non-U.S.

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The table excludes Cash and cash equivalents, Restricted cash, Accounts receivable, Accounts payable, Advance deposits and Accrued liabilities, all of which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments.

At June 30, 2020 At December 31, 2019

At September 30, 2020 At December 31, 2019

($ in millions) Carrying

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Vacation Ownership Notes Receivable

At June 30, 2020 At December 31, 2019

At September 30, 2020 At December 31, 2019

($ in millions) Carrying

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Therefore, we include only the shares that may be issued with respect to any conversion premium in total dilutive weighted average shares outstanding, which we calculate using the treasury stock method.

As no conversion premium existed as of June 30, 2020 or June 30, 2019, there was no dilutive impact from the Convertible Notes for either the second quarter or first half of 2020 or 2019.

As no conversion premium existed as of September 30, 2020 or September 30, 2019, there was no dilutive impact from the Convertible Notes for either the third quarter or first three quarters of 2020 or 2019.

The shares issuable on exercise of the Warrants (as defined in Footnote 13 “Debt”) sold in connection with the issuance of the Convertible Notes will not impact the total dilutive weighted average shares outstanding unless and until the price of our common stock exceeds the strike price.

If and when the price of our common stock exceeds the strike price of the Warrants, we will include the dilutive effect of the additional shares that may be issued upon exercise of the Warrants in total dilutive weighted average shares outstanding, which we calculate using the treasury stock method.

The Convertible Note Hedges (as defined in Footnote 13 “Debt”) purchased in connection with the issuance of the Convertible Notes are considered to be anti-dilutive and will not impact our calculation of diluted earnings per share attributable to common shareholders.

The Convertible Note Hedges (as defined in Footnote 13 “Debt”) purchased in connection with the issuance of the Convertible Notes are considered to be anti-dilutive and do not impact our calculation of diluted earnings per share attributable to common shareholders for any periods presented herein.

The table below illustrates the reconciliation of the earnings and number of shares used in our calculation of basic and diluted (loss) earnings per share attributable to common shareholders.

Three Months Ended Six Months Ended

(in millions, except per share amounts) June 30, 2020 June 30, 2019 (1)

June 30, 2020 June 30, 2019 (1)

Three Months Ended Nine Months Ended

(in millions, except per share amounts) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 (1)

Computation of Basic (Loss) Earnings Per Share Attributable to Common Shareholders

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(1) The computations of diluted earnings per share attributable to common shareholders exclude approximately 452,000 shares of common stock, the maximum number of shares issuable as of June 30, 2019, upon the vesting of certain performance-based awards, because the performance conditions required to be met for the shares subject to such awards to vest were not achieved by the end of the reporting period.

In accordance with the applicable accounting guidance for calculating earnings per share, for the second quarter of 2019, we excluded from our calculation of diluted earnings per share 167,760 shares underlying stock appreciation rights (“SARs”) that may settle in shares of common stock because the exercise prices of such SARs, which ranged from $ 100.52 to $ 143.38 , were greater than the average market price for the applicable period.

In accordance with the applicable accounting guidance for calculating earnings per share, for the first half of 2019, we excluded from our calculation of diluted earnings per share 249,737 shares underlying SARs that may settle in shares of common stock because the exercise prices of such SARs, which ranged from $ 97.53 to $ 143.38 , were greater than the average market price for the applicable period.

(1) The computations of diluted earnings per share attributable to common shareholders exclude approximately 401,000 shares of common stock, the maximum number of shares issuable as of September 30, 2019, upon the vesting of certain performance-based awards, because the performance conditions required to be met for the shares subject to such awards to vest were not achieved by the end of the reporting period.

In accordance with the applicable accounting guidance for calculating earnings per share, for the first three quarters of 2019, we excluded from our calculation of diluted earnings per share 249,737 shares underlying stock appreciation rights (“SARs”) that may settle in shares of common stock because the exercise prices of such SARs, which ranged from $ 97.53 to $ 143.38 , were greater than the average market price for the applicable period.

The following table shows the composition of our inventory balances:

($ in millions) At June 30, 2020 At December 31, 2019

($ in millions) At September 30, 2020 At December 31, 2019

Finished goods (1)

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We value vacation ownership products at the lower of cost or fair market value less costs to sell, in accordance with applicable accounting guidance, and we record operating supplies at the lower of cost (using the first-in, first-out method) or net realizable value.

Product cost true-up activity relating to vacation ownership products increased carrying values of inventory by $ 3 million during the first half of 2020 and increased by $ 4 million during the first half of 2019.

Additionally, during the first half of 2020, we recorded a $ 5 million impairment to Inventory.

In addition to the above, at June 30, 2020, we had $ 174 million of completed vacation ownership units which have been classified as a component of Property and equipment until the time at which they are legally registered for sale as vacation ownership products.

We also have $ 42 million and $ 38 million of deposits on future purchases of inventory at June 30, 2020 and December 31, 2019, respectively, which are included in the Other assets line on our Balance Sheets.

Product cost true-up activity relating to vacation ownership products increased carrying values of inventory by $ 4 million during the first three quarters of 2020 and by $ 2 million during the first three quarters of 2019.

Additionally, during the third quarter and the first three quarters of 2020, we recorded $ 1 million and $ 6 million, respectively, of inventory impairments.

In addition to the above, at September 30, 2020, we had $ 173 million of completed vacation ownership units which are classified as a component of Property and equipment until the time at which they are legally registered for sale as vacation ownership products.

We also have $ 42 million and $ 38 million of deposits on future purchases of inventory at September 30, 2020 and December 31, 2019, respectively, which are included in the Other assets line on our Balance Sheets.

GOODWILL AND INTANGIBLES

The following table details the carrying amount of our goodwill at June 30, 2020 and December 31, 2019, and reflects goodwill attributed to the ILG Acquisition.

The following table details the carrying amount of our goodwill at September 30, 2020 and December 31, 2019, and reflects goodwill attributed to the ILG Acquisition.

($ in millions) Vacation Ownership Segment Exchange & Third-Party Management Segment Total Consolidated

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Balance at June 30, 2020 2,445 372 2,817

Impairment — — —

Foreign exchange adjustments — — —

Balance at September 30, 2020 $ 2,445 $ 372 $ 2,817

In connection with the preparation of our Financial Statements for the first quarter of 2020, we initially concluded that it was more likely than not that the fair value of both of our reporting units was below their respective carrying amounts.

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We recognized a non-cash impairment charge of $ 73 million in the Impairment line on our Income Statement during the first quarter of 2020 related to the Exchange & Third-Party Management reporting unit, which was primarily driven by the change in expected future operating results as a result of the impact of the COVID-19 pandemic.

In connection with the preparation of our Financial Statements for the second quarter of 2020, we concluded that an interim quantitative impairment test was required for our Exchange & Third-Party Management reporting unit because of the impairment charge we recognized for this reporting unit in the first quarter of 2020.

Q2 2020 and Q3 2020

In connection with the preparation of our Financial Statements for the second and third quarters of 2020, we concluded that an interim quantitative impairment test was required for our Exchange & Third-Party Management reporting unit because of the impairment charge we recognized for this reporting unit in the first quarter of 2020.

We utilized a combination of the income and market approaches to estimate the fair value of this reporting unit (Level 3) consistent with the methodology used in the first quarter of 2020.

We concluded that there was no further impairment of the Exchange & Third-Party Management reporting unit from the first quarter of 2020, as future expected operating results had improved slightly in comparison to the projections used in the first quarter, resulting in a fair value of the reporting unit in excess of its carrying amount.

We performed a qualitative analysis of the impact of recent events, including business and industry specific considerations, on the fair value of our Vacation Ownership reporting unit and determined that an interim quantitative impairment test was not required.

While the goodwill of our reporting units are not impaired as of the second quarter of 2020, we cannot assure you that goodwill will not be impaired in future periods.

We concluded that there was no further impairment of the Exchange & Third-Party Management reporting unit as of the end of each of the second and third quarters of 2020 from the first quarter of 2020, as future expected operating results had improved slightly in comparison to the projections used in the first quarter, resulting in a fair value of the reporting unit in excess of its carrying amount.

We performed a qualitative analysis of the impact of recent events, including business and industry specific considerations, on the fair value of our Vacation Ownership reporting unit as of the end of each of the second and third quarters of 2020 and determined that an interim quantitative impairment test was not required.

While the goodwill of our reporting units are not impaired as of the third quarter of 2020, we cannot assure you that goodwill will not be impaired in future periods.

We will continue to monitor the operating results, cash flow forecasts and impact from changes in market conditions, as well as impacts of COVID-19 for these reporting units.

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Balance at June 30, 2020 64

Balance at September 30, 2020 $ 64

In connection with the preparation of the Financial Statements for the first quarter of 2020, we concluded that it was more likely than not that the fair value of our indefinite lived intangibles was below their carrying amounts.

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Commitments and Letters of Credit

As of June 30, 2020, we had the following commitments outstanding:

As of September 30, 2020, we had the following commitments outstanding:

• We have various contracts for the use of information technology hardware and software that we use in the normal course of business.

Our aggregate commitments under these contracts were $ 65 million, of which we expect $ 17 million, $ 22 million, $ 15 million, $ 9 million and $ 2 million will be paid in the remainder of 2020, 2021, 2022, 2023 and 2024, respectively.

Our aggregate commitments under these contracts were $ 83 million, of which we expect $ 16 million, $ 26 million, $ 19 million, $ 13 million, $ 6 million, and $ 3 million will be paid in the remainder of 2020, 2021, 2022, 2023, 2024, and thereafter, respectively.

• We have a remaining commitment to purchase an operating property that we manage, located in New York, New York for $ 97 million.

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$ 32 million in 2021, $ 24 million in 2022, and $ 32 million in 2023.

See Footnote 16 “Variable Interest Entities” for additional information on this transaction and our activities relating to the VIE involved in this transaction and Footnote 3 “Acquisitions and Dispositions” for information on the purchase that occurred during the first quarter of 2020.

See Footnote 3 “Acquisitions and Dispositions” for information on the purchase that occurred during the first quarter of 2020 and Footnote 16 “Variable Interest Entities” for additional information on this transaction and our activities relating to the VIE involved in this transaction.

• During the first quarter of 2020, we assigned a commitment to purchase a property located in Waikiki, Hawaii to a third party.

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See Footnote 16 “Variable Interest Entities” for additional information on this transaction and our activities relating to the VIE involved in this transaction.

Surety bonds issued as of June 30, 2020 totaled $ 72 million, the majority of which were requested by federal, state, or local governments in connection with our operations.

As of June 30, 2020, we had $ 3 million of letters of credit outstanding under our Revolving Corporate Credit Facility (as defined in Footnote 13 “Debt”).

In addition, as of June 30, 2020, we had $ 5 million in letters of credit outstanding related to and in lieu of reserves required for several vacation ownership notes receivable securitization transactions outstanding.

Surety bonds issued as of September 30, 2020 totaled $ 75 million, the majority of which were requested by federal, state, or local governments in connection with our operations.

As of September 30, 2020, we had $ 3 million of letters of credit outstanding under our Revolving Corporate Credit Facility (as defined in Footnote 13 “Debt”).

In addition, as of September 30, 2020, we had $ 2 million in letters of credit outstanding related to and in lieu of reserves required for several vacation ownership notes receivable securitization transactions outstanding.

These letters of credit are not issued pursuant to, nor do they impact our borrowing capacity under, the Revolving Corporate Credit Facility.

We estimate the cash outflow associated with completing the phases of our existing portfolio of vacation ownership projects currently under development will be approximately $ 6 million, of which $ 4 million is included within liabilities on our Balance Sheet at June 30, 2020.

We estimate the cash outflow associated with completing the phases of our existing portfolio of vacation ownership projects currently under development will be approximately $ 4 million, of which $ 2 million is included within liabilities on our Balance Sheet at September 30, 2020.

This estimate is based on our current development plans, which remain subject to change, and we expect the phases currently under development will be completed by the end of 2021.

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In these cases, the operating expenses for the rental operations are paid from the revenue generated by the rentals, the owners are then paid their contractual percentages or guaranteed amounts, and our vacation rental business either retains the balance (if any) as its fee or makes up the deficit.

At June 30, 2020, our maximum exposure under fixed dollar guarantees was $ 27 million, of which $ 7 million, $ 10 million, $ 4 million, $ 2 million, $ 1 million and $ 3 million relate to the remainder of 2020, 2021, 2022, 2023, 2024 and thereafter, respectively.

At September 30, 2020, our maximum exposure under fixed dollar guarantees was $ 28 million, of which $ 3 million, $ 10 million, $ 6 million, $ 3 million, $ 2 million and $ 4 million relate to the remainder of 2020, 2021, 2022, 2023, 2024 and thereafter, respectively.

Based on the impact of the COVID-19 pandemic on our rental operations, we declared the occurrence of a force majeure event under many of these agreements, generally effective as of April 1, 2020.

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In May 2020, the court granted our motion for summary judgment and dismissed the case.

The plaintiffs have appealed the ruling.

The plaintiffs appealed the ruling.

The parties subsequently settled the matter for a waiver of our claim of attorney fees, and on October 13, 2020, the plaintiffs dismissed their appeal with prejudice.

In February 2019, the owners’ association for the St.

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Certain claims remain pending against other defendants, including certain of our subsidiaries.

On September 14, 2020, the Magistrate Judge issued a report and recommendation that the District Court grant our motion to dismiss all the remaining claims against us.

We believe we have meritorious defenses to the claims in each of the above matters and intend to vigorously defend each matter.

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The agreement provides for a standstill on certain project spending for several months, extends certain deliverable dates pertaining to the development and lease, and grants MVW a limited termination option in exchange for reimbursement of certain developer soft costs.

Subsequent to the end of the third quarter of 2020, we amended our standstill agreement with the developer/lessor to further extend certain deliverable dates pertaining to the development and lease agreements into 2021.

SECURITIZED DEBT

The following table provides detail on our securitized debt, net of unamortized debt discount and issuance costs.

($ in millions) At June 30, 2020 At December 31, 2019

($ in millions) At September 30, 2020 At December 31, 2019

Vacation ownership notes receivable securitizations, gross (1)

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_________________________

(1) Interest rates as of June 30, 2020 range from 2.2 % to 4.4 %, with a weighted average interest rate of 2.9 %

(2) Effective interest rate as of June 30, 2020 was 2.1 %

(1) Interest rates as of September 30, 2020 range from 2.2 % to 4.4 %, with a weighted average interest rate of 2.7 %

(2) Excludes $ 1 million of unamortized debt issuance costs as of September 30, 2020, as no cash borrowings were outstanding on the Warehouse Credit Facility at that time

All of our securitized debt is non-recourse to us.

See Footnote 16 “Variable Interest Entities” for a discussion of the collateral for the non-recourse debt associated with our securitized debt.

The following table shows scheduled future principal payments for our securitized debt as of June 30, 2020.

The following table shows scheduled future principal payments for our securitized debt as of September 30, 2020.

Vacation Ownership

Notes Receivable Securitizations Warehouse

Facility Other Total

Notes Receivable Securitizations

($ in millions)

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2020, remaining $ 46

2021 173 18 2 193

2022 175 20 2 197

2023 179 261 2 442

2024 176 — 2 178

Thereafter 981

$ 1,578 $ 308 $ 18 $ 1,904

Vacation Ownership Notes Receivable Securitizations

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If a pool of securitized vacation ownership notes receivable fails to perform within the pool’s established parameters (default or delinquency thresholds vary by transaction), transaction provisions effectively redirect the monthly excess spread we would otherwise receive from that pool (attributable to the interests we retained) to accelerate the principal payments to investors (taking into account the subordination of the different tranches to the extent there are multiple tranches) until the performance trigger is cured.

During the second quarter and first half of 2020, and as of June 30, 2020, no securitized vacation ownership notes receivable pools were out of compliance with their respective established parameters.

As of June 30, 2020, we had 12 securitized vacation ownership notes receivable pools outstanding.

During the third quarter and first three quarters of 2020, and as of September 30, 2020, no securitized vacation ownership notes receivable pools were out of compliance with their respective established parameters.

As of September 30, 2020, we had 12 securitized vacation ownership notes receivable pools outstanding.

As the contractual terms of the underlying securitized vacation ownership notes receivable determine the maturities of the non-recourse debt associated with them, actual maturities may occur earlier than shown above due to prepayments by the vacation ownership notes receivable obligors.

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.

During the third quarter of 2020, we completed the securitization of a pool of $ 383 million of vacation ownership notes receivable.

In connection with the securitization, investors purchased in a private placement $ 375 million in vacation ownership loan backed notes from MVW 2020-1 LLC (the “2020-1 LLC”).

Four classes of vacation ownership loan backed notes were issued by the 2020-1 LLC:

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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, as defined below, $ 7 million was used to pay transaction expenses and fund required reserves, and the remaining $ 53 million will be used for general corporate purposes.

Of the $ 375 million in proceeds from the transaction, $ 300 million was used to repay all outstanding amounts previously drawn under the Warehouse Credit Facility, as defined below, $ 7 million was used to pay transaction expenses and fund required reserves, and the remainder will be used for general corporate purposes.

Warehouse Credit Facility

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Net proceeds were $ 201 million due to the funding of reserve accounts of $ 1 million.

During the second quarter of 2020, we amended our Warehouse Credit Facility to increase the borrowing capacity by $ 181 million, to $ 531 million.

The revolving period for the existing $ 350 million remains the same and will terminate in December 2021, if not renewed or terminated earlier.

The revolving period for the additional $ 181 million portion will terminate in March 2021, if not renewed.

As part of this amendment, the interest rate increased from primarily LIBOR plus 1.1 % to primarily LIBOR plus 1.4 %.

During the second quarter of 2020, we securitized vacation ownership notes receivable under our Warehouse Credit Facility.

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Net proceeds were $ 113 million due to the funding of reserve accounts of less than $ 1 million.

Additionally, during the second quarter of 2020, we amended our Warehouse Credit Facility to increase the borrowing capacity by $ 181 million, to $ 531 million.

The revolving period for the existing $ 350 million remains the same and will terminate in December 2021, if not renewed or terminated earlier.

As part of this amendment, the interest rate increased from primarily LIBOR plus 1.1 % to primarily LIBOR plus 1.4 %.

During the third quarter of 2020, we terminated the additional $ 181 million capacity of the Warehouse Credit Facility.

The following table provides detail on our debt balances, net of unamortized debt discount and issuance costs.

($ in millions) At June 30, 2020 At December 31, 2019

($ in millions) At September 30, 2020 At December 31, 2019

Senior Secured Notes

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$ 2,680 $ 2,216

The following table shows scheduled future principal payments for our debt, excluding finance leases, as of June 30, 2020.

_________________________

(1) Excludes $ 3 million of unamortized debt issuance costs as of September 30, 2020, as no cash borrowings were outstanding on the Revolving Corporate Credit Facility at that time

The following table shows scheduled future principal payments for our debt, excluding finance leases, as of September 30, 2020.

($ in millions) 2025 Notes 2026 Notes 2028 Notes Term Loan Convertible Notes Total

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In addition, we pay a commitment fee on the unused availability under the Revolving Corporate Credit Facility at a rate that varies from 20 to 40 basis points per annum, also depending on our credit rating.

As of June 30, 2020, we were in compliance with the applicable financial and operating covenants under the Corporate Credit Facility.

As of September 30, 2020, we were in compliance with the applicable financial and operating covenants under the Corporate Credit Facility.

In May 2020, we entered into a waiver (the “Waiver”) to the agreement that governs the Corporate Credit Facility.

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We also entered into a $ 100 million interest rate collar with a cap strike rate of 2.5000 percent and a floor strike rate of 1.8810 percent through April 2024 to further hedge our interest rate risk on the Term Loan.

Both the interest rate swaps and the interest rate collar have been designated and qualify as cash flow hedges of interest rate risk and recorded in Other liabilities on our Balance Sheet as of June 30, 2020 and December 31, 2019.

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

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Derivative instrument adjustment balance, June 30 ( 46 ) ( 22 )

Other comprehensive gain (loss) before reclassifications 3 ( 4 )

Reclassification to Income Statement — —

Net other comprehensive loss 3 ( 4 )

Derivative instrument adjustment balance, September 30 $ ( 43 ) $ ( 26 )

Convertible Notes

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It is our intent to settle conversions of the Convertible Notes through combination settlement, which contemplates repayment in cash of the principal amount and repayment in shares of our common stock of any excess of the conversion value over the principal amount.

As of June 30, 2020, the effective interest rate was 4.7 % and the remaining discount amortization period was 2.2 years.

As of September 30, 2020, the effective interest rate was 4.7 % and the remaining discount amortization period was 2.0 years.

The following table shows the net carrying value of the Convertible Notes.

($ in millions) At June 30, 2020 At December 31, 2019

($ in millions) At September 30, 2020 At December 31, 2019

Liability component

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The following table shows interest expense information related to the Convertible Notes.

Three Months Ended Six Months Ended

($ in millions) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Three Months Ended Nine Months Ended

($ in millions) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Contractual interest expense $ 1 $ 1 $ 3 $ 2

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convertible note hedge transactions with respect to our common stock (“Convertible Note Hedges”), initially covering a total of approximately 1.55 million shares of our common stock, and warrant transactions (“Warrants”), whereby we sold to the counterparties to the Convertible Note Hedges warrants to acquire approximately 1.55 million shares of our common stock at an initial strike price of $ 176.68 per share.

As of June 30, 2020, no Convertible Note Hedges or Warrants have been exercised.

As of September 30, 2020, no Convertible Note Hedges or Warrants have been exercised.

Security and Guarantees

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Marriott Vacations Worldwide has 100,000,000 authorized shares of common stock, par value of $ 0.01 per share.

At June 30, 2020, there were 75,249,855 shares of Marriott Vacations Worldwide common stock issued, of which 41,057,736 shares were outstanding and 34,192,119 shares were held as treasury stock.

At September 30, 2020, there were 75,250,627 shares of Marriott Vacations Worldwide common stock issued, of which 41,062,759 shares were outstanding and 34,187,868 shares were held as treasury stock.

At December 31, 2019, there were 75,020,272 shares of Marriott Vacations Worldwide common stock issued, of which 41,582,096 shares were outstanding and 33,438,176 shares were held as treasury stock.

Marriott Vacations Worldwide has 2,000,000 authorized shares of preferred stock, par value of $ 0.01 per share, none of which were issued or outstanding as of June 30, 2020 or December 31, 2019.

Marriott Vacations Worldwide has 2,000,000 authorized shares of preferred stock, par value of $ 0.01 per share, none of which were issued or outstanding as of September 30, 2020 or December 31, 2019.

Share Repurchase Program

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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

For the first three quarters of 2020 769,935 82 106.60

As of September 30, 2020 17,188,885 $ 1,340 $ 77.95

On July 30, 2019, our Board of Directors authorized the extension of the duration of our existing share repurchase program to December 31, 2020, as well as the repurchase of up to 4.5 million additional shares of our common stock.

As of June 30, 2020, our Board of Directors had authorized the repurchase of an aggregate of up to 19.4 million shares of our common stock under the share repurchase program since the initiation of the program in October 2013.

As of September 30, 2020, our Board of Directors had authorized the repurchase of an aggregate of up to 19.4 million shares of our common stock under the share repurchase program since the initiation of the program in October 2013.

Share repurchases may be made through open market purchases, privately negotiated transactions, block transactions, tender offers, accelerated share repurchase agreements or otherwise.

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In connection with the repurchase program, we are authorized to adopt one or more trading plans pursuant to the provisions of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.

As of June 30, 2020, 1.9 million shares remained available for repurchase under the authorization approved by our Board of Directors.

As of September 30, 2020, 1.9 million shares remained available for repurchase under the authorization approved by our Board of Directors.

The authorization for the share repurchase program may be suspended, terminated, increased or decreased by our Board of Directors at any time without prior notice.

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Any future share repurchases will be subject to the restrictions imposed under the Waiver.

We declared cash dividends to holders of common stock during the first half of 2020 as follows:

We declared cash dividends to holders of common stock during the first three quarters of 2020 as follows:

Declaration Date Shareholder Record Date Distribution Date Dividend per Share

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Noncontrolling interests represents the portion of the property owners’ associations related to individual or third-party vacation ownership interest owners.

Noncontrolling interests of $ 21 million and $ 12 million, as of June 30, 2020 and December 31, 2019, respectively, are included on our Balance Sheets as a component of equity.

Noncontrolling interests of $ 25 million and $ 12 million, as of September 30, 2020 and December 31, 2019, respectively, are included on our Balance Sheets as a component of equity.

SHARE-BASED COMPENSATION

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A total of 1.8 million shares are authorized for issuance pursuant to grants under the MVW Equity Plan.

As of June 30, 2020, approximately 1.8 million shares were available for grants under the MVW Equity Plan.

As of September 30, 2020, approximately 1.8 million shares were available for grants under the MVW Equity Plan.

The following table details our share-based compensation expense related to award grants to our officers, directors, and employees:

Three Months Ended Six Months Ended

($ in millions) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Three Months Ended Nine Months Ended

($ in millions) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Service-based RSUs $ 5 $ 4 $ 16 $ 13

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The following table details our deferred compensation costs related to unvested awards:

($ in millions) At June 30, 2020 At December 31, 2019

($ in millions) At September 30, 2020 At December 31, 2019

Service-based RSUs $ 23 $ 17

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Restricted Stock Units

We granted 268,192 service-based RSUs, which are subject to time-based vesting conditions, with a weighted average grant-date fair value of $ 90.12 , to our employees and non-employee directors during the first half of 2020.

During the first half of 2020, we also granted performance-based RSUs, which are subject to performance-based vesting conditions, to members of management.

A maximum of 177,208 RSUs may be earned under the performance-based RSU awards granted during the first half of 2020.

We granted 268,652 service-based RSUs, which are subject to time-based vesting conditions, with a weighted average grant-date fair value of $ 90.11 , to our employees and non-employee directors during the first three quarters of 2020.

During the first three quarters of 2020, we also granted performance-based RSUs, which are subject to performance-based vesting conditions, to members of management.

A maximum of 177,208 RSUs may be earned under the performance-based RSU awards granted during the first three quarters of 2020.

Stock Appreciation Rights

We granted 116,434 SARs, with a weighted average grant-date fair value of $ 29.63 and a weighted average exercise price of $ 96.82 , to members of management during the first half of 2020.

We granted 116,434 SARs, with a weighted average grant-date fair value of $ 29.63 and a weighted average exercise price of $ 96.82 , to members of management during the first three quarters of 2020.

We use the Black-Scholes model to estimate the fair value of the SARs granted.

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The dividend yield assumption listed below is based on the expectation of future payouts.

The following table outlines the assumptions used to estimate the fair value of grants during the first half of 2020:

The following table outlines the assumptions used to estimate the fair value of grants during the first three quarters of 2020:

Expected volatility 38.81 %

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As these vacation ownership notes receivable securitizations are similar in nature to the Legacy-MVW vacation ownership notes receivable securitizations, they have been aggregated for disclosure purposes.

The following table shows consolidated assets, which are collateral for the obligations of these VIEs, and consolidated liabilities included on our Balance Sheet at June 30, 2020:

The following table shows consolidated assets, which are collateral for the obligations of these VIEs, and consolidated liabilities included on our Balance Sheet at September 30, 2020:

($ in millions) Vacation Ownership

11 unchanged sentences

Total $ 1,771 $ — $ 1,771

The following table shows the interest income and expense recognized as a result of our involvement with these VIEs during the second quarter of 2020:

The following table shows the interest income and expense recognized as a result of our involvement with these VIEs during the third quarter of 2020:

($ in millions) Vacation Ownership

5 unchanged sentences

Debt issuance cost amortization $ 1 $ 1 $ 2

The following table shows the interest income and expense recognized as a result of our involvement with these VIEs during the first half of 2020:

Administrative expenses $ 1 $ — $ 1

The following table shows the interest income and expense recognized as a result of our involvement with these VIEs during the first three quarters of 2020:

($ in millions) Vacation Ownership

7 unchanged sentences

The following table shows cash flows between us and the vacation ownership notes receivable securitization VIEs:

Six Months Ended

($ in millions) June 30, 2020 June 30, 2019

Nine Months Ended

($ in millions) September 30, 2020 September 30, 2019

Net proceeds from vacation ownership notes receivable securitizations $ 371 $ 445

6 unchanged sentences

Voluntary repurchases of defaulted vacation ownership notes receivable ( 69 ) ( 35 )

Voluntary clean-up call ( 18 ) ( 19 )

Interest to investors ( 37 ) ( 36 )

5 unchanged sentences

The following table shows cash flows between us and the Warehouse Credit Facility VIE:

Six Months Ended

($ in millions) June 30, 2020 June 30, 2019

Nine Months Ended

($ in millions) September 30, 2020 September 30, 2019

Proceeds from vacation ownership notes receivable securitizations $ 315 $ 181

17 unchanged sentences

Accordingly, we have not consolidated the VIE.

As of June 30, 2020, our Balance Sheet reflected $ 2 million in Accounts Receivable, including a note receivable of less than $ 1 million, and $ 5 million in Other assets for a deposit related to the acquisition of a portion of this property.

We believe that our maximum exposure to loss as a result of our involvement with this VIE is approximately $ 7 million as of June 30, 2020.

As of September 30, 2020, our Balance Sheet reflected $ 2 million in Accounts Receivable, including a note receivable of less than $ 1 million, and $ 5 million in Other assets for a deposit related to the acquisition of a portion of this property.

We believe that our maximum exposure to loss as a result of our involvement with this VIE is approximately $ 7 million as of September 30, 2020.

We have a commitment to purchase an operating property located in New York, New York, that we currently manage as Marriott Vacation Club Pulse, New York City.

3 unchanged sentences

Accordingly, we have not consolidated the VIE.

As of June 30, 2020, our Balance Sheet reflected $ 22 million in Other assets for a deposit related to the acquisition of a portion of this property, and a note receivable of less than $ 1 million that is included in the Accounts receivable line.

We believe that our maximum exposure to loss as a result of our involvement with this VIE is approximately $ 23 million as of June 30, 2020.

As of September 30, 2020, our Balance Sheet reflected $ 22 million in Other assets for a deposit related to the acquisition of a portion of this property, and a note receivable of less than $ 1 million that is included in the Accounts receivable line.

We believe that our maximum exposure to loss as a result of our involvement with this VIE is approximately $ 23 million as of September 30, 2020.

We have a commitment to purchase a property located in Waikiki, Hawaii.

3 unchanged sentences

Accordingly, we have not consolidated the VIE.

As of June 30, 2020, our Balance Sheet reflected $ 1 million in Accounts Receivable, including a note receivable of less than $ 1 million.

We believe that our maximum exposure to loss as a result of our involvement with this VIE is less than $ 1 million as of June 30, 2020.

As of September 30, 2020, our Balance Sheet reflected $ 1 million in Accounts Receivable, including a note receivable of less than $ 1 million.

We believe that our maximum exposure to loss as a result of our involvement with this VIE is less than $ 1 million as of September 30, 2020.

Deferred Compensation Plan

2 unchanged sentences

We are considered the primary beneficiary of the rabbi trust because we direct the activities of the trust and are the beneficiary of the trust.

At June 30, 2020, the value of the assets held in the rabbi trust was $ 42 million, which is included in the Other line within assets on our Balance Sheets.

At September 30, 2020, the value of the assets held in the rabbi trust was $ 45 million, which is included in the Other line within assets on our Balance Sheets.

BUSINESS SEGMENTS

22 unchanged sentences

Our reconciliation of the aggregate amount of Adjusted EBITDA for our reportable segments to consolidated net (loss) income attributable to common shareholders is presented below.

Three Months Ended Six Months Ended

($ in millions) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Three Months Ended Nine Months Ended

($ in millions) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Vacation Ownership $ 571 $ 940 $ 1,884 $ 2,769

4 unchanged sentences

Adjusted EBITDA and Reconciliation to Net (Loss) Income Attributable to Common Shareholders

Three Months Ended Six Months Ended

($ in millions) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Three Months Ended Nine Months Ended

($ in millions) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Adjusted EBITDA Vacation Ownership $ 28 $ 195 $ 156 $ 570

8 unchanged sentences

Net (loss) income attributable to common shareholders $ ( 62 ) $ ( 9 ) $ ( 238 ) $ 64

($ in millions) At June 30, 2020 At December 31, 2019

($ in millions) At September 30, 2020 At December 31, 2019

Vacation Ownership $ 6,936 $ 7,345

3 unchanged sentences

$ 9,011 $ 9,214

We conduct business globally, and our operations outside the United States represented approximately 7 percent and 11 percent of our revenues, excluding cost reimbursements, for the three months ended June 30, 2020 and June 30, 2019, respectively, and 11 percent of our revenues, excluding cost reimbursements, for both the six months ended June 30, 2020 and June 30, 2019.

We conduct business globally, and our operations outside the United States represented approximately 8 percent and 12 percent of our revenues, excluding cost reimbursements, for the three months ended September 30, 2020 and September 30, 2019, respectively, and 10 percent and 11 percent of our revenues, excluding cost reimbursements, for the nine months ended September 30, 2020 and September 30, 2019, respectively.

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

What changed 10-Q

Item 1. Financial Statements