What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-01 compared with 2020-03-02 · 836 added, 798 removed, 1191 unchanged (58% of the section changed)

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Summary of Significant Accounting Policies

Restructuring Charges

Acquisitions and Dispositions

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Property and Equipment

Goodwill and Intangibles

Contingencies and Commitments

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Subsequent Events

Supplemental Guarantor Information

MANAGEMENT’S REPORT ON

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In our opinion, Marriott Vacations Worldwide Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the accompanying consolidated balance sheets of the Company as of December 31, 2019 and December 31, 2018 , the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three fiscal years in the period ended December 31, 2019 , and the related notes and our report dated March 2, 2020 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the accompanying consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and our report dated March 1, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Marriott Vacations Worldwide Corporation (the Company) as of December 31, 2019 and December 31, 2018 , the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three fiscal years in the period ended December 31, 2019 and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and December 31, 2018 , and the results of its operations and its cash flows for each of the three fiscal years in the period ended December 31, 2019 , in conformity with U.S.

We have audited the accompanying consolidated balance sheets of Marriott Vacations Worldwide Corporation (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2020 and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S.

generally accepted accounting principles.

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

Valuation of Goodwill assigned to Exchange & Third-Party Management Reporting Unit

Description of the Matter

At December 31, 2019, the Company’s goodwill assigned to the Exchange & Third-Party Management reporting unit was $447 million.

As discussed in Note 2 to the consolidated financial statements, goodwill is tested for impairment at least annually at the reporting unit level.

Auditing management’s annual goodwill impairment test for the Exchange & Third-Party Management reporting unit was complex and highly judgmental due to the significant estimation required to determine the fair value of the reporting unit.

In particular, the fair value estimate was sensitive to changes in significant assumptions, which include projections of revenues, expenses, expected future investments and the discount rate.

Valuation of Goodwill and Other Indefinite-Lived Intangible Assets

Description of the Matter At December 31, 2020, the Company’s goodwill and other indefinite-lived intangible assets were $2,817 million and $64 million, respectively.

For the year ended December 31, 2020, the Company recorded impairment charges of $73 million and $18 million for goodwill and other indefinite-lived intangible assets, respectively.

As discussed in Note 2 to the consolidated financial statements, goodwill and other indefinite-lived intangible assets are tested for impairment at least annually, or more frequently if events or circumstances indicate a possible impairment.

The Company’s goodwill is tested for impairment at the reporting unit level, and other indefinite-lived intangibles, which include trade names and trademarks, are each tested for impairment at the asset level.

Valuation of Goodwill and Other Indefinite-Lived Intangible Assets

Auditing the Company’s goodwill and certain other indefinite-lived intangible assets impairment tests was complex and highly judgmental due to the significant estimation required to determine the fair value of the reporting units and trade names and trademarks.

In particular, the fair value estimates for the reporting units were sensitive to changes in significant assumptions, which include projections of revenues, expenses, expected future investments and estimated discount rates, while the fair value of the other indefinite-lived intangibles were sensitive to projections of revenues, the estimated discount rate and royalty rate.

These significant assumptions are affected by expectations about future industry performance and market and economic conditions.

Valuation of Goodwill assigned to Exchange & Third-Party Management Reporting Unit

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment review process, including controls over management’s review of the significant assumptions described above.

To test the estimated fair value of the reporting unit, we performed audit procedures that included, among others, assessing the methodologies utilized by the Company and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis.

We assessed the historical accuracy of management’s estimates, compared the significant assumptions used by the Company to historical operating results and cash flows as well as current industry and economic trends and evaluated whether changes in the Company’s business model and other factors would materially affect the significant assumptions.

We also performed sensitivity analyses on the significant assumptions to evaluate the changes in the fair value of the reporting unit that would result from changes in the assumptions.

We involved our valuation specialists to assist in the evaluation of the Company’s methodologies and certain significant assumptions, such as the projections of revenue and the discount rate.

Currently, the development of such projections and assumptions involves increased judgment due to the continued effects of the COVID pandemic on the global economy.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill and other indefinite-lived intangible assets impairment review process, including controls over management’s review of the significant assumptions described above.

To test the estimated fair value of the reporting units and other indefinite-lived intangible assets, we performed audit procedures that included, among others, assessing the methodologies used and testing the significant assumptions discussed above and the underlying data used by the Company in its analyses.

We assessed the historical accuracy of the Company’s estimates, compared the significant assumptions used by the Company to historical operating results and cash flows as well as current industry and economic trends and evaluated whether changes in the Company’s business model and other factors would materially affect the significant assumptions.

We also performed sensitivity analyses on certain significant assumptions to evaluate the changes in the fair value of the reporting units and other indefinite-lived intangible assets that would result from changes in the assumptions.

We involved our valuation specialists to assist in the evaluation of the Company’s methodologies and certain significant assumptions, such as the projections of revenue, discount rates and royalty rate.

Cost of Vacation Ownership Products

Description of the Matter

The Company’s cost of vacation ownership products was $356 million for the year ended December 31, 2019.

Description of the Matter The Company’s cost of vacation ownership products was $150 million for the year ended December 31, 2020.

As discussed in Note 2 to the consolidated financial statements, the Company accounts for the cost of vacation ownership products utilizing the relative sales value method in accordance with the authoritative guidance for accounting for real estate time-sharing transactions.

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Additionally, the determination of the cost of vacation ownership products was sensitive to certain estimates, such as estimated future revenue from sale of vacation ownership products, which are affected by expectations about future market and economic conditions.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process to determine the cost of vacation ownership products.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process to determine the cost of vacation ownership products.

For example, we tested controls over management’s review of the calculations, including the inputs and certain estimates, such as estimated future revenue from sale of vacation ownership products.

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Valuation of Originated and Acquired Vacation Ownership Notes Receivable

Description of the Matter

As of December 31, 2019, the Company’s vacation ownership notes receivable was $2,233 million of which $1,794 million related to originated vacation ownership notes receivable and $439 million related to acquired vacation ownership notes receivable.

As discussed in Note 2 to the consolidated financial statements, for originated notes the Company records the difference between the vacation ownership note receivable and variable consideration included in the transaction price for the sale of the related vacation ownership products as a reserve on the Company’s vacation ownership notes receivable.

The estimates of the variable consideration are based on default rates that are an output of the Company’s static pool analyses.

The Company’s acquired vacation ownership notes receivable are accounted for using the expected cash flow method of recognizing discount accretion (interest income) based on the expected cash flows from the acquired vacation ownership notes receivable which consider certain assumptions, including default rates.

The cash flows from the acquired vacation ownership notes receivable are remeasured at each reporting period with corresponding adjustments made to the interest income expected to be earned in the future.

Auditing the Company’s valuation of originated and acquired vacation ownership notes receivable was challenging due to the nature and extent of audit effort required as the static pool analyses are complex and contain a significant volume of data.

Furthermore, the valuation of originated and acquired vacation ownership notes receivable was sensitive to assumptions about future market and economic conditions which are used to determine the default rates.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s vacation ownership notes receivable process.

For example, we tested controls over management’s review of the static pool analyses, including the significant inputs to the analysis and evaluation of the resulting default rates.

To test the valuation of originated and acquired vacation ownership notes receivable, we performed audit procedures that included, among others, assessing the methodologies used, evaluating the significant assumptions discussed above and testing the completeness and accuracy of the data used by the Company in its analysis.

For example, we compared inputs to the static pool analysis to historical data and we compared the default rates from the static pool analyses to the Company’s historical and current default rates by customer class.

We involved real estate subject matter resources on our team because the static pool analyses are unique to companies in the real estate time-sharing industry.

Description of the Matter As of December 31, 2020, the Company’s vacation ownership notes receivable was $1,840 million of which $1,531 million related to originated vacation ownership notes receivable and $309 million related to acquired vacation ownership notes receivable.

As discussed in Note 2 to the consolidated financial statements, for originated notes, the Company records the difference between the vacation ownership note receivable and variable consideration included in the transaction price for the sale of the related vacation ownership products as a reserve on the Company’s originated vacation ownership notes receivable.

The Company’s acquired vacation ownership notes receivable are accounted for using the purchased credit deteriorated assets provision of the current expected credit loss model, whereby the Company estimates the reserve of its acquired vacation ownership receivables on a quarterly basis and any changes in the reserve are recorded as financing expense.

The estimates of the variable consideration for originated vacation ownership notes receivable and the reserve for credit losses on the acquired vacation ownership notes receivable are based on default rates that are an output of the Company’s static pool analyses and the estimates regarding future defaults.

Auditing the Company’s valuation of originated and acquired vacation ownership notes receivable was challenging because management’s assumptions regarding future defaults are highly subjective and requires significant judgment.

Furthermore, significant audit effort is required as the static pool analyses are complex and contain a significant volume of data.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s vacation ownership notes receivable process.

For example, we tested controls over management’s review of the assumptions regarding future defaults and review of the static pool analyses, including the significant inputs to the analyses.

To test the valuation of originated and acquired vacation ownership notes receivable , we performed audit procedures that included, among others, assessing the methodologies used, evaluating the assumptions regarding future defaults as discussed above, and testing the completeness and accuracy of the static pool analyses, including the significant inputs to the analyses.

For example, w e compared the assumptions regarding future defaults to recent trends in performance of the Company’s originated and acquired vacation ownership notes receivables and performed sensitivity analyses on the assumptions.

We also compared inputs to the static pool analysis to historical data.

We involved real estate subject matter resources on our team because of the significant judgment involved in auditing the future defaults assumptions and the static pool analyses are unique to companies in the real estate time-sharing industry.

/s/ Ernst & Young LLP

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(In millions, except per share amounts)

2020 2019 2018

Sale of vacation ownership products $ 546 $ 1,354 $ 990

Management and exchange 755 949 499

Rental 276 573 371

Financing 267 275 183

Cost reimbursements 1,042 1,108 925

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Management and exchange 442 547 259

Rental 321 357 281

Financing 107 91 65

General and administrative 154 248 198

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Litigation charges 6 7 46

Restructuring 25 — —

Royalty fee 95 106 78

Impairment 100 99 —

Cost reimbursements 1,042 1,108 925

TOTAL EXPENSES 2,984 3,801 2,701

Gains and other income, net

(Losses) gains and other (expense) income, net ( 26 ) 16 21

Interest expense ( 150 ) ( 132 ) ( 54 )

ILG acquisition-related costs ( 62 ) ( 118 ) ( 127 )

INCOME BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS

Provision for income taxes

Other ( 4 ) 1 ( 4 )

(LOSS) INCOME BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS ( 340 ) 225 103

Benefit (provision) for income taxes 84 ( 83 ) ( 51 )

NET (LOSS) INCOME ( 256 ) 142 52

Net (income) loss attributable to noncontrolling interests ( 19 ) ( 4 ) 3

NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS

EARNINGS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS

NET (LOSS) INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS $ ( 275 ) $ 138 $ 55

(LOSS) EARNINGS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS

Basic $ ( 6.65 ) $ 3.13 $ 1.64

Diluted $ ( 6.65 ) $ 3.09 $ 1.61

CASH DIVIDENDS DECLARED PER SHARE $ 0.54 $ 1.89 $ 1.65

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(In millions)

2020 2019 2018

NET (LOSS) INCOME $ ( 256 ) $ 142 $ 52

Foreign currency translation adjustments 6 ( 27 ) ( 5 )

Derivative instrument adjustment, net of tax ( 18 ) ( 15 ) ( 6 )

OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX

OTHER COMPREHENSIVE LOSS, NET OF TAX ( 12 ) ( 42 ) ( 11 )

Net (income) loss attributable to noncontrolling interests ( 19 ) ( 4 ) 3

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COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS ( 19 ) ( 4 ) 3

COMPREHENSIVE INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS

COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS $ ( 287 ) $ 96 $ 44

See Notes to Consolidated Financial Statements

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Vacation ownership notes receivable, net (including $ 1,493 and $ 1,750 from VIEs, respectively)

Property and equipment

Inventory 759 859

Property and equipment, net 791 718

Goodwill 2,817 2,892

Intangibles, net 952 1,027

Other (including $ 54 and $ 39 from VIEs, respectively)

TOTAL ASSETS $ 8,898 $ 9,214

LIABILITIES AND EQUITY

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Securitized debt, net (including $ 1,604 and $ 1,871 from VIEs, respectively)

Debt, net 2,680 2,216

Other 197 197

Deferred taxes 274 300

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34,184,813 and 33,438,176 shares, respectively

( 1,334 ) ( 1,253 )

Additional paid-in capital 3,760 3,738

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Noncontrolling interests 31 12

TOTAL EQUITY 2,682 3,031

TOTAL LIABILITIES AND EQUITY $ 8,898 $ 9,214

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(In millions)

2020 2019 2018

OPERATING ACTIVITIES

Adjustments to reconcile net income to net cash, cash equivalents and restricted cash provided by operating activities:

Net (loss) income $ ( 256 ) $ 142 $ 52

Adjustments to reconcile net (loss) income to net cash, cash equivalents, and restricted cash provided by operating activities:

Depreciation and amortization of intangibles 123 141 62

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Vacation ownership notes receivable collections 620 493 386

Inventory 18 65 9

Purchase of vacation ownership units for future transfer to inventory ( 61 ) ( 20 ) —

Other assets 44 37 21

Accounts payable, advance deposits and accrued liabilities ( 146 ) 17 21

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Other liabilities — 23 —

Other, net — ( 21 ) 4

Net cash, cash equivalents, and restricted cash provided by operating activities 299 382 97

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Dispositions, net 15 51 —

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

Net cash, cash equivalents, and restricted cash (used in) provided by investing activities ( 32 ) 37 ( 1,407 )

See Notes to Consolidated Financial Statements

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(In millions)

2020 2019 2018

FINANCING ACTIVITIES

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Finance lease payment ( 11 ) ( 12 ) —

Purchase of convertible note hedges

Proceeds from issuance of warrants

Debt issuance costs ( 14 ) ( 20 ) ( 34 )

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Payment of withholding taxes on vesting of restricted stock units ( 16 ) ( 15 ) ( 18 )

Net cash, cash equivalents and restricted cash (used in) provided by financing activities

Other, net — 1 —

Net cash, cash equivalents, and restricted cash provided by (used in) by financing activities 23 ( 331 ) 1,433

Effect of changes in exchange rates on cash, cash equivalents, and restricted cash 1 ( 1 ) —

Change in cash, cash equivalents, and restricted cash 291 87 123

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Cash, cash equivalents, and restricted cash, beginning of year 701 614 491

Cash, cash equivalents, and restricted cash, end of year $ 992 $ 701 $ 614

SUPPLEMENTAL DISCLOSURES

Dividends payable $ — $ 23 $ 21

Non-cash issuance of debt in connection with acquisition of vacation ownership units

Non-cash issuance of note receivable in connection with disposition to noncontrolling interest — — 23

Non-cash issuance of stock in connection with ILG Acquisition — — 2,505

Non-cash transfer from inventory to property and equipment 74 — —

Non-cash transfer from property and equipment to inventory — 71 —

Non-cash issuance of treasury stock for employee purchase plan

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

Property acquired via capital lease — — 9

SUPPLEMENTAL DISCLOSURES

Interest paid, net of amounts capitalized 176 167 55

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(In millions)

Common Stock Issued

Treasury Stock

Additional Paid-In Capital

Accumulated Other Comprehensive Income

Retained Earnings

Total MVW Shareholders' Equity

Noncontrolling Interests

BALANCE AT YEAR-END 2016

Foreign currency translation adjustments

Amounts related to share-based compensation

Repurchase of common stock

Equity component of convertible notes, net of issuance costs

Purchase of convertible note hedges

Issuance of warrants

Employee stock plan issuance

Common Stock Issued Common Stock Treasury Stock Additional Paid-In Capital Accumulated Other Comprehensive Income Retained Earnings Total MVW Shareholders' Equity Noncontrolling Interests Total Equity

36.9 BALANCE AT YEAR-END 2017 $ — $ ( 694 ) $ 1,189 $ 17 $ 529 $ 1,041 $ — $ 1,041

— Net income (loss) — — — — 55 55 ( 3 ) 52

20.5 ILG Acquisition 1 — 2,408 — — 2,409 29 2,438

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— Repurchase of common stock — ( 96 ) — — — ( 96 ) — ( 96 )

— Dividends — — — — ( 61 ) ( 61 ) — ( 61 )

57.6 BALANCE AT YEAR-END 2018 $ 1 $ ( 790 ) $ 3,721 $ 6 $ 523 $ 3,461 $ 5 $ 3,466

— Impact of adoption of ASU 2016-02

— — — — ( 8 ) ( 8 ) — ( 8 )

57.6 OPENING BALANCE 2019 $ 1 $ ( 790 ) $ 3,721 $ 6 $ 515 $ 3,453 $ 5 $ 3,458

— Net income — — — — 138 138 4 142

— ILG Acquisition purchase accounting adjustment — — — — — — 3 3

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— Repurchase of common stock — ( 465 ) — — — ( 465 ) — ( 465 )

— Dividends — — — — ( 84 ) ( 84 ) — ( 84 )

17.1 Tax restructuring transaction — — — — — — — —

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75.0 BALANCE AT YEAR-END 2019 $ 1 $ ( 1,253 ) $ 3,738 $ ( 36 ) $ 569 $ 3,019 $ 12 $ 3,031

— Net (loss) income — — — — ( 275 ) ( 275 ) 19 ( 256 )

— Foreign currency translation adjustments — — — 6 — 6 — 6

— Derivative instrument adjustment — — — ( 18 ) — ( 18 ) — ( 18 )

0.3 Amounts related to share-based compensation — — 21 — — 21 — 21

— Repurchase of common stock — ( 82 ) — — — ( 82 ) — ( 82 )

— Dividends — — — — ( 22 ) ( 22 ) — ( 22 )

— Employee stock plan issuance — 1 1 — — 2 — 2

75.3 BALANCE AT YEAR-END 2020 $ 1 $ ( 1,334 ) $ 3,760 $ ( 48 ) $ 272 $ 2,651 $ 31 $ 2,682

See Notes to Consolidated Financial Statements

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The consolidated financial statements present the results of operations, financial position and cash flows of Marriott Vacations Worldwide Corporation (referred to in this report as (i) “we,” “us,” “Marriott Vacations Worldwide,” “MVW,” or “the Company,” which includes our consolidated subsidiaries except where the context of the reference is to a single corporate entity, or (ii) “MVWC,” which shall refer only to Marriott Vacations Worldwide Corporation, without its consolidated subsidiaries).

In order to make this report easier to read, we refer throughout to (i) our Consolidated Financial Statements as our “Financial Statements,” (ii) our Consolidated Statements of Income as our “Income Statements,” (iii) our Consolidated Balance Sheets as our “Balance Sheets,” and (iv) our Consolidated Statements of Cash Flows as our “Cash Flows.” In addition, references throughout to numbered “Footnotes” refer to the numbered Notes in these Notes to Consolidated Financial Statements, unless otherwise noted.

In order to make this report easier to read, we refer throughout to (i) our Consolidated Financial Statements as our “Financial Statements,” (ii) our Consolidated Statements of Income as our “Income Statements,” (iii) our Consolidated Balance Sheets as our “Balance Sheets,” and (iv) our Consolidated Statements of Cash Flows as our “Cash Flows.” References throughout to numbered “Footnotes” refer to the numbered Notes in these Notes to Consolidated Financial Statements, unless otherwise noted.

We also refer to Marriott International, Inc.

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The Financial Statements presented herein and discussed below include 100 percent of the assets, liabilities, revenues, expenses, and cash flows of Marriott Vacations Worldwide, all entities in which Marriott Vacations Worldwide has a controlling voting interest (“subsidiaries”), and those variable interest entities (“VIEs”) for which Marriott Vacations Worldwide is the primary beneficiary in accordance with consolidation accounting guidance.

References in these Financial Statements to net income attributable to common shareholders and MVW shareholders’ equity do not include noncontrolling interests, which represent the outside ownership of our consolidated non-wholly owned entities and are reported separately.

References in these Financial Statements to net (loss) income attributable to common shareholders and MVW shareholders’ equity do not include noncontrolling interests, which represent the outside ownership of our consolidated non-wholly owned entities and are reported separately.

Intercompany accounts and transactions between consolidated entities have been eliminated in consolidation.

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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.

Accordingly, actual amounts may differ from these estimated amounts.

Unless otherwise specified, each reference to a particular year in these Financial Statements means the fiscal year ended on the date shown in the following table, rather than the corresponding calendar year.

Beginning with our 2017 fiscal year, we changed our financial reporting cycle to a calendar year-end and end-of-month quarterly reporting cycle.

Fiscal Year-End Date

Number of Days

December 31, 2019

December 31, 2018

December 31, 2017

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

Accordingly, ultimate results could differ from these estimated amounts.

We have reclassified certain prior year amounts to conform with our current year presentation.

COVID-19 Pandemic Update

In March 2020, the World Health Organization declared the coronavirus (COVID-19) outbreak a global pandemic (“COVID-19,” “the COVID-19 pandemic,” “the pandemic,” or “the virus”), and since then the world has been, and continues to be, impacted by this virus.

National, federal, state, and local governments have since implemented various travel restrictions, border closings, restrictions on public gatherings, mandatory quarantines, shelter-in-place mandates and limitations on business operations.

The COVID-19 pandemic had a swift and unexpected adverse impact on the global economic landscape, with an especially significant adverse impact on the travel and hospitality industries.

The results of operations for 2020 include impacts related to the COVID-19 pandemic, which have been significantly adverse for our business.

The COVID-19 pandemic and measures to prevent or slow the spread of the virus impacted our businesses in a number of ways.

In our vacation ownership segment, due to low occupancy rates and based on various governmental mandates and advisories, we closed all of our sales centers and several of our resorts and reduced operations and amenities at our resorts over the course of 2020.

These actions led to a material decrease in contract sales and rental revenues from our vacation ownership business.

In our Exchange & Third-Party Management business, the closures of certain affiliated resorts and managed properties had an adverse impact on our business, and the closure of a large number of resorts, and their decision not to take reservations, during a portion of the year resulted in a decrease in management and exchange revenues.

In response to the evolving situation and in anticipation of continued possible disruptions, we took action to implement various cost saving measures and to preserve liquidity through restructuring our workforce and corporate debt.

See Footnote 3 “Restructuring Charges” for more information about the restructuring charges recorded as a result of the COVID-19 pandemic.

Also see Footnote 17 “Debt” for information on the steps taken to preserve liquidity during these uncertain times.

Acquisition of ILG

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We refer to our business associated with brands that existed prior to the ILG Acquisition as “Legacy-MVW” and to ILG’s business and brands that we acquired as “Legacy-ILG.” See Footnote 4 “Acquisitions and Dispositions” for more information on the ILG Acquisition.

Reclassifications

We have reclassified the following prior year amounts to conform to the current year presentation:

Reclassified Resort management and other services revenue to Management and exchange revenue;

Reclassified Resort management and other services expense to Management and exchange expense;

Consolidated Consumer financing interest expense into Financing expense;

Reclassified depreciation expense from Marketing and sales expense, Management and exchange expense, Rental expense, and General and administrative expense to Depreciation and amortization expense;

Reclassified $ 53 million from Accrued liabilities to Accounts payable;

Reclassified $ 58 million from Accrued liabilities to Advance deposits;

Reclassified $ 64 million from Accrued liabilities to Deferred revenue;

Reclassified $ 2 million from Accrued liabilities to Payroll and benefits liability;

Reclassified $ 3 million from Payroll and benefits liability to Accounts payable;

Reclassified $ 20 million of other debt from Debt, net to Securitized debt, net.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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Revisions to estimates of variable consideration from the sale of vacation ownership products impact the reserve on vacation ownership notes receivable and can increase or decrease revenue.

Revenues were reduced during 2019 by $ 13 million due to changes in our estimate of variable consideration for performance obligations that were satisfied in prior periods.

Revenues were reduced during 2020 by $ 79 million due to changes in our estimates of variable consideration for performance obligations that were satisfied in prior periods.

See Footnote 7 “Vacation Ownership Notes Receivable” for information on increases to our vacation ownership notes receivable reserve attributable to the COVID-19 pandemic.

In addition, we account for cash incentives provided to customers as a reduction of the transaction price.

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Membership fees and club dues are received in advance of providing access to the exchange services, are recorded as Deferred revenue on our Balance Sheets and are earned regardless of whether exchange services are provided.

Generally, Interval International memberships are cancelable and refundable on a pro-rata basis, with the exception of the Interval International network’s Platinum tier which is non-refundable.

Generally, Interval International memberships are cancellable and refundable on a pro-rata basis, with the exception of the Interval International network’s Platinum tier which is non-refundable.

Transaction-based fees are typically collected at a point in time.

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For transaction-based fees, we evaluate whether we control the underlying goods or services prior to delivery to the customer.

Transaction-based fees from exchanges and other transactions in our Exchange & Third-Party Management segment are generally recognized when confirmation of the transaction is provided and services have been

For transactions where we do not control the goods or services prior to delivery, the related revenue is recorded net of the related cost upon recognition.

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We charge marketing and sales costs we incur to sell vacation ownership products to expense when incurred.

Earnings Per Share Attributable to Common Shareholders

Basic earnings per share attributable to common shareholders is calculated by dividing the earnings available to common shareholders by the weighted average number of common shares outstanding for the period.

Diluted earnings per share attributable to common shareholders is calculated to give effect to all potentially dilutive common shares that were outstanding during the reporting period.

(Loss) Earnings Per Share Attributable to Common Shareholders

Basic (loss) earnings per share attributable to common shareholders is calculated by dividing the (loss) earnings available to common shareholders by the weighted average number of common shares outstanding for the period.

Diluted (loss) earnings per share attributable to common shareholders is calculated to give effect to all potentially dilutive common shares that were outstanding during the reporting period.

The dilutive effect of outstanding equity-based compensation awards is reflected in diluted earnings per share attributable to common shareholders by application of the treasury stock method.

Any potentially dilutive equity-based compensation awards are excluded from the calculation for periods when there is a net loss attributable to common shareholders to avoid anti-dilutive effects.

Business Combinations

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We expense acquisition-related costs as we incur them.

See Footnote 3 “ Acquisitions and Dispositions ” for additional information.

As part of our accounting for business combinations we are required to determine the useful lives of identifiable intangible assets recognized separately from goodwill.

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Unanticipated events and circumstances may occur which could affect the accuracy or validity of our assumptions, estimates or actual results.

Additionally, when acquiring a company who has recorded deferred revenue in its historical, pre-acquisition financial statements, we are required as part of purchase accounting to re-measure the deferred revenue as of the acquisition date.

Additionally, when acquiring a company that has recorded deferred revenue in its historical, pre-acquisition financial statements, we are required as part of purchase accounting to re-measure the deferred revenue as of the acquisition date.

Deferred revenue is re-measured to represent solely the cost that relates to the associated legal performance obligation which we assumed as part of the acquisition, plus a normal profit margin representing the level of effort or risk assumed.

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Fair Value Measurements

We have few financial instruments that we must measure at fair value on a recurring basis.

We have several financial instruments that we must measure at fair value on a recurring basis.

See Footnote 8 “Financial Instruments” for further information.

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Accounts Receivable

Accounts receivable are stated at amounts due from customers, principally resort developers, members and managed properties, net of an allowance for doubtful accounts.

Accounts receivable are stated at amounts due from customers, principally resort developers, members and managed properties, net of a reserve for credit losses.

Accounts receivable outstanding longer than the contractual payment terms are considered past due.

We determine our allowance for accounts receivables by considering a number of factors, including the length of time accounts receivable are past due, previous loss history, our judgment as to the specific customer’s current ability to pay its obligation and the condition of the general economy.

Our policy for determining our allowance for doubtful accounts consists of both general and specific reserves.

The general reserve methodology is distinct for each business based on its historical collection experience and past practice.

Predominantly, receivables greater than 120 days past due are

applied a general reserve factor, while receivables 180 days or more past due are fully reserved.

The determination of when to apply a specific reserve requires judgment and is directly related to the particular customer collection issue identified, such as known liquidity constraints, insolvency concerns or litigation.

We determine our credit loss reserve for accounts receivable by considering a number of factors, including the length of time accounts receivable are past due, previous loss history, our judgment as to the specific customer’s current ability to pay its obligation and the condition of the general economy.

We write off accounts receivable when they become uncollectible once we have exhausted all means of collection.

Accounts receivable is presented net of allowances of $12 million and $4 million at December 31, 2019 and December 31, 2018 , respectively.

Accounts receivable is presented net of a reserve for credit losses of $ 15 million and $ 12 million at December 31, 2020 and December 31, 2019, respectively.

Accounts receivable also includes interest receivable on vacation ownership notes receivable.

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

Acquired Vacation Ownership Notes Receivable Reserve for Credit Losses

As part of the ILG Acquisition, we acquired existing portfolios of vacation ownership notes receivable.

At acquisition, we recorded these vacation ownership notes receivable at fair value.

Upon adoption of ASU 2016-13 (as defined below) on January 1, 2020, we account for these acquired vacation ownership notes receivable using the purchased credit deteriorated assets provision of the current expected credit loss model, whereby we established a reserve for credit losses and a corresponding increase in the book value of the acquired vacation ownership notes receivable, resulting in no impact to the recorded balance.

The estimates of the reserve for credit losses on the acquired vacation ownership notes receivable are based on default rates that are an output of our static pool analyses.

Any changes in the reserve for credit losses are recorded as Financing expenses on our Income Statements.

In addition, we established 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.

For additional information on our acquired vacation ownership notes receivable, including information on the related reserves and the impact of the COVID-19 pandemic, see Footnote 7 “Vacation Ownership Notes Receivable.”

Originated Vacation Ownership Notes Receivable Reserve

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See “Financing Revenues” above for further information.

Legacy-MVW Vacation Ownership Notes Receivable

Although we consider loans to owners to be past due if we do not receive payment within 30 days of the due date, we suspend accrual of interest only on those loans that are over 90 days past due.

We consider loans over 150 days past due to be in default and fully reserve such amounts.

For Legacy-MVW vacation ownership notes receivable, we consider loans over 150 days past due to be in default and fully reserve such amounts.

For Legacy-ILG vacation ownership notes receivable we consider loans over 120 days past due to be in default and fully reserve such amounts.

We apply payments we receive for vacation ownership notes receivable on non-accrual status first to interest, then to principal and any remainder to fees.

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We do not accept payments for vacation ownership notes receivable during the foreclosure process unless the amount is sufficient to pay all past due principal, interest, fees and penalties owed and fully reinstate the note.

We write off vacation ownership notes receivable against the reserve once we receive title to the vacation ownership products through the foreclosure or deed-in-lieu process or, in Asia Pacific or Europe, when revocation is complete.

For both Legacy-MVW non-securitized and securitized vacation ownership notes receivable, we estimated average remaining default rates of 7.04 percent and 7.01 percent as of December 31, 2019 and December 31, 2018 , respectively.

A 0.5 percent age point increase in the estimated default rate would have resulted in an increase in the related vacation ownership notes receivable reserve of $ 8 million and $ 7 million as of December 31, 2019 and December 31, 2018 , respectively.

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

Legacy-ILG Vacation Ownership Notes Receivable

On an ongoing basis, we monitor the credit quality of our Legacy-ILG vacation ownership notes receivable portfolio based on payment activity as follows:

Current — The vacation ownership note receivable is in good standing as payments and reporting are current per the terms contractually stipulated in the agreement.

Delinquent — We consider a vacation ownership note receivable to be delinquent based on the contractual terms of each individual financing agreement.

Non-performing — Our vacation ownership notes receivable are generally considered non-performing if interest or principal is more than 30 days past due.

All non-performing vacation ownership notes receivable are placed on non-accrual status when they are over 90 days past due.

We resume accruing interest when vacation ownership notes receivable are less than 90 days past due.

We apply payments we receive for vacation ownership notes receivable on non-performing status first to interest, then to principal, and any remainder to fees.

We consider vacation ownership notes receivable to be in default upon reaching 120 days outstanding.

We use the origination of the vacation ownership notes receivable by brand (Westin, Sheraton, Hyatt) and the FICO scores of the customer as the primary credit quality indicators for our Legacy-ILG vacation ownership notes receivable, as historical performance indicates that there is a relationship between the default behavior of borrowers and the brand associated with the vacation ownership property they have acquired, supplemented by the FICO scores of the customers.

At December 31, 2019 and December 31, 2018 , the weighted average FICO score within our consolidated Legacy-ILG vacation ownership notes receivable pools was 712 and 710 , 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 as of December 31, 2019 and December 31, 2018 was 12.65 percent and 12.37 percent , respectively.

A 0.5 percent age 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 $ 2 million and $ 1 million as of December 31, 2019 and December 31, 2018 , respectively.

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

We write off vacation ownership notes receivable against the reserve once we receive title to the vacation ownership products through the foreclosure or deed-in-lieu process or, in certain circumstances, when revocation is complete.

For additional information on our originated vacation ownership notes receivable, including information on the related reserves and the impact of the COVID-19 pandemic, see Footnote 7 “Vacation Ownership Notes Receivable.”

Our inventory consists primarily of completed vacation ownership products and vacation ownership products under construction.

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Also, pursuant to the guidance for accounting for real estate time-sharing transactions, we do not reduce inventory for cost of vacation ownership products related to variable consideration which has not been included within the transaction price (accordingly, no adjustment is made when inventory is reacquired upon default of the related receivable).

These standards provide for changes in estimates within the relative sales value calculations to be accounted for as real estate inventory true-ups, which we refer to as product cost true-up activity, and are recorded in Cost of vacation ownership product expenses on the Income Statements to retrospectively adjust the margin previously recorded subject to those estimates.

For 2019 , 2018 and 2017 , product cost true-up activity relating to vacation ownership products increased carrying values of inventory by $ 8 million , $ 6 million and less than $ 1 million , respectively.

These standards provide for changes in estimates within the relative sales value calculations to be accounted

for as real estate inventory true-ups, which we refer to as product cost true-up activity, and are recorded in Cost of vacation ownership product expenses on the Income Statements to retrospectively adjust the margin previously recorded subject to those estimates.

For 2020, 2019 and 2018, product cost true-up activity relating to vacation ownership products increased carrying values of inventory by $ 6 million, $ 8 million and $ 6 million, respectively.

Property and Equipment

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Capitalization of internal use software costs begins when the preliminary project stage is completed, management with the relevant authority authorizes and commits to the funding of the software project, and it is probable that the project will be completed and the software will be used to perform the function intended.

We account for leases in accordance with ASC 842, as defined herein, which we adopted on January 1, 2019, using the modified retrospective method.

See “New Accounting Standards” below for further discussion of the adoption.

We account for leases in accordance with ASC Topic 842, “ Leases ” (“ASC 842”).

We determine if an arrangement is or contains a lease at contract inception.

Operating leases include lease arrangements for various land, corporate facilities, real estate and equipment.

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Other operating leases are primarily for office, off-site sales centers and retail space, as well as various equipment supporting our operations, with varying terms and renewal option periods.

Finance leases include lease arrangements for ancillary and operations space for which we have the commitment to purchase the associated operating property, including that leased space.

See Footnote 11 “ Contingencies and Commitments ” for additional information.

Finance leases include lease arrangements for ancillary and operations space.

In addition, we also lease various equipment supporting our operations and classify these leases as finance leases in accordance with ASC 842.

The depreciable life of these assets is limited to the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Right-of-use assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date.

Short-term leases, which have an initial term of a year or less, are not recorded on the balance sheet.

For purposes of calculating lease liabilities, lease terms may be deemed to include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Macro-economic conditions are the primary factor used to estimate whether an option to extend a lease term will be exercised or not.

Because the rate implicit in our leases is not readily determinable, we use our incremental borrowing rate as the discount rate, which approximates the interest rate at which we could borrow on a collateralized basis with similar terms and payments and in similar economic environments.

Right-of-use assets exclude the unamortized portion of lease incentives received.

Certain of our lease agreements include variable rental payments that are based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation.

Additionally, with respect to our real estate leases, we do not separate lease and non-lease components.

Impairment of Long-Lived Assets and Other Intangible Assets

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If the carrying value of the asset exceeds the fair value, we recognize an impairment loss in the amount of that excess.

See Footnote 3 “ Acquisitions and Dispositions ” for additional information on the impairment charge we recorded in 2019 related to our change in development strategy and Footnote 10 “ Property and Equipment ” for impairment losses we recorded associated with long-lived assets.

We had no impairment charges for other intangible assets during the year ended December 31, 2019.

We perform an annual review for the potential impairment of the carrying value of goodwill, or more frequently if events or circumstances indicate a possible impairment.

We recorded $ 3 million of impairment charges for property and equipment during 2020.

See Footnote 13 “Intangible Assets” for additional information on our intangibles, including the impairment charges recorded during the year ended December 31, 2020.

We perform an annual review for the potential impairment of the carrying value of goodwill in the fourth quarter, or more frequently if events or circumstances indicate a possible impairment.

For purposes of evaluating goodwill for impairment, we have two reporting units, which are also our reportable operating segments.

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We base these assumptions on our historical data and experience, third-party appraisals, industry projections, micro and macro general economic condition projections, and our expectations.

We performed our annual goodwill impairment test as of October 1, 2019 and determined that the qualitative assessment was not conclusive for the Exchange & Third-Party Management reporting unit, and as such we performed a quantitative impairment analysis on this reporting unit, which indicated that the carrying value of the Exchange and Third-Party reporting unit did not exceed the estimated fair value.

We had no goodwill impairment charges during the year ended December 31, 2019 .

See Footnote 12 “Goodwill” for additional information on our goodwill, including the impairment charges recorded during the year ended December 31, 2020.

Convertible Senior Notes

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Share-Based Compensation Costs

We established the Marriott Vacations Worldwide Corporation Stock and Cash Incentive Plan (the “MVW Stock Plan”) in order to compensate our employees and directors by granting them equity awards such as restricted stock units (“RSUs”), stock appreciation rights (“SARs”) and stock options.

During the second quarter of 2020, our shareholders approved the Marriott Vacations Worldwide Corporation 2020 Equity Incentive Plan (the “MVW Equity Plan”), which supersedes both the Marriott Vacations Worldwide Corporation Stock and Cash Incentive Plan and the Interval Leisure Group, Inc.

2013 Stock and Incentive Plan (collectively, the “Prior Plans”).

No new awards will be granted under the Prior Plans and all awards that were granted under the Prior Plans will remain outstanding and continue to be governed by the Prior Plans.

The MVW Equity Plan was established in order to compensate our employees and directors by granting them equity awards such as restricted stock units (“RSUs”), stock appreciation rights (“SARs”) and stock options.

We follow the provisions of ASC Topic 718, “ Compensation—Stock Compensation, ” which requires that a company measure the expense of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.

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For share-based awards with service-only vesting conditions, we record compensation expense on a straight-line basis over the requisite service period.

For RSUs with performance vesting conditions, the number of RSUs earned, if any, is determined following the end of a three -year performance period based upon the cumulative achievement over that period of specific quantitative operating financial measures and we recognize compensation expense once it is probable that the corresponding performance condition will be achieved.

SARs awarded under the Stock Plan are granted at exercise prices or strike prices equal to the market price of our common stock on the date of grant (this price is referred to as the “base value”).

SARs generally expire ten years after the date of grant and both vest and become exercisable in cumulative installments of one quarter of the grant at the end of each of the first four years following the date of grant.

For RSUs with performance vesting conditions, the number of RSUs earned, if any, is determined following the end of a performance period (typically three years) based upon the cumulative achievement over that period of specific quantitative operating financial measures and we recognize compensation expense once it is probable that the corresponding performance condition will be achieved.

SARs awarded under the MVW Equity Plan are granted at exercise prices or strike prices equal to the market price of our common stock on the date of grant (this price is referred to as the “base value”).

SARs generally expire ten years after the date of grant and both vest and become exercisable in cumulative installments of one quarter of the grant at the end of each of

the first four years following the date of grant.

Upon exercise of SARs, our employees and non-employee directors receive a number of shares of our common stock equal to the number of SARs being exercised, multiplied by the quotient of (a) the market price of the common stock on the date of exercise (this price is referred to as the “final value”) minus the base value, divided by (b) the final value.

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For share-based awards granted to non-employee directors, we recognize compensation expense on the grant date based on the fair value of the awards as of that date.

See Footnote 16 “ Share-Based Compensation ” for more information, including information on the Legacy-ILG stock and incentive plan that was assumed as part of the ILG Acquisition.

Also, see Footnote 16 “ Share-Based Compensation ” for information on the ILG share-based awards converted into MVW share-based awards as part of the ILG Acquisition, which are accounted for in the same manner as awards issued under the MVW Stock Plan as discussed above.

See Footnote 19 “Share-Based Compensation” for more information on the MVW Equity Plan.

dollar is the functional currency of our consolidated entities operating in the United States.

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We report gains and losses from currency exchange rate changes related to intercompany receivables and payables that are not of a long-term investment nature, as well as gains and losses from non-U.S.

currency transactions, currently in operating costs and expenses.

currency transactions, in the (Losses) gains and other (expense) income, net line on our Income Statements.

We file income tax returns, including with respect to our subsidiaries, in various jurisdictions around the world.

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We record a valuation allowance on deferred taxes if we determine it is more likely than not that we will not fully realize the future benefit of deferred tax assets.

In making such a determination, we consider all available positive and negative

evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.

In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.

In the event we determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which impacts the provision for income taxes.

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New Accounting Standards

Accounting Standards Update 2017-12 – “ Derivatives and Hedging (Topic 815):

Targeted Improvements to Accounting for Hedging Activities ” (“ASU 2017-12”)

In the first quarter of 2019, we adopted Accounting Standards Update (“ASU”) 2017-12, which eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item.

Our adoption of ASU 2017-12 did not have a material impact on our Financial Statements or disclosures.

Accounting Standards Update 2016-02 – “ Leases (Topic 842) ” (“ASU 2016-02”)

In the first quarter of 2019, we adopted ASU 2016-02, as amended, using the modified retrospective method.

Accordingly, previously reported financial information has not been restated to reflect the application of the new standard to comparative periods presented.

As permitted by the amended guidance, we elected to adopt the package of practical expedients and therefore, we did not reassess:

(i) whether any existing or expired contracts are or contain leases under the new definition;

(ii) the lease classification of any such leases;

or (iii) the initial direct costs of any such leases.

We did not utilize the practical expedient which allows the use of hindsight by lessees and lessors in determining the lease term and in assessing impairment of their right-of-use assets.

Additionally, with respect to our real estate leases, we elected an accounting policy by class of underlying asset to combine lease and non-lease components.

We also elected to apply an exemption for short-term leases whereby leases with an initial term of a year or less are not recorded on the balance sheet.

For existing leases that commenced prior to the adoption of ASC 842, we made an accounting policy election to use our incremental borrowing rate, considering the remaining lease term and remaining minimum rental payments during transition, in establishing our lease liabilities.

ASU 2016-12 requires a lessee to recognize most leases on its balance sheet by recording a lease liability and a right-of-use asset as of the lease commencement date.

ASU 2016-02 also requires leases to be classified as either finance or operating, with classification affecting how leases are measured and presented in the income statement and statement of cash flows.

Upon adoption of ASU 2016-02, we recognized a lease obligation of $ 165 million and a right-of-use asset of $ 155 million , as well as, a cumulative-effect adjustment of $ 8 million to the opening balance of retained earnings for our operating and finance leases, primarily related to leases of real estate and other assets.

The adoption of ASU 2016-02 did not have a material effect on our Income Statement or Cash Flows for the twelve months ended December 31, 2019 .

Accounting Standards Update 2017-04 – “ Intangibles – Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment ” (“ASU 2017-04”)

We adopted ASU 2017-04 during the fourth quarter of 2019, prior to our annual impairment testing.

ASU 2017-04 requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and to recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

The adoption of ASU 2017-04 did not have a material effect on our financial statements or disclosures.

Future Adoption of Accounting Standards

Accounting Standards Update 2016-13 – “ Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments ” (“ASU 2016-13”)

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, which replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses.

The update is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

We continue to evaluate the impact that adoption of this update in the 2020 first quarter will have on our financial statements or disclosures.

In the first quarter of 2020, we adopted Accounting Standards Update (“ASU”) 2016-13, which replaced the incurred loss impairment methodology in then-current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The update was intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

The current expected credit loss model provides that an initial estimate of expected credit losses over the contractual life of the financial instrument is reflected in the allowance for credit losses and any changes to that estimate are recognized as adjustments to the allowance.

ASU 2016-13 did not have a material impact on our financial statements or disclosures upon adoption, primarily as most of our vacation ownership notes receivable are recorded net of an allowance that is calculated in accordance with ASC 606.

Vacation Ownership Notes Receivable

Our originated vacation ownership notes receivable are recorded net of a reserve that is calculated in accordance with ASC 606, so there was no material impact upon adoption of ASU 2016-13.

Our acquired vacation ownership notes receivable have historically been accounted for using the expected cash flow method of recognizing discount accretion based on the expected cash flows of those instruments.

Upon adoption of ASU 2016-13, we established a reserve for credit losses and a corresponding increase in the book value of the acquired vacation ownership notes receivable, resulting in no impact to the recorded balance.

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.

For additional information on our vacation ownership notes receivable, including information on the related reserves, see Footnote 7 “Vacation Ownership Notes Receivable.”

Accounts Receivable

Our Accounts receivable include amounts due from customers, principally credit card receivables, and amounts due from resort developers, members and managed properties.

These amounts are typically due within one year and are presented net of a reserve for credit losses.

Subsequent to our adoption of ASU 2016-13, we estimate expected credit losses for our accounts receivable by considering a number of factors, including previous loss history and the condition of the general economy, as well as any other significant events that may impact the collectibility of the specific accounts receivable.

Accounts receivable also includes interest receivable on vacation ownership notes receivable.

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 reserve for credit losses during 2020.

Accounting Standards Update 2020-09 – “Debt (Topic 470) – Amendments to SEC Paragraphs Pursuant to SEC Release No.

33-10762” (“ASU 2020-09”)

In March 2020, the Securities and Exchange Commission (the “SEC”) issued a final rule which simplifies the disclosure requirements related to registered securities under Rule 3-10 of Regulation S-X (the “SEC Final Rule”).

The SEC Final Rule replaces the requirement for a parent entity to provide detailed disclosures regarding subsidiary issuers and guarantors of registered debt offerings within the footnotes to the consolidated financial statements.

Under the SEC Final Rule, a parent entity is required to present summarized financial information of the issuers’ and guarantors’ balance sheets and statements of operations on a consolidated basis.

It also requires qualitative disclosures with respect to information about guarantors and the terms and conditions of guarantees.

These disclosures may be provided outside the footnotes to a company’s consolidated financial statements.

In October 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-09 to reflect the SEC’s new disclosure rules on guaranteed debt securities offerings.

We early adopted the reporting requirements of the SEC Final Rule as reflected in ASU 2020-09 in the first quarter of 2020 and elected to provide these disclosures within Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Future Adoption of Accounting Standards

Accounting Standards Update 2019-12 – “Income Taxes (Topic 740):

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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.

We do not anticipate a material change upon adoption.

Accounting Standards Update 2020-04 – “ Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting ” (“ASU 2020-04”)

In March 2020, the FASB issued ASU 2020-04, as amended, which provides optional expedients and exceptions to existing guidance on contract modifications and hedge accounting in an effort to ease the financial reporting burdens related to the expected market transition from the LIBOR and other interbank offered rates to alternative reference rates.

This update can be adopted no later than December 1, 2022, with early adoption permitted.

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 for fiscal years beginning after December 15, 2020.

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 Topic 825-10, “ Financial Instruments - Overall, ” 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.

In accordance with ASU 2020-06, we will be required to calculate diluted earnings per share under the “if-converted” method.

Under the “if-converted” method, diluted earnings per share would generally be calculated assuming that all of the convertible notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be anti-dilutive.

The application of the “if-converted” method may reduce our reported diluted earnings per share.

RESTRUCTURING CHARGES

As a result of the COVID-19 pandemic, in September 2020 a workforce reduction plan was approved, which impacted approximately 3,000 associates beginning in November 2020.

We expect that we will incur approximately $ 30 to $ 35 million in total 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 the year ended December 31, 2020:

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

Cost reimbursement revenues $ 4 $ 2 $ — $ 6

Cost reimbursement expenses $ ( 4 ) $ ( 2 ) $ — $ ( 6 )

Restructuring $ 15 $ 4 $ 6 $ 25

The following table presents our restructuring reserve activity during the year ended December 31, 2020:

($ in millions) Employee Termination Costs

Balance at December 31, 2019 $ —

Cash Payments ( 8 )

Balance at December 31, 2020 $ 17

ACQUISITIONS AND DISPOSITIONS

New York, New York

During the first quarter of 2020, we acquired 57 completed vacation ownership units, as well as office and ancillary space, located at our Marriott Vacation Club Pulse, New York City property for $ 89 million, of which $ 22 million was a prepayment for future tranches of completed vacation ownership units and $ 20 million was paid in December 2019.

We accounted for the transaction as an asset acquisition with the purchase price allocated to Other assets ($ 22 million) and Property and equipment ($ 67 million).

See Footnote 20 “Variable Interest Entities” for information on our remaining commitment to purchase future inventory and additional information on our activities relating to the VIE involved in this transaction.

San Francisco, California

During the first quarter of 2020, we acquired 34 completed vacation ownership units located at our Marriott Vacation Club Pulse, San Francisco property for $ 26 million, of which $ 5 million was a prepayment for future tranches of completed vacation ownership units.

We accounted for the transaction as an asset acquisition with the purchase price allocated to Inventory ($ 18 million), Other assets ($ 5 million), and Property and equipment ($ 3 million).

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 resort for $ 58 million.

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

Marco Island, Florida

During the fourth quarter of 2018, we acquired 92 completed vacation ownership units for $ 83 million and during the first quarter of 2018, we acquired 20 completed vacation ownership units for $ 24 million.

Both transactions were accounted for as asset acquisitions with all of the purchase price allocated to Inventory.

ILG Acquisition

On September 1, 2018, we completed the ILG Acquisition.

The following table presents the fair value of each class of consideration transferred in the ILG Acquisition, as finalized at September 30, 2019.

We completed the acquisition of ILG on September 1, 2018.

The following table presents the fair value of each type of consideration transferred in the ILG Acquisition, as finalized at September 30, 2019.

(in millions, except per share amounts)

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The following table presents the fair values of the assets that we acquired and the liabilities that we assumed on the Acquisition Date.

($ in millions)

September 1, 2018

($ in millions) September 1, 2018

(as finalized)

Vacation ownership notes receivable $ 753

Inventory 484

Property and equipment 382

Intangible assets 1,145

Other assets 707

Deferred revenue ( 291 )

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_________________________

Goodwill is calculated as total consideration transferred, net of cash acquired, less identified net assets acquired and it represents the value that we expect to obtain from synergies and growth opportunities from our combined operations.

Vacation Ownership Notes Receivable

We acquired vacation ownership notes receivable which consist of loans to customers who purchased vacation ownership products and chose to finance their purchase.

These vacation ownership notes receivable are collateralized by the underlying VOIs and generally have terms ranging from five to 15 years.

We valued vacation ownership notes receivables using a discounted cash flow model, which calculated a present value of expected future cash flows over the term of the respective vacation ownership notes receivable (Level 3).

See Footnote 6 “ Vacation Ownership Notes Receivable ” for additional information.

We acquired inventory, which consisted of completed unsold VOIs and vacation ownership projects under construction.

We valued acquired inventory using an income approach, which is primarily based on significant Level 3 assumptions, such as estimates of future income growth, capitalization rates, discount rates and capital expenditure needs of the relevant properties.

Property and Equipment

We acquired property and equipment, which included four owned hotels, information technology, ancillary business assets, furniture and equipment and land held for future development.

We valued property and equipment using a combination of the income, cost, and market approaches, which are primarily based on significant Level 3 assumptions, such as estimates of future income growth, capitalization rates, discount rates and capital expenditure needs of the hotels.

We allocated the carrying amount of goodwill to our Vacation Ownership and our Exchange & Third-Party Management reporting units.

The following table details the carrying amount of our goodwill at December 31, 2019 and December 31, 2018 , and reflects goodwill attributed to the ILG Acquisition.

($ in millions)

Vacation Ownership Segment

Exchange & Third-Party Management Segment

Total Consolidated

Balance at December 31, 2018

Measurement period adjustments

Foreign exchange adjustments

Balance at December 31, 2019

Intangible Assets

(1) Goodwill is calculated as total consideration transferred, net of cash acquired, less identified net assets acquired and it represents the value that we expect to obtain from synergies and growth opportunities from our combined operations, and is not deductible for tax purposes.

See Footnote 12 “Goodwill” for additional information on our goodwill.

We valued acquired vacation ownership notes receivables, which consisted of loans to customers who purchased vacation ownership products and chose to finance their purchase, using a discounted cash flow model, under which we calculated a present value of expected future cash flows over the term of the respective vacation ownership notes receivable (Level 3).

We valued acquired inventory, which consisted of completed unsold VOIs and vacation ownership projects under construction, using an income approach, which is primarily based on significant Level 3 assumptions, such as estimates of future income growth, capitalization rates, discount rates and capital expenditure needs of the relevant properties.

We valued acquired property and equipment, which included four owned hotels, using a combination of the income, cost, and market approaches, which are primarily based on significant Level 3 assumptions, such as estimates of future income growth, capitalization rates, discount rates and capital expenditure needs of the hotels.

We valued deferred revenue, primarily related to membership fees, which are deferred and recognized over the terms of the applicable memberships, utilizing Level 3 inputs based on a review of existing deferred revenue balances against legal performance obligations.

We estimated deferred income taxes based on statutory rates in the jurisdictions of the legal entities where the acquired assets and liabilities are recorded.

We valued the senior unsecured notes assumed using a quoted market price, which is considered a Level 2 input as it is observable in the market;

however these notes had only a limited trading volume and as such this fair value estimate is not necessarily indicative of the value at which these notes could be retired or transferred.

The carrying value of the outstanding balance on the revolving credit facility that was acquired, which was extinguished and repaid in full upon completion of the ILG Acquisition, approximated fair value, as the contractual interest rate was variable plus an applicable margin based credit rating (Level 3 input).

We valued assumed securitized debt from VIEs using a discounted cash flow model.

The significant assumptions in our analysis include default rates, prepayment rates, bond interest rates and other structural factors (Level 3 inputs).

The following table presents the fair values ILG’s identified intangible assets and their related estimated useful lives as of the Acquisition Date.

($ in millions)

Estimated Fair Value

Estimated Useful Life

Member relationships

Management contracts

($ in millions) September 1, 2018

(as finalized) Useful Life

Member relationships $ 671 15 to 20

Management contracts 357 15 to 25

Management contracts (1)

Trade names and trademarks

35 indefinite

Trade names and trademarks 82 indefinite

_________________________

The indefinite-lived management contracts, by their terms, continue for the foreseeable horizon.

There are no legal, regulatory, contractual, competitive, economic or other factors which limit the period of time over which these resort management contracts are expected to contribute future cash flows.

These management contracts are entirely related to the VRI Europe business, which we disposed of in the fourth quarter of 2018.

(1) These management contracts were entirely related to the VRI Europe business, which we disposed of in the fourth quarter of 2018.

The indefinite-lived management contracts, by their terms, continued beyond the then foreseeable horizon.

There were no legal, regulatory, contractual, competitive, economic or other factors which limited the period of time over which these resort management contracts were expected to contribute future cash flows.

We valued member relationships and management contracts using the multi-period excess earnings method, which is a variation of the income approach.

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These valuation approaches utilize Level 3 inputs.

Acquired definite-lived intangible assets are amortized over their estimated useful lives on a straight-line basis.

We recorded amortization expense of $ 59 million in 2019 and $ 19 million in 2018 in the Depreciation and amortization line of our Income Statements.

For these assets, we estimate that our aggregate amortization expense will be $ 57 million for each of the next five fiscal years.

Deferred Revenue

Deferred revenue primarily relates to membership fees, which are deferred and recognized over the terms of the applicable memberships, ranging from one to five years, on a straight-line basis.

Additionally, deferred revenue includes maintenance fees collected from owners, in certain cases, which are earned by the relevant property owners’ association over the applicable period.

We valued deferred revenue utilizing Level 3 inputs based on a review of existing deferred revenue balances against legal performance obligations.

Deferred Income Taxes

Deferred income taxes primarily relate to the fair value of assets and liabilities acquired, including vacation ownership notes receivable, inventory, property and equipment, intangible assets and debt.

We estimated deferred income taxes based on statutory rates in the jurisdictions of the legal entities where the acquired assets and liabilities are recorded.

We valued the IAC Notes (as defined in Footnote 14 “ Debt ”) using a quoted market price, which is considered a Level 2 input as it is observable in the market;

however these notes have only a limited trading volume and as such this fair value estimate is not necessarily indicative of the value at which the IAC Notes could be retired or transferred.

The carrying value of the outstanding balance on the revolving credit facility that was acquired (the “ILG Revolving Credit Facility”) approximated fair value, as the contractual interest rate was variable plus an applicable margin based credit rating (Level 3 input).

The ILG Revolving Credit Facility was extinguished and all amounts due were repaid in full upon completion of the ILG Acquisition.

Securitized Debt from VIEs

We valued securitized debt from VIEs using a discounted cash flow model.

The significant assumptions in our analysis include default rates, prepayment rates, bond interest rates and other structural factors (Level 3 inputs).

Pro Forma Results of Operations

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Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the ILG Acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations.

The unaudited pro forma results below include $ 54 million of ILG acquisition-related costs.

($ in millions, except per share data) 2018

Revenues $ 4,216

Net income $ 210

Net income attributable to common shareholders $ 211

EARNINGS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS

The unaudited pro forma results above include $ 54 million and $ 208 million of ILG acquisition-related costs for 2018 and 2017, respectively.

2019 Acquisitions

San Francisco, California

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

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

2019 Dispositions

Diluted $ 4.38

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 year ended December 31, 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, as discussed further below.

We recorded a combined net gain of $ 6 million in the (Losses) gains and other (expense) income, net line on our Income Statement for year ended December 31, 2020 relating to these transactions.

2019 Strategy Change

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We evaluated each asset in the context of its current and anticipated product form, our inventory needs and our operating strategy.

During the third quarter of 2019, we completed our evaluation and identified several assets for disposition which we believe will generate cash proceeds equivalent to their estimated fair value of $ 160 million to $ 220 million over the next several years.

As a result of the change in our development strategy, in the third quarter of 2019, we recorded a non-cash impairment charge of $ 72 million, of which $ 61 million related to land and land improvements associated with future phases of three existing resorts, primarily attributable to the fact that the book values of these assets include the historical allocations of common costs incurred when we built the infrastructure of these resorts, $ 9 million related to a land parcel held for future development and $ 2 million related to an ancillary business, as the book values of these assets were in excess of the estimated fair values of these assets.

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During the fourth quarter of 2019, we disposed of excess land parcels in Cancun, Mexico and Avon, Colorado for proceeds of $ 62 million, of which $ 8 million is deferred until certain conditions associated with the sale have been met, as part of our strategic decision to reduce holdings in markets where we have excess supply.

We recorded a combined net gain of $ 19 million in the Gains and other income, net line on our Income Statement for the year ended December 31, 2019.

2018 Acquisitions

Marco Island, Florida

Both transactions were accounted for as asset acquisitions with all of the purchase price allocated to Inventory.

2018 Dispositions

We recorded a combined net gain of $ 19 million in the (Losses) gains and other (expense) income, net line on our Income Statement for the year ended December 31, 2019.

As part of the ILG Acquisition, we acquired a 75.5 percent interest in VRI Europe Limited (“VRI Europe”), a joint venture comprised of a European vacation ownership resort management business, which was consolidated by MVW under the voting interest model.

During the fourth quarter of 2018, we sold our interest in VRI Europe to an affiliate of the noncontrolling interest holder for our book value of $ 63 million, of which we received $ 40 million in cash in 2018.

In addition, we recorded a receivable of $ 6 million due in 2019 and a note receivable of $ 17 million due in 2020 relating to the transaction, both of which we received in 2019.

2017 Acquisitions

Bali, Indonesia

During 2017, we acquired 51 completed vacation ownership units, as well as a sales gallery and related resort amenities, located in Bali, Indonesia for $ 24 million .

The transaction was accounted for as an asset acquisition with the purchase price allocated to Inventory ( $ 22 million ) and Property and equipment ( $ 2 million ).

Marco Island, Florida

During 2017, we acquired 36 completed vacation ownership units located at our resort in Marco Island, Florida for $ 34 million .

The transaction was accounted for as an asset acquisition with all of the purchase price allocated to Property and equipment.

To ensure consistency with the expected related future cash flow presentation, the cash purchase price was included as an operating activity in the Purchase of vacation ownership units for future transfer to inventory line on our Cash Flow for the year ended December 31, 2017.

Big Island of Hawaii

During 2017, we acquired 112 completed vacation ownership units located on the Big Island of Hawaii.

The transaction was accounted for as an asset acquisition with all of the purchase price allocated to Inventory.

As consideration for the acquisition, we paid $ 27 million in cash, settled a note receivable from the seller of less than $ 1 million on a non-cash basis, and issued a non-interest bearing note payable for $ 64 million .

2017 Dispositions

We made no significant dispositions in 2017.

In addition, we recorded a receivable of $ 6 million due in 2019 and a note receivable of $ 17 million due in 2020 relating to the transaction, both of which were received in 2019.

Sources of Revenue by Segment

The following tables detail the sources of revenue by segment for each of the last three fiscal years.

($ in millions)

Vacation Ownership

Exchange & Third-Party Management

Corporate and Other

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

Sale of vacation ownership products $ 546 $ — $ — $ 546

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Management fee revenues 149 17 ( 22 ) 144

Other services revenues

Exchange and other services revenues 118 193 210 521

Management and exchange 356 211 188 755

Rental 239 37 — 276

Cost reimbursements 1,124 59 ( 141 ) 1,042

Revenue from contracts with customers 2,265 307 47 2,619

Financing 265 2 — 267

Total Revenues $ 2,530 $ 309 $ 47 $ 2,886

($ in millions)

Vacation Ownership

Exchange & Third-Party Management

Corporate and Other

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

Sale of vacation ownership products $ 1,354 $ — $ — $ 1,354

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Management fee revenues 144 46 ( 13 ) 177

Other services revenues

Exchange and other services revenues 120 248 176 544

Management and exchange 488 298 163 949

Rental 512 61 — 573

Cost reimbursements 1,136 91 ( 119 ) 1,108

Revenue from contracts with customers 3,490 450 44 3,984

Financing 271 4 — 275

Total Revenues $ 3,761 $ 454 $ 44 $ 4,259

($ in millions)

Vacation Ownership

Exchange & Third-Party Management

Corporate and Other

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

Sale of vacation ownership products $ 990 $ — $ — $ 990

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Management fee revenues 114 30 ( 4 ) 140

Other services revenues

Exchange and other services revenues 85 78 35 198

Management and exchange 359 109 31 499

Rental 352 18 1 371

Cost reimbursements 920 33 ( 28 ) 925

Revenue from contracts with customers 2,621 160 4 2,785

Financing 182 1 — 183

Total Revenues $ 2,803 $ 161 $ 4 $ 2,968

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The following tables detail the timing of revenue from contracts with customers by segment for each of the last three fiscal years.

($ in millions)

Vacation Ownership

Exchange & Third-Party Management

Corporate and Other

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

Services transferred over time $ 1,616 $ 156 $ 47 $ 1,819

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Revenue from contracts with customers $ 2,265 $ 307 $ 47 $ 2,619

($ in millions)

Vacation Ownership

Exchange & Third-Party Management

Corporate and Other

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

Services transferred over time $ 1,896 $ 194 $ 44 $ 2,134

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Revenue from contracts with customers $ 3,490 $ 450 $ 44 $ 3,984

($ in millions)

Vacation Ownership

Exchange & Third-Party Management

Corporate and Other

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

Services transferred over time $ 1,467 $ 95 $ 4 $ 1,566

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Revenue from contracts with customers $ 2,621 $ 160 $ 4 $ 2,785

Receivables, Contract Assets & Contract Liabilities

The following table shows the composition of our receivables and contract liabilities.

Receivables from Contracts with Customers, Contract Assets, & Contract Liabilities

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

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

($ in millions)

At December 31, 2019

At December 31, 2018

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

Accounts receivable $ 150 $ 166

Vacation ownership notes receivable, net 1,840 2,233

$ 1,990 $ 2,399

Contract Liabilities

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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 December 31, 2019 , 90 percent of this amount is expected to be recognized as revenue over the next two years.

At December 31, 2020, approximately 82 percent of this amount is expected to be recognized as revenue over the next two years .

Accounts Receivable

Accounts receivable is comprised of amounts due from customers, primarily property owners’ associations, resort developers and members, credit card receivables, interest receivables, amounts due from taxing authorities, indemnification assets, and other miscellaneous receivables.

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

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

Receivables from contracts with customers $ 150 $ 166

Interest receivable 13 16

Tax receivable 60 82

Indemnification asset 15 38

Employee tax credit receivable 19 —

Income Tax Provision

The following table presents the components of our earnings before income taxes for the last three fiscal years:

The following table presents the components of our (losses) earnings before income taxes for the last three fiscal years:

($ in millions) 2020 2019 2018

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jurisdictions ( 85 ) 35 ( 5 )

Our (provision for) benefit from income taxes for the last three years consisted of:

$ ( 340 ) $ 225 $ 103

Our benefit from (provision for) income taxes for the last three years consisted of:

($ in millions) 2020 2019 2018

Current – U.S.

Federal $ 31 $ ( 12 ) $ 17

State 1 ( 29 ) ( 1 )

11 ( 36 ) ( 10 )

Deferred – U.S.

Federal 26 ( 28 ) ( 46 )

State 9 17 ( 9 )

41 ( 6 ) ( 57 )

$ 84 $ ( 83 ) $ ( 51 )

Tax Law Update

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 December 31, 2020, we evaluated the income tax provisions of the CARES Act and have determined there to be a 6.0 percent benefit to the December 31, 2020 tax rate.

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 additional income tax accounting and disclosure implications.

Reconciliation of U.S.

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statutory income tax rate to our effective income tax rate:

2020 2019 2018

statutory income tax rate 21.0 % 21.0 % 21.0 %

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Other permanent differences (3)

( 8.0 ) 3.9 4.2

Impact related to the CARES Act of 2020 6.0 — —

Impact related to the Tax Cuts and Jobs Act of 2017 — — 1.2

4 unchanged sentences

Change in valuation allowance (5)

( 7.5 ) 7.0 8.6

Other items 0.4 1.1 ( 0.1 )

Effective rate 24.6 % 36.9 % 49.8 %

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(2) Attributed to non-deductible transaction costs incurred as a result of the ILG Acquisition.

Primarily due to non-deductible meal and entertainment expenses and new foreign tax provisions, under provisions of the Tax Cuts and Jobs Act of 2017.

(3) The 2020 change is primarily attributable to non-deductible goodwill impairment recorded due to the impact of COVID-19.

For 2019 and 2018, primarily due to non-deductible meal and entertainment expenses and new foreign tax provisions, under provisions of the Tax Cuts and Jobs Act of 2017.

(4) Attributed to the difference between U.S.

and foreign income tax rates and other foreign adjustments.

(5) In 2020, primarily attributable to the increase of the valuation allowance on Spanish and Mexican entities and to losses and future deductions in foreign jurisdictions for which a tax benefit has not been recognized through establishment of valuation allowances.

In 2019, primarily attributable to foreign tax credit carryforwards in the branch and treaty baskets and losses and future deductions in foreign jurisdictions for which a tax benefit has not been recognized through establishment of valuation allowances.

In 2018, primarily attributable to losses and future deductions in foreign jurisdictions for which a tax benefit has not been recognized through establishment of valuation allowances.

The 2017 impact is the net impact of foreign losses not resulting in a benefit due to the establishment of valuation allowances, partially offset by the release of a portion of previously established foreign valuation allowances.

For the years ended December 31, 2020, 2019 and 2018, the provision for income taxes included $ 4 million, $ 2 million, and $ 2 million of excess tax benefits resulting from equity incentive plan activities, respectively.

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These holidays expire through 2034.

During 2019, we finalized our purchase price allocation for the ILG Acquisition and established a reserve of $ 45 million for non-income tax issues related to Legacy-ILG.

We finalized our purchase price accounting for the ILG Acquisition during 2019 and established a reserve for non-income tax issues related to Legacy-ILG.

As of December 31, 2020, the balance of this reserve was $ 46 million.

We expect that we will be indemnified for liabilities of $ 8 million in connection with these non-income tax matters pursuant to a Tax Matters Agreement dated May 11, 2016 by and among Starwood Hotels & Resorts Worldwide, Inc.

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The following table presents the significant components of our deferred tax assets and liabilities:

($ in millions)

At Year-End 2019

At Year-End 2018

($ in millions) At Year-End 2020 At Year-End 2019

Deferred Tax Assets

Inventory $ 83 $ 117

Reserves 98 77

Deferred revenue 12 14

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Net operating loss and capital loss carryforwards 98 61

Tax credits 31 37

Right-of-use asset 2 3

Other, net 113 95

Deferred tax assets 509 478

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Right-of-use liability ( 2 ) ( 3 )

Other, net ( 43 ) ( 42 )

Deferred tax liabilities ( 640 ) ( 652 )

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Valuation allowances are provided when it is considered more likely than not that deferred tax assets will not be realized.

We recorded a change of $ 9 million to the valuation allowance in 2019 related to the expiration of a fully valued capital loss carryforward.

In 2020 we established an additional valuation allowance of $ 12 million on foreign net tax assets.

We have $ 70 million of foreign net operating loss carryforwards, some of which begin expiring in 2021;

however, a significant portion of these have indefinite carryforward periods.

We have $ 1 million of federal net operating loss carryforwards and $ 6 million of state net operating loss carryforwards, of which less than $ 1 million will expire within the next five years.

federal foreign tax credit carryforwards of $ 29 million and $ 7 million of state tax credit carryforwards.

We have $ 15 million of federal net operating losses and $ 11 million of state net operating loss carryforwards, none of which will expire within the next five years.

federal foreign tax credit carryforwards of $ 20 million, federal capital loss carryforwards of $ 1 million, and $ 11 million of state tax credit carryforwards.

As a result of the Tax Cuts and Jobs Act of 2017, distribution of profits from non-U.S.

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Unrecognized tax benefit at end of year $ 14 $ 21 $ 2

As of December 31, 2019 and 2018, the total unrecognized tax benefits related to uncertain income tax positions, which would affect the effective tax rate if recognized, were $ 21 million and $ 2 million , respectively.

The total amount of gross interest and penalties accrued were $ 41 million and less than $ 1 million for the years ended December 31, 2019 and 2018, respectively.

We anticipate $ 41 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, Vistana, and Interval Leisure Group, and consequently have recorded a corresponding indemnification asset.

The total unrecognized tax benefits related to uncertain income tax positions, which would affect the effective tax rate if recognized, were $ 14 million at December 31, 2020 and $ 21 million at December 31, 2019.

The total amount of gross interest and penalties accrued were $ 25 million at December 31, 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 benefit, including accrued interest and penalties are included in other liabilities on the consolidated balance sheet.

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Certain of our returns are being audited in various jurisdictions for tax years 2012 through 2018.

It is reasonably possible the amount of the unrecognized tax benefit could increase or decrease within the next twelve months as a result of certain audit settlements, which would have an impact on net income.

The amount of the unrecognized tax benefit may increase or decrease within the next twelve months as a result of audits or audit settlements.

VACATION OWNERSHIP NOTES RECEIVABLE

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

December 31, 2019

December 31, 2018

($ in millions)

December 31, 2020 December 31, 2019

($ in millions) Originated Acquired Total Originated Acquired (1)

Securitized $ 1,220 $ 273 $ 1,493 $ 1,378 $ 372 $ 1,750

Non-securitized

Eligible for securitization (2)

126 2 128 155 10 165

Not eligible for securitization (2)

185 34 219 261 57 318

Net of impairment of $ 7 million recognized in 2019.

Subtotal 311 36 347 416 67 483

$ 1,531 $ 309 $ 1,840 $ 1,794 $ 439 $ 2,233

_________________________

(1) Net of impairment of $ 7 million recognized in 2019, prior to the adoption of ASU 2016-13 on January 1, 2020.

(2) Refer to Footnote 8 “Financial Instruments” for discussion of eligibility of our vacation ownership notes receivable for securitization.

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Total interest income associated with vacation ownership notes receivable $ 257 $ 264 $ 175

COVID-19 Impact on Vacation Ownership Notes Receivable Reserves

As a result of higher actual and projected default activity related predominantly to the COVID-19 pandemic, we evaluated our vacation ownership notes receivable reserves initially using the 2008/2009 financial crisis as a reference point.

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

We monitored actual delinquency and default activity throughout the remainder of 2020.

Taking into account higher than previously expected default activity experienced, we increased our vacation ownership notes receivable reserves by $ 17 million in the fourth quarter of 2020.

In total, the reserve adjustments made during 2020 were reflected as a $ 59 million reduction to Sale of vacation ownership products, a $ 10 million increase in Financing expenses, and a $ 19 million reduction in Cost of vacation ownership products on our Income Statement for the year ended December 31, 2020.

Acquired Vacation Ownership Notes Receivable

As part of the ILG Acquisition, we acquired existing portfolios of vacation ownership notes receivable.

These notes receivable are accounted for using the expected cash flow method of recognizing discount accretion based on the expected cash flows from the acquired vacation ownership notes receivable pursuant to ASC Topic 310-30, “ Loans acquired with deteriorated credit quality ” (“ASC 310-30”).

At acquisition, we recorded these vacation ownership notes receivable at fair value, which included a credit discount that is accreted as an adjustment to yield over the estimated life of the vacation ownership notes receivable.

The fair value of our acquired vacation ownership notes receivable as of the Acquisition Date was determined using a discounted cash flow method, which calculated a present value of expected future cash flows based on scheduled principal and interest payments over the term of the respective vacation ownership notes receivable, while considering anticipated defaults and early repayments based on historical experience.

Consequently, the fair value of the acquired vacation ownership notes receivable recorded on our balance sheet as of the Acquisition Date included an estimate for future uncollectible amounts which became the historical cost basis for that portfolio going forward.

The table below presents a rollforward of the accretable yield (interest income) expected to be earned related to our acquired vacation ownership notes receivable, as well as the amount of non-accretable difference at the end of the period.

The non-accretable difference represents estimated contractually required payments in excess of estimated cash flows expected to be collected.

The accretable yield represents the excess of estimated cash flows expected to be collected over the carrying amount of the acquired vacation ownership notes receivable.

($ in millions)

December 31, 2019

December 31, 2018

Accretable yield balance, beginning of period

Acquired accretable yield

Reclassification to non-accretable difference

Accretable yield balance, end of period

Non-accretable difference, end of period

The accretable yield is recognized into interest income over the estimated life of the acquired vacation ownership notes receivable using the level yield method.

The accretable yield may change in future periods due to changes in the anticipated remaining life of the acquired vacation ownership notes receivable, which may alter the amount of future interest income expected to be collected, and changes in expected future principal and interest cash collections which impacts the non-accretable difference.

The cash flow from our acquired vacation ownership notes receivable are remeasured at period end based on expected future cash flows which takes into consideration an estimated measure of anticipated defaults and early repayments.

We consider historical Legacy-ILG vacation ownership notes receivable performance and the current economic environment in developing the expected future cash flows used in the re-measurement of our acquired vacation ownership notes receivable.

Acquired vacation ownership notes receivable represent vacation ownership notes receivable acquired as part of the ILG Acquisition.

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 December 31, 2020.

Acquired Vacation Ownership Notes Receivable

($ in millions)

Non-Securitized

($ in millions) Non-Securitized Securitized Total

2021 $ 4 $ 42 $ 46

Thereafter 16 86 102

Balance at December 31, 2020 $ 36 $ 273 $ 309

Weighted average stated interest rate 13.5 % 13.5 % 13.5 %

Range of stated interest rates

3.5% to 17.9%

Range of stated interest rates 3.0 % to 17.9 %

6.0 % to 15.9 %

3.0 % to 17.9 %

The following table summarizes the activity related to our acquired vacation ownership notes receivable reserve.

Acquired Vacation Ownership Notes Receivable Reserve

($ in millions) Non-Securitized Securitized Total

Balance at December 31, 2019, as reported $ — $ — $ —

Impact of adoption of ASU 2016-13

Opening Balance at January 1, 2020 29 26 55

Securitizations ( 1 ) 1 —

Clean-up call 1 ( 1 ) —

Write-offs ( 18 ) — ( 18 )

Recoveries 9 — 9

Defaulted vacation ownership notes receivable repurchase activity (1)

Increase in vacation ownership notes receivable reserve (2)

Balance at December 31, 2020 $ 39 $ 21 $ 60

_________________________

(1) Decrease in securitized vacation ownership notes receivable reserve and increase in non-securitized vacation ownership notes receivable reserve was attributable to the transfer of the reserve when we voluntarily repurchased defaulted securitized vacation ownership notes receivable.

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

Originated Vacation Ownership Notes Receivable

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 December 31, 2019 .

The following table shows future principal payments, net of reserves, as well as interest rates, for our non-securitized and securitized originated vacation ownership notes receivable at December 31, 2020.

Originated Vacation Ownership Notes Receivable

($ in millions)

Non-Securitized

($ in millions) Non-Securitized Securitized Total

2021 $ 39 $ 126 $ 165

2022 32 127 159

2023 27 130 157

2024 25 131 156

2025 25 135 160

Thereafter 163 571 734

Balance at December 31, 2020 $ 311 $ 1,220 $ 1,531

Weighted average stated interest rate 12.6 % 12.7 % 12.7 %

Range of stated interest rates

0.0% to 18.0%

Range of stated interest rates 0.0 % to 18.0 %

0.0 % to 17.5 %

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The following table summarizes the activity related to our originated vacation ownership notes receivable reserve.

Originated Vacation Ownership Notes Receivable

($ in millions)

Non-Securitized

Originated Vacation Ownership Notes Receivable Reserve

($ in millions) Non-Securitized Securitized Total

Balance at December 31, 2017 $ 58 $ 61 $ 119

2 unchanged sentences

Clean-up call 1 ( 1 ) —

Write-offs ( 43 ) — ( 43 )

Defaulted vacation ownership notes receivable repurchase activity (1)

3 unchanged sentences

Clean-up call 24 ( 24 ) —

Write-offs ( 48 ) — ( 48 )

Defaulted vacation ownership notes receivable repurchase activity (1)

3 unchanged sentences

Clean-up call 37 ( 37 ) —

Write-offs ( 31 ) — ( 31 )

Defaulted vacation ownership notes receivable repurchase activity (1)

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(2) Increase in vacation ownership notes receivable reserve includes $ 59 million ($ 32 million non-securitized and $ 27 million securitized) attributable to the increased reserve as a result of the COVID-19 pandemic.

Credit Quality of Vacation Ownership Notes Receivable

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 6.74 percent and 7.04 percent as of December 31, 2020 and December 31, 2019, respectively.

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 $ 6 million and $ 8 million as of December 31, 2020 and December 31, 2019, respectively.

We use the aging of the vacation ownership notes receivable as the primary credit quality indicator for our Legacy-MVW vacation ownership notes receivable, as historical performance indicates that there is a relationship between the default behavior of borrowers and the age of the receivable associated with the vacation ownership interest.

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.

Legacy-MVW Vacation Ownership Notes Receivable

($ in millions)

Non-Securitized

($ in millions) Non-Securitized Securitized Total

Investment in vacation ownership notes receivable on non-accrual status at year-end 2020 $ 100 $ 14 $ 114

Investment in vacation ownership notes receivable on non-accrual status at year-end 2019 $ 43 $ 11 $ 54

Average investment in vacation ownership notes receivable on non-accrual status during 2019

The following table shows the aging of the recorded investment in principal, before reserves, in Legacy-MVW vacation ownership notes receivable as of December 31, 2019 :

The following table shows the aging of the recorded investment in principal, before reserves, in Legacy-MVW vacation ownership notes receivable as of December 31, 2020 and December 31, 2019:

Legacy-MVW Vacation Ownership Notes Receivable

($ in millions)

Non-Securitized

As of December 31, 2020 As of December 31, 2019

($ in millions) Non-Securitized Securitized Total Non-Securitized Securitized Total

31 – 90 days past due $ 8 $ 25 $ 33 $ 7 $ 33 $ 40

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Total past due 108 39 147 50 44 94

Current 231 1,011 1,242 222 1,254 1,476

Total vacation ownership notes receivable $ 339 $ 1,050 $ 1,389 $ 272 $ 1,298 $ 1,570

The following table shows the aging of the recorded investment in principal, before reserves, in Legacy-MVW vacation ownership notes receivable as of December 31, 2018 :

The following table details the origination year of our Legacy-MVW vacation ownership notes receivable as of December 31, 2020 .

Legacy-MVW Vacation Ownership Notes Receivable

($ in millions)

Non-Securitized

($ in millions) Non-Securitized Securitized Total

Year of Origination

2020 $ 156 $ 86 $ 242

2019 73 384 457

2018 43 247 290

2017 21 150 171

2016 11 70 81

2015 & Before 35 113 148

$ 339 $ 1,050 $ 1,389

Legacy-ILG Vacation Ownership Notes Receivable

At December 31, 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 14.63 percent as of December 31, 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 and $ 2 million as of December 31, 2020 and December 31, 2019, respectively.

We use the origination of the vacation ownership notes receivable by brand (Westin, Sheraton, Hyatt) and the FICO scores of the customer as the primary credit quality indicators for our Legacy-ILG vacation ownership notes receivable, as historical performance indicates that there is a relationship between the default behavior of borrowers and the brand associated with the vacation ownership interest they have acquired, supplemented by the FICO scores of the customers.

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.

Legacy-ILG Vacation Ownership Notes Receivable

($ in millions) Non-Securitized Securitized Total

Investment in vacation ownership notes receivable on non-accrual status at year-end 2020 $ 109 $ 12 $ 121

Investment in vacation ownership notes receivable on non-accrual status at year-end 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 December 31, 2020 and December 31, 2019:

Legacy-ILG Vacation Ownership Notes Receivable

As of December 31, 2020 As of December 31, 2019

($ in millions) Non-Securitized Securitized Total Non-Securitized Securitized Total

31 – 90 days past due $ 8 $ 19 $ 27 $ 11 $ 18 $ 29

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Total past due 117 31 148 51 27 78

Current 123 550 673 250 539 789

Total vacation ownership notes receivable $ 240 $ 581 $ 821 $ 301 $ 566 $ 867

Legacy-ILG Vacation Ownership Notes Receivable

We use the origination of the vacation ownership notes receivable by brand (Westin, Sheraton, Hyatt) and the FICO scores of the customer as the primary credit quality indicators for our Legacy-ILG vacation ownership notes receivable, as historical performance indicates that there is a relationship between the default behavior of borrowers and the brand associated with the vacation ownership interest they have acquired, supplemented by the FICO scores of the customers.

The following tables show the Legacy-ILG acquired vacation ownership notes receivable by brand and FICO score.

The following tables show the Legacy-ILG acquired vacation ownership notes receivable by brand and FICO score, before reserves.

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

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Acquired Vacation Ownership Notes Receivable as of December 31, 2020

($ in millions)

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

Westin $ 81 $ 48 $ 4 $ 11 $ 144

Sheraton 81 73 13 31 198

Hyatt 12 9 1 — 22

Other 2 1 — 2 5

$ 176 $ 131 $ 18 $ 44 $ 369

Acquired Vacation Ownership Notes Receivable as of December 31, 2019

($ in millions)

The following tables show the Legacy-ILG originated vacation ownership notes receivable by brand and FICO score.

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

Westin $ 103 $ 57 $ 4 $ 13 $ 177

Sheraton 95 83 15 37 230

Hyatt 15 10 1 — 26

Other 3 1 — 2 6

$ 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 December 31, 2020 .

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

resident borrowers.

Acquired Vacation Ownership Notes Receivable - Westin

($ in millions) 2020 2019 2018 2017 2016 2015 & Prior Total

700 + $ — $ — $ 22 $ 22 $ 14 $ 23 $ 81

600 - 699 — — 11 13 9 15 48

< 600 — — 3 1 — — 4

No Score — — 3 3 2 3 11

$ — $ — $ 39 $ 39 $ 25 $ 41 $ 144

Acquired Vacation Ownership Notes Receivable - Sheraton

($ in millions) 2020 2019 2018 2017 2016 2015 & Prior Total

700 + $ — $ — $ 23 $ 23 $ 14 $ 21 $ 81

600 - 699 — — 19 19 12 23 73

< 600 — — 8 2 1 2 13

No Score — — 9 9 5 8 31

$ — $ — $ 59 $ 53 $ 32 $ 54 $ 198

Acquired Vacation Ownership Notes Receivable - Hyatt and Other

($ in millions) 2020 2019 2018 2017 2016 2015 & Prior Total

700 + $ — $ — $ 3 $ 3 $ 2 $ 6 $ 14

600 - 699 — — 2 2 2 4 10

< 600 — — — — — 1 1

No Score — — — — — 2 2

$ — $ — $ 5 $ 5 $ 4 $ 13 $ 27

The following tables show the Legacy-ILG originated vacation ownership notes receivable by brand and FICO score, before reserves.

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

resident borrowers.

Originated Vacation Ownership Notes Receivable as of December 31, 2020

($ in millions)

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

Westin $ 109 $ 52 $ 6 $ 23 $ 190

Sheraton 106 72 16 43 237

Hyatt 16 8 — — 24

$ 231 $ 132 $ 22 $ 66 $ 451

Originated Vacation Ownership Notes Receivable as of December 31, 2019

($ in millions)

The following table shows the aging of the recorded investment in principal, before reserves, in Legacy-ILG originated vacation ownership notes receivable as of December 31, 2019 and December 31, 2018 :

Originated Vacation Ownership Notes Receivable

Total Delinquent & Defaulted

($ in millions)

90 - 119 Days

As of December 31, 2019

As of December 31, 2018

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

Westin $ 122 $ 46 $ 5 $ 25 $ 198

Sheraton 97 61 13 37 208

Hyatt 16 6 — — 22

$ 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 December 31, 2020.

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

resident borrowers.

Originated Vacation Ownership Notes Receivable - Westin

($ in millions) 2020 2019 2018 2017 2016 2015 & Prior Total

700 + $ 35 $ 60 $ 14 $ — $ — $ — $ 109

600 - 699 14 31 7 — — — 52

< 600 2 3 1 — — — 6

No Score 11 11 1 — — — 23

$ 62 $ 105 $ 23 $ — $ — $ — $ 190

Originated Vacation Ownership Notes Receivable - Sheraton

($ in millions) 2020 2019 2018 2017 2016 2015 & Prior Total

700 + $ 35 $ 56 $ 15 $ — $ — $ — $ 106

600 - 699 20 40 12 — — — 72

< 600 5 9 2 — — — 16

No Score 11 26 6 — — — 43

$ 71 $ 131 $ 35 $ — $ — $ — $ 237

Originated Vacation Ownership Notes Receivable - Hyatt

($ in millions) 2020 2019 2018 2017 2016 2015 & Prior Total

700 + $ 5 $ 9 $ 2 $ — $ — $ — $ 16

600 - 699 3 4 1 — — — 8

< 600 — — — — — — —

No Score — — — — — — —

$ 8 $ 13 $ 3 $ — $ — $ — $ 24

FINANCIAL INSTRUMENTS

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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.

The table also excludes acquired vacation ownership notes receivable which are remeasured at each period end based on expected future cash flows.

See Footnote 6 “ Vacation Ownership Notes Receivable ” for additional information on our acquired vacation ownership notes receivable.

At December 31, 2019

At December 31, 2018

($ in millions)

Originated vacation ownership notes receivable

At December 31, 2020 At December 31, 2019

($ in millions) Carrying

Value Carrying

Vacation ownership notes receivable $ 1,840 $ 1,886 $ 2,233 $ 2,264

Other assets 60 60 45 45

$ 1,900 $ 1,946 $ 2,278 $ 2,309

Securitized debt, net $ ( 1,588 ) $ ( 1,653 ) $ ( 1,871 ) $ ( 1,924 )

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2026 Notes, net ( 744 ) ( 784 ) ( 742 ) ( 824 )

Exchange Notes, net

2028 Notes, net ( 346 ) ( 359 ) ( 345 ) ( 358 )

Term Loan, net ( 873 ) ( 864 ) ( 881 ) ( 899 )

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2022 Convertible notes, net ( 215 ) ( 262 ) ( 207 ) ( 247 )

Non-interest bearing note payable, net

Originated Vacation Ownership Notes Receivable

At December 31, 2019

At December 31, 2018

($ in millions)

Originated vacation ownership notes receivable

$ ( 4,260 ) $ ( 4,455 ) $ ( 4,073 ) $ ( 4,279 )

Vacation Ownership Notes Receivable

At December 31, 2020 At December 31, 2019

($ in millions) Carrying

Value Carrying

Vacation ownership notes receivable

Securitized $ 1,493 $ 1,530 $ 1,750 $ 1,771

Eligible for securitization 128 137 165 175

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Non-securitized 347 356 483 493

We estimate the fair value of our originated vacation ownership notes receivable that have been securitized using a discounted cash flow model.

$ 1,840 $ 1,886 $ 2,233 $ 2,264

We estimate the fair value of our vacation ownership notes receivable that have been securitized using a discounted cash flow model.

We believe this is comparable to the model that an independent third party would use in the current market.

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We concluded that this fair value measurement should be categorized within Level 3.

Due to factors that impact the general marketability of our originated vacation ownership notes receivable that have not been securitized, as well as current market conditions, we bifurcate our non-securitized vacation ownership notes receivable at each balance sheet date into those eligible and not eligible for securitization using criteria applicable to current securitization transactions in the asset-backed securities (“ABS”) market.

Due to factors that impact the general marketability of our vacation ownership notes receivable that have not been securitized, as well as current market conditions, we bifurcate our non-securitized vacation ownership notes receivable at each balance sheet date into those eligible and not eligible for securitization using criteria applicable to current securitization transactions in the asset-backed securities (“ABS”) market.

Generally, vacation ownership notes receivable are considered not eligible for securitization if any of the following attributes are present:

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or (3) the collateral is located in Asia or Europe.

In some cases, eligibility may also be

determined based on the credit score of the borrower, the remaining term of the loans and other similar factors that may reflect investor demand in a securitization transaction or the cost to effectively securitize the vacation ownership notes receivable.

The table above shows the bifurcation of our originated vacation ownership notes receivable that have not been securitized into those eligible and not eligible for securitization based upon the aforementioned eligibility criteria.

We estimate the fair value of the portion of our originated vacation ownership notes receivable that have not been securitized that we believe will ultimately be securitized in the same manner as originated vacation ownership notes receivable that have been securitized.

We value the remaining originated vacation ownership notes receivable that have not been securitized at their carrying value, rather than using our pricing model.

In some cases, eligibility may also be determined based on the credit score of the borrower, the remaining term of the loans and other similar factors that may reflect investor demand in a securitization transaction or the cost to effectively securitize the vacation ownership notes receivable.

The table above shows the bifurcation of our vacation ownership notes receivable that have not been securitized into those eligible and not eligible for securitization based upon the aforementioned eligibility criteria.

We estimate the fair value of the portion of our vacation ownership notes receivable that have not been securitized that we believe will ultimately be securitized in the same manner as vacation ownership notes receivable that have been securitized.

We value the remaining vacation ownership notes receivable that have not been securitized at their carrying value, rather than using our pricing model.

We believe that the carrying value of these particular vacation ownership notes receivable approximates fair value because the stated, or otherwise imputed, interest rates of these loans are consistent with current market rates and the reserve for these vacation ownership notes receivable appropriately accounts for risks in default rates, prepayment rates, discount rates, and loan terms.

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The carrying value of the COLI policies is equal to their cash surrender value (Level 2 inputs).

In addition, we have investments in marketable securities of $ 6 million that are marked to market as trading securities using quoted market prices (Level 1 inputs).

In addition, we have investments in marketable securities of $ 6 million that are marked to market using quoted market prices (Level 1 inputs).

Securitized Debt

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We concluded that this fair value measurement should be categorized within Level 3.

We estimate the fair value of our 2026 Notes (as defined in Footnote 14 “ Debt ”) using quoted market prices as of the last trading day for the quarter;

however these notes have only a limited trading history and volume, and as such this fair value estimate is not necessarily indicative of the value at which these notes could be retired or transferred.

We concluded that this fair value measurement should be categorized within Level 2.

We estimate the fair value of our 2028 Notes (as defined in Footnote 14 “ Debt ”) using quotes from securities dealers as of the last trading day for the quarter;

2025 Notes, 2026 Notes, and 2028 Notes

We estimate the fair value of our 2025 Notes, 2026 Notes, and 2028 Notes (each as defined in Footnote 17 “Debt”) using quoted market prices as of the last trading day for the quarter;

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EARNINGS PER SHARE

Basic earnings per common share attributable to common shareholders is calculated by dividing net income or loss attributable to common shareholders by the weighted average number of shares of common stock outstanding during the reporting period.

Basic (loss) earnings per common share attributable to common shareholders is calculated by dividing net (loss) or income attributable to common shareholders by the weighted average number of shares of common stock outstanding during the reporting period.

Treasury stock is excluded from the weighted average number of shares of common stock outstanding.

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The dilutive effect of outstanding equity-based compensation awards is reflected in diluted earnings per common share applicable to common shareholders by application of the treasury stock method using average market prices during the period.

Our calculation of diluted earnings per share attributable to common shareholders reflects our intent to settle conversions of the Convertible Notes through a 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 (the “conversion premium”).

Our calculation of diluted (loss) earnings per share attributable to common shareholders reflects our intent to settle conversions of the 2022 Convertible Notes through a 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 (the “conversion premium”).

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 December 31, 2020, December 31, 2019, or December 31, 2018, there was no dilutive impact from the 2022 Convertible Notes for 2020, 2019, or 2018.

The shares issuable on exercise of the Warrants (as defined in Footnote 14 “ 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, which was subject to adjustment during the fourth quarter of 2019 to $ 175.37 , as described in Footnote 14 “ Debt .” 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 14 “ 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 table below illustrates the reconciliation of the earnings and number of shares used in our calculation of basic and diluted earnings per share attributable to common shareholders.

Computation of Basic and Diluted Earnings Per Share Attributable to Common Shareholders

The shares issuable on exercise of the 2022 Warrants (as defined in Footnote 17 “Debt”) sold in connection with the issuance of the 2022 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 2022 Warrants, we will include the dilutive effect of the additional shares that may be issued upon exercise of the 2022 Warrants in total dilutive weighted average shares outstanding, which we calculate using the treasury stock method.

The 2022 Convertible Note Hedges purchased in connection with the issuance of the 2022 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.

(in millions, except per share amounts) 2020

Computation of Basic Earnings Per Share Attributable to Common Shareholders

Net income attributable to common shareholders

Shares for basic earnings per share

Basic earnings per share

Computation of Diluted Earnings Per Share Attributable to Common Shareholders

Net income attributable to common shareholders

Shares for basic earnings per share

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

Net (loss) income attributable to common shareholders $ ( 275 ) $ 138 $ 55

Shares for basic (loss) earnings per share 41.3 43.9 33.3

Basic (loss) earnings per share $ ( 6.65 ) $ 3.13 $ 1.64

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

Net (loss) income attributable to common shareholders $ ( 275 ) $ 138 $ 55

Shares for basic (loss) earnings per share 41.3 43.9 33.3

Effect of dilutive shares outstanding (2)

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Restricted stock units — 0.3 0.3

Shares for diluted earnings per share

Diluted earnings per share

Shares for diluted (loss) earnings per share 41.3 44.5 34.0

Diluted (loss) earnings per share $ ( 6.65 ) $ 3.09 $ 1.61

_________________________

The computations of diluted earnings per share attributable to common shareholders exclude approximately 345,000 , 165,000 and 238,000 shares of common stock, the maximum number of shares issuable as of December 31, 2019 ,

December 31, 2018 and December 31, 2017 , respectively, 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.

(1) The computations of diluted earnings per share attributable to common shareholders exclude approximately 345,000 and 165,000 shares of common stock, the maximum number of shares issuable as of December 31, 2019 and December 31, 2018, respectively, 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.

(2) Amounts exclude all potentially dilutive equity-based compensation awards for periods when there is a net loss attributable to common shareholders.

In accordance with the applicable accounting guidance for calculating earnings per share, for each of the years ended December 31, 2019 and December 31, 2018, we excluded from our calculation of diluted earnings per share 56,649 shares underlying SARs that may settle in shares of common stock because the exercise price of $ 143.38 of such SARs was greater than the average market price for each of the applicable periods.

For the year ended December 31, 2017 , our calculation of diluted earnings per share included shares underlying SARs that may settle in shares of common stock because the exercise price of such SARs were less than or equal to the average market price for the applicable period.

The following table shows the composition of our inventory balances:

($ in millions)

At Year-End 2019

At Year-End 2018

($ in millions) At Year-End 2020 At Year-End 2019

Finished goods (1)

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We value vacation ownership interests 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.

In addition to the above, at December 31, 2019 , we had $ 55 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.

In addition to the above, at December 31, 2020 and December 31, 2019, we had $ 162 million and $ 55 million, respectively, 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 had $ 43 million and $ 38 million of deposits on future purchases of inventory at December 31, 2020 and December 31, 2019, respectively, which are included in the Other assets line on our Balance Sheets.

Additionally, during the year ended December 31, 2020, we recorded $ 6 million of inventory impairments.

PROPERTY AND EQUIPMENT

The following table details the composition of our property and equipment balances:

($ in millions)

At Year-End 2019

At Year-End 2018

($ in millions) At Year-End 2020 At Year-End 2019

Land and land improvements $ 285 $ 267

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Accumulated depreciation ( 461 ) ( 406 )

During the second quarter of 2019, we entered 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.

As a result, we recorded a non-cash impairment of $ 26 million in 2019.

The impairment is primarily attributable to the fact that the book value of the assets to be sold exceeds the sales price because the book value includes allocations of common costs incurred when we built the infrastructure for the resort, including future phases.

This contract was subsequently terminated.

In addition, during 2019, we recorded a non-cash impairment charge of $ 1 million related to an ancillary asset located at a Vacation Ownership segment property in Europe.

The following table details the carrying amount of our goodwill at December 31, 2020 and December 31, 2019, and reflects goodwill attributed to the ILG Acquisition, which was allocated to our Vacation Ownership and our Exchange & Third-Party Management reporting units.

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

Balance at December 31, 2018 $ 2,448 $ 380 $ 2,828

Measurement period adjustments ( 4 ) 66 62

Foreign exchange adjustments 1 1 2

Balance at December 31, 2019 2,445 447 2,892

Impairment — ( 73 ) ( 73 )

Foreign exchange adjustments — ( 2 ) ( 2 )

Balance at December 31, 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.

The factors that led to this conclusion were related to the COVID-19 pandemic and included:

(i) the substantial decline in our stock price and market capitalization;

(ii) the closure of substantially all of our Vacation Ownership reporting unit sales centers;

(iii) the government stay-at-home orders in place in many of the jurisdictions in which we operate;

(iv) our planned furloughs and reduced work schedule arrangements;

(v) the impact of travel restrictions on the hospitality industry;

and (vi) the macroeconomic fallout from the COVID-19 pandemic.

We utilized a combination of the income and market approaches to estimate the fair value of our reporting units (Level 3).

We concluded that there was no impairment of the Vacation Ownership reporting unit as declines in expected future operating results were not substantial enough to cause the fair value of the reporting unit to be below its carrying amount.

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.

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 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.

We performed our annual goodwill impairment test as of October 1, 2020 and prepared a quantitative assessment for both the Vacation Ownership and the Exchange & Third-Party Management reporting units.

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.

For each reporting unit, the fair value of the reporting unit was in excess of the carrying value and therefore we concluded there was no further impairment.

Given the continued impact of the COVID-19 pandemic, in connection with the preparation of our Financial Statements for the year ended December 31, 2020, we performed a qualitative analysis of each of our reporting units as of the end of the fourth quarter, considering recent events and determined that interim quantitative impairment tests were not required.

While the goodwill of our reporting units are not impaired at December 31, 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.

INTANGIBLE ASSETS

The following table details the composition of our intangible asset balances:

($ in millions) 2020 2019

Definite-lived intangible assets

Member relationships $ 671 $ 671

Management contracts 351 351

Accumulated amortization ( 134 ) ( 77 )

Indefinite-lived intangible assets

Trade names and trademarks 64 82

$ 952 $ 1,027

Definite-Lived Intangible Assets

Definite-lived intangible assets, all of which were acquired as part of the ILG Acquisition, are amortized on a straight-line basis over their estimated useful lives, ranging from 15 to 25 years.

We recorded amortization expense of $ 57 million in 2020, $ 59 million in 2019, and $ 19 million in 2018 in the Depreciation and amortization line of our Income Statements.

For these assets, we estimate that our aggregate amortization expense will be $ 57 million for each of the next five fiscal years.

Indefinite-Lived Intangibles

The following table summarizes the activity related to our indefinite-lived intangible assets, all of which are related to the Exchange & Third-Party Management segment.

($ in millions) Trade Names and Trademarks

Balance at December 31, 2019 $ 82

Impairment ( 18 )

Balance at December 31, 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.

The factors that led to this conclusion were related to the COVID-19 pandemic and included:

(i) the government stay-at-home orders in place in many of the jurisdictions in which we operate;

(ii) the impact of travel restrictions on the hospitality industry;

and (iii) the macroeconomic fallout from the COVID-19 pandemic.

We used the relief of royalty method in calculating the fair value of the trade names and trademarks (Level 3).

We recognized a non-cash impairment charge of $ 18 million in the Impairment line on our Income Statement during the first quarter of 2020, which was primarily attributed to the decline in estimated near-term revenues and related recovery of long-term revenues attributed to the impact of the COVID-19 pandemic.

We performed our annual impairment test of indefinite lived intangible assets as of October 1, 2020 consistent with the methodology used in the first quarter of 2020 and determined that the fair value of our indefinite lived intangibles was above their carrying amounts.

CONTINGENCIES AND COMMITMENTS

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Our aggregate commitments under these contracts were $ 85 million, of which we expect $ 34 million, $ 26 million, $ 16 million, $ 6 million, and $ 3 million will be paid in 2021, 2022, 2023, 2024, and 2025, respectively.

We have a commitment to purchase an operating property, that we manage, located in New York, New York, for $ 183 million , of which $ 7 million is attributable to a related finance lease arrangement and recorded in Debt.

We expect to acquire the units in the property, in their current form, over time.

In January 2020, subsequent to the end of 2019, we acquired 57 completed vacation ownership units, as well as office and ancillary space, for $ 86 million , of which $ 20 million was paid in December 2019.

We expect to make payments for the remaining commitment of $ 97 million in 2021.

See Footnote 17 “ Variable Interest Entities ” for additional information on this transaction and our activities relating to the VIE involved in this transaction.

We have a commitment to purchase 88 vacation ownership units located in Bali, Indonesia for use in our Vacation Ownership segment, contingent upon completion of construction to agreed-upon standards within specified timeframes.

• We have various commitments to acquire real estate for use in our Vacation Ownership segment via our involvement with VIEs.

Refer to Footnote 20 “Variable Interest Entities” for additional information and our activities relating to the VIEs involved in these transactions.

• We have a remaining commitment to purchase 88 vacation ownership units located in Bali, Indonesia for use in our Vacation Ownership segment, contingent upon completion of construction to agreed-upon standards.

We expect to complete the acquisition in 2021 and to make the remaining payments with respect to these units when specific construction milestones are completed, as follows:

$ 21 million in 2021 and $ 2 million in 2022.

We have a remaining commitment to purchase an operating property, that we manage, located in San Francisco, California for $ 113 million .

In February 2020, subsequent to the end of 2019, we acquired 34 units in the property for $ 25 million .

We expect to make payments for the remaining commitment as follows:

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

See Footnote 3 “ Acquisitions and Dispositions ” for information on the purchase that occurred during 2019 and Footnote 17 “ 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, that we had as of December 31, 2019 , to a third-party developer.

If we are unable to negotiate a capital efficient inventory arrangement, we are committed to purchasing the property, in its current form, for $ 98 million in 2021.

We are required to purchase the property from the third-party developer unless it has been sold to another party.

The property is held by a VIE for which we are not the primary beneficiary as we do not control the operations of the VIE.

Accordingly, we will not consolidate the VIE.

Surety bonds issued as of December 31, 2020 totaled $ 75 million, the majority of which were requested by federal, state or local governments in connection with our operations.

As of December 31, 2020, we had $ 3 million of letters of credit outstanding under our Revolving Corporate Credit Facility (as defined in Footnote 17 “Debt”).

In addition, as of December 31, 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 $ 3 million, of which $ 2 million is included within liabilities on our Balance Sheet at December 31, 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.

Certain of our rental management agreements in our Exchange & Third-Party Management segment provide for owners of properties we manage to receive specified percentages or guaranteed amounts of the rental revenue generated under our management.

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 December 31, 2019 , our maximum exposure under guarantees was $ 30 million , of which $ 11 million , $ 9 million , $ 4 million , $ 2 million , $ 1 million and $ 3 million relate to 2020, 2021, 2022, 2023, 2024 and thereafter.

At December 31, 2020, our maximum exposure under fixed dollar guarantees was $ 24 million, of which $ 10 million, $ 6 million, $ 3 million, $ 2 million, $ 1 million, and $ 2 million relate to 2021, 2022, 2023, 2024, 2025, 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.

As a result, owner distributions made under such agreements will be paid on a net operating income basis, rather than as guaranteed amounts, until such time as force majeure event conditions abate.

Loss Contingencies

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and other owners at The Ritz-Carlton Club, Aspen Highlands (“RCC Aspen Highlands”) filed a complaint in an action pending in the U.S.

District Court for the District of Colorado against us and certain third parties alleging that their fractional interests were devalued by the affiliation of the RCC Aspen Highlands and other Ritz-Carlton Clubs with our points-based MVCD program.

The plaintiffs are seeking compensatory damages, disgorgement, fees and costs.

District Court for the District of Colorado against us and certain third parties, alleging that their fractional interests were devalued by the affiliation of the RCC Aspen Highlands and other Ritz-Carlton Clubs with our points-based Marriott Vacation Club Destinations (“MVCD”) program.

The plaintiffs are seeking compensatory damages, disgorgement, punitive damages, fees and costs.

A trial is scheduled to begin in January 2022.

In May 2016, a purported class-action lawsuit was filed in the U.S.

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The complaint challenged the characterization of the beneficial interests in the MVCD trust that are sold to customers as real estate interests under Florida law, the structure of the trust, and associated operational aspects of the trust.

The plaintiffs sought declaratory relief, an unwinding of the MVCD product, and

punitive damages.

The plaintiffs sought declaratory relief, an unwinding of the MVCD product, and punitive damages.

In August 2019, the District Court granted our motion for judgment on the pleadings and dismissed the case.

The plaintiffs have appealed the ruling.

In December 2016, Flora and Bruce Gillespie and other owners and former owners of fractional interests at the Fifth and Fifty-Fifth Residence Club located within The St.

Regis, New York (the “St.

Regis NY Club”) filed an action in the U.S.

District Court for the Southern District of New York against us and certain third parties alleging that the sale of less than all interests offered in the fractional offering plan, the amendment of the plan to include additional units, and the rental of unsold fractional interests by the plan’s sponsor breached the relevant agreements and harmed the value of plaintiffs’ fractional interests.

The plaintiffs are seeking compensatory damages, rescission, disgorgement, fees and costs.

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

Regis NY Club filed a separate suit against us in the U.S.

District Court for the Southern District of New York, which was amended to add Marriott International and Starwood as additional defendants in March 2017.

The lawsuit was subsequently transferred to the U.S.

District Court for the Middle District of Florida.

The operative complaint alleges that the sponsor of the St.

Regis NY Club (St.

Regis Residence Club, New York, Inc.), the St.

Regis NY Club manager (St.

Regis New York Management, Inc.), and certain affiliated entities, as well as Marriott International and Starwood, breached their fiduciary duties related to sale and rental practices, and further alleges tortious interference with the management agreement, unjust enrichment, and anticompetitive conduct.

The amended complaint also alleges anticompetitive conduct in connection with the renewal of the St.

Regis NY Club management agreement.

The plaintiff is seeking declaratory relief in connection with the Starpoint conversion program and the exchange program at the St.

Regis NY Club, unspecified damages, and disgorgement of payments under the management and purchase agreements.

Regis NY Club filed a lawsuit in the Supreme Court for the State of New York, New York County, Commercial Division against ILG and several of its subsidiaries and certain third parties.

The operative complaint alleges that the defendants breached their fiduciary duties related to sale and rental practices, aided and abetted certain breaches of fiduciary duty, engaged in self-dealing as the sponsor and manager of the club, tortiously interfered with the management agreement, was unjustly enriched, and engaged in anticompetitive conduct.

The plaintiff is seeking unspecified damages, punitive damages and disgorgement of payments under the management and purchase agreements.

In April 2019, a purported class-action lawsuit was filed by Alan and Marjorie Helman and others against us in the Superior Court of the Virgin Islands, Division of St.

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The plaintiff is seeking termination of the management agreement with the owners’ association, the annulment of certain amendments to governing documents at HRC Grand Aspen, the removal of fractional interests at HRC Grand Aspen from the HPC Trust Club, unspecified damages, disgorgement of profits, fees and costs.

In November 2020, the District Court granted our motion to dismiss and dismissed the case.

The plaintiffs have appealed the ruling.

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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A number of these lawsuits and claims may exist at any given time.

Additionally, the COVID-19 pandemic may give rise to various claims and lawsuits from owners, members and other parties.

We record and accrue for legal contingencies when we determine that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

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We have not accrued for any of the pending matters described above and we cannot estimate a range of the potential liability associated with these pending matters, if any, at this time.

We have accrued for other claims and lawsuits, but the amount accrued is not material in the aggregate.

We have accrued for other claims and lawsuits, but the amount accrued is not material individually or in the aggregate.

For matters not requiring accrual, we do not believe that the ultimate outcome of such matters, individually and in the aggregate, will materially harm our financial position, cash flows, or overall trends in results of operations based on information currently available.

However, legal proceedings are inherently uncertain, and while we believe that our accruals are adequate and/or we have valid defenses to the claims asserted, unfavorable rulings could occur that could, individually or in the aggregate, have a material adverse effect on our business, financial condition, or operating results.

During June 2018, we identified forged and fraudulently induced electronic payment disbursements we made to third parties in an aggregate amount of $ 10 million resulting from unauthorized third-party access to our email system.

Upon detection, we immediately notified law enforcement authorities and relevant financial institutions and commenced a forensic investigation.

During 2018, we recovered $ 6 million of these funds.

During 2019, we received $ 3 million from our insurance company as final settlement of our claim, and the insurance company waived the requirement for us to reimburse the insurance company for any monies subsequently recovered.

We recorded a gain of $ 3 million and a loss of $ 4 million in the Gains and

other income, net line of our Income Statements for 2019 and 2018, respectively.

Any additional recoveries will be recorded in our results in the future.

We have concluded that this event did not involve access to any of our other systems.

No other misappropriation of assets was identified during our investigation.

Insurance Recoveries

In September 2017, over 20 of our Legacy-MVW properties were impacted by Hurricane Irma and Hurricane Maria and, as a result, as of December 31, 2017, we accrued $ 1 million for the estimated property damage insurance deductibles and impairment of property and equipment, which was recorded in the Gains and other income, net line on our Income Statement for the year ended December 31, 2017.

In 2018, we received $ 32 million of insurance proceeds related to the settlement of Legacy-MVW business interruption insurance claims arising from Hurricane Irma.

These proceeds, and the related deductible of $ 3 million , were recorded net in the Gains and other income, net line on our Income Statement for the year ended December 31, 2018.

During 2019, we recorded an additional $ 9 million of other income relating to the final settlement of these business interruption insurance claims, which was recorded in the Gains and other income, net line on our Income Statement for the year ended December 31, 2019.

T he following table presents the carrying values of our leases and the classification on our Balance Sheet as of December 31, 2019 .

($ in millions)

Balance Sheet Classification

At December 31, 2019

Operating lease assets

Finance lease assets

Property and equipment

Operating lease liabilities

Accrued liabilities

Finance lease liabilities

The following table presents the lease costs and the classification on our Income Statement for the year ended December 31, 2019 .

($ in millions)

Income Statement Classification

Operating lease cost

Marketing and sales expense

The following table presents the carrying values of our leases and the classification on our Balance Sheet.

($ in millions) Balance Sheet Classification At December 31, 2020 At December 31, 2019

Operating lease assets Other assets $ 131 $ 142

Finance lease assets Property and equipment 8 13

Operating lease liabilities Accrued liabilities $ 138 $ 151

Finance lease liabilities Debt 8 14

The following table presents the lease costs and the classification on our Income Statements for the years ended December 31, 2020 and December 31, 2019.

($ in millions) Income Statement Classification 2020 2019

Operating lease cost Marketing and sales expense

General and administrative expense $ 36 $ 33

Finance lease cost

Amortization of right-of-use assets

Depreciation and amortization

Interest on lease liabilities

Financing expense

Variable lease cost

Marketing and sales expense

Amortization of right-of-use assets Depreciation and amortization 5 5

Interest on lease liabilities Financing expense 1 1

Variable lease cost Marketing and sales expense 2 5

The following table presents the maturity of our operating and financing lease liabilities as of December 31, 2020.

($ in millions)

Operating Leases

Finance Leases

($ in millions) Operating Leases Finance Leases Total

2021 $ 27 $ 4 $ 31

Thereafter 134 1 135

Total lease payments 237 9 246

Imputed interest ( 99 ) ( 1 ) ( 100 )

$ 138 $ 8 $ 146

Lease Term and Discount Rate

The following table presents additional information about our lease obligations as of December 31, 2019 .

Operating Leases

Finance Leases

The following table presents additional information about our lease obligations.

At December 31, 2020 At December 31, 2019

Weighted-average remaining lease term

Operating leases 19.1 years 10.5 years

Finance leases 3.0 years 1.0 years

Weighted-average discount rate

Operating leases 5.8 % 6.1 %

Finance leases 3.9 % 4.9 %

Other Information

The following table presents supplemental cash flow information for 2019 .

The following table presents supplemental cash flow information for 2020 and 2019.

($ in millions) 2020 2019

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Leases That Have Not Yet Commenced

In January 2020, we entered into a finance lease arrangement for our new global headquarters in Orlando, Florida.

The new office building is expected to be completed in 2021, at which time the lease term will commence and a right-of-use asset and corresponding liability will be recorded on our balance sheet.

The initial lease term is approximately 16 years with total lease payments of $ 129 million for the aforementioned period.

During the first quarter of 2020, we entered into a finance lease arrangement for our new global headquarters in Orlando, Florida.

The new office building is currently expected to be completed in 2024, at which time the lease term will commence and a right-of-use asset and corresponding liability will be recorded on our balance sheet.

The initial lease term is approximately 16 years with total lease payments of $ 129 million over the aforementioned period.

During 2020, in response to the COVID-19 pandemic and our ongoing evaluation of future space needs, we entered into a standstill arrangement with the developer/lessor, which expires in June 2021.

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

SECURITIZED DEBT

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

($ in millions)

At December 31, 2019

At December 31, 2018

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

Vacation ownership notes receivable securitizations, gross (1)

$ 1,604 $ 1,850

Unamortized debt discount and issuance costs ( 16 ) ( 18 )

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$ 1,588 $ 1,871

_________________________

(1) Interest rates as of December 31, 2020 range from 2.3 % to 4.4 %, with a weighted average interest rate of 2.8 %

Effective interest rate as of December 31, 2019 was 2.9 %

(2) Excludes $ 1 million of unamortized debt issuance costs as of December 31, 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.

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Vacation Ownership Notes Receivable Securitizations

Warehouse Credit Facility

($ in millions)

Payments Year

Thereafter 731

Vacation Ownership Notes Receivable Securitizations

During the second quarter of 2019, we completed the securitization of a pool of $ 459 million of vacation ownership notes receivable.

In connection with the securitization, investors purchased in a private placement, $ 450 million in vacation ownership loan backed notes from MVW 2019-1 LLC (the “2019-1 LLC”).

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 completed two securitization transactions during the fourth quarter of 2019.

In October 2019, we completed the securitization of a pool of $ 315 million of vacation ownership notes receivable.

In connection with the securitization, investors purchased in a private placement $ 309 million in vacation ownership loan backed notes from MVW 2019-2 LLC (the “2019-2 LLC”).

Three classes of vacation ownership loan backed notes were issued by the 2019-2 LLC:

$ 232 million of Class A Notes, $ 54 million of Class B Notes and $ 23 million of Class C Notes.

The Class A Notes have an interest rate of 2.22 percent , the Class B Notes have an interest rate of 2.44 percent and the Class C Notes have an interest rate of 2.68 percent , for an overall weighted average interest rate of 2.29 percent .

Additionally, in December 2019, we completed the securitization of a pool of $ 90 million of primarily Asia-Pacific vacation ownership notes receivable that we previously had classified as not being eligible for securitization.

In connection with the securitization, an investor purchased in a private placement $ 65 million in vacation ownership loan backed notes from Vacanza 2019-A LLC with an interest rate of 4.42 % .

The securitized loans previously were classified as not eligible for securitization using criteria applicable to then current securitization transactions in the ABS market because they did not meet certain representation criteria required in such securitizations, or because of other factors that may have reflected investor demand in a securitization transaction.

Each of the securitized vacation ownership notes receivable transactions contains various triggers relating to the performance of the underlying vacation ownership notes receivable.

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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 below due to prepayments by the vacation ownership notes receivable obligors.

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:

$ 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, $ 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

During 2019, we securitized vacation ownership notes receivable under our previous $ 250 million warehouse credit facility (the “Previous Warehouse Credit Facility).

The carrying amount of the vacation ownership notes receivable securitized was $ 213 million .

The advance rate was 85 percent , which resulted in gross proceeds of $ 181 million .

Net proceeds were $ 180 million due to the funding of reserve accounts of $ 1 million .

During the fourth quarter of 2019, the Company and certain of its subsidiaries entered into a new warehouse credit facility (the “Warehouse Credit Facility”), with an increased borrowing capacity of $ 350 million , which allows for the securitization of vacation ownership notes receivable on a revolving non-recourse basis.

Our warehouse credit facility (the “Warehouse Credit Facility”), which has a borrowing capacity of $ 350 million, allows for the securitization of vacation ownership notes receivable on a revolving non-recourse basis.

The Warehouse Credit Facility terminates on December 20, 2021, and if not renewed prior to termination, any amounts outstanding thereunder would become due and payable 13 months after termination, at which time all principal and interest collected with respect to the vacation ownership notes receivable held in the Warehouse Credit Facility would be redirected to the lenders to pay down the outstanding debt under the facility.

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We generally expect to securitize our vacation ownership notes receivable, including any vacation ownership notes receivable held in the Warehouse Credit Facility, in the ABS market at least once per year.

Additionally, during the fourth quarter of 2019, we securitized vacation ownership notes receivable under our Warehouse Credit Facility.

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

The carrying amount of the vacation ownership notes receivable securitized was $ 240 million.

The advance rate was 82 percent , which resulted in gross proceeds of $ 21 million .

The average advance rate was 84 percent, which resulted in gross proceeds of $ 202 million.

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

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

The carrying amount of the vacation ownership notes receivable securitized was $ 132 million.

The average advance rate was 86 percent, which resulted in gross proceeds of $ 113 million.

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.

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 December 31, 2019

At December 31, 2018

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

Senior Secured Notes

2025 Notes $ 500 $ —

Unamortized debt discount and issuance costs ( 6 ) —

Senior Unsecured Notes

Unamortized debt issuance costs

Exchange Notes

Unamortized debt issuance costs

2026 Notes 750 750

Unamortized debt discount and issuance costs ( 6 ) ( 8 )

2028 Notes 350 350

Unamortized debt discount and issuance costs ( 4 ) ( 5 )

Corporate Credit Facility

Term Loan 884 893

Unamortized debt discount and issuance costs ( 11 ) ( 12 )

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Unamortized debt issuance costs (1)

Convertible notes, gross

2022 Convertible Notes 230 230

Unamortized debt discount and issuance costs ( 15 ) ( 23 )

Non-interest bearing note payable

Unamortized debt discount

Finance leases 8 14

$ 2,680 $ 2,216

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(1) Excludes $ 3 million of unamortized debt issuance costs as of December 31, 2020, as no cash borrowings were outstanding on the Revolving Corporate Credit Facility, as defined below, at that time.

The following table shows scheduled future principal payments for our debt, excluding finance leases, as of December 31, 2020.

($ in millions)

Revolving Corporate Credit Facility

Convertible Notes

($ in millions) 2025 Notes 2026 Notes 2028 Notes Term Loan (1)

2022 Convertible Notes Total

Payments Year

2021 $ — $ — $ — $ 9 $ — $ 9

2022 — — — 9 230 239

2023 — — — 9 — 9

2024 — — — 9 — 9

2025 500 — — 848 — 848

Thereafter — 750 350 — — 1,100

$ 500 $ 750 $ 350 $ 884 $ 230 $ 2,214

_________________________

(1) Subsequent to the end of 2020, we elected to repay $ 100 million of the principal of our Term Loan.

Senior Secured Notes

In the second quarter of 2020, we issued $ 500 million aggregate principal amount of 6.125 % Senior Secured Notes due September 15, 2025 (the “2025 Notes”).

The 2025 Notes are pari passu with, and secured by the same collateral as, our Corporate Credit Facility.

We pay interest on the 2025 Notes on May 15 and November 15 of each year, commencing on November 15, 2020.

We received net proceeds of approximately $ 493 million from the offering of the 2025 Notes, after deducting offering expenses and the underwriting discount, which were used to repay all amounts outstanding at that time on the Revolving Corporate Credit Facility.

We may redeem some or all of the 2025 Notes prior to maturity under the terms provided in the indenture.

Senior Unsecured Notes

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• $ 350 million aggregate principal amount of 4.750 % Senior Unsecured Notes due 2028 issued in the fourth quarter of 2019 with a maturity date of January 15, 2028 (the “2028 Notes”).

the 5.625 % Senior Unsecured Notes due 2023 offered in exchange for the IAC Notes (as defined below) during the third quarter of 2018 (the “Exchange Notes”);

the 5.625 % Senior Unsecured Notes due 2023 assumed in connection with the ILG Acquisition (the “IAC Notes”).

We issued the 2026 Notes under an indenture dated August 23, 2018 with The Bank of New York Mellon Trust, as trustee.

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We used these proceeds, together with the borrowings under the Term Loan (defined below) primarily to finance the cash component of the consideration paid in the ILG Acquisition to ILG shareholders, certain fees and expenses we incurred in connection with the ILG Acquisition and working capital.

We pay interest on the 2026 Notes on March 15 and September 15 of each year, commencing on March 15, 2019.

We may redeem some or all of the 2026 Notes prior to maturity under the terms provided in the indenture.

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We received net proceeds of $ 346 million from the offering, after deducting the underwriting discount and estimated expenses.

The net proceeds from the 2028 Notes were used (i) to redeem all of the outstanding IAC Notes, (ii) to redeem all of the outstanding Exchange Notes, (iii) to repay a portion of the outstanding borrowings under our Revolving Corporate Credit Facility, (iv) to pay transaction expenses and fees in connection with each of the foregoing and (v) for general corporate purposes.

We will pay interest on the 2028 Notes on March 15 and September 15 of each year, commencing on March 15, 2020.

We may redeem some or all of the Senior Unsecured Notes prior to maturity under the terms provided in the indenture.

IAC Notes and Exchange Notes

In connection with the ILG Acquisition, we assumed $ 350 million in aggregate principal amount of outstanding IAC Notes.

During 2018, we exchanged $ 88 million of these notes for $ 88 million of Exchange Notes , plus approximately $ 1 million in cash.

Additionally, during 2018, $ 122 million of tendered IAC Notes were repurchased for $ 123 million using cash on hand, leaving $ 140 million in aggregate principal amounts of the IAC Notes remaining outstanding as of December 31, 2018.

During 2019, we redeemed all of the outstanding IAC Notes and Exchange Notes using proceeds from the issuance of the 2028 Notes .

The net proceeds from the 2028 Notes were used (i) to redeem all of the outstanding 5.625 % Senior Unsecured Notes due 2023 assumed in connection with the ILG Acquisition (the “IAC Notes”), (ii) to redeem all of the outstanding 5.625 % Senior Unsecured Notes due 2023 offered in exchange for the IAC Notes during the third quarter of 2018 (the “Exchange Notes”), (iii) to repay a portion of the outstanding borrowings under our Revolving Corporate Credit Facility, (iv) to pay transaction expenses and fees in connection with each of the foregoing and (v) for general corporate purposes.

We pay interest on the 2028 Notes on March 15 and September 15 of each year, commencing on March 15, 2020.

We may redeem some or all of the 2028 Notes prior to maturity under the terms provided in the indenture.

Corporate Credit Facility

Our corporate credit facility (“Corporate Credit Facility”), which provides support for our business, including ongoing liquidity and letters of credit, includes a $ 900 million term loan facility (the “Term Loan”), which matures on August 31, 2025, and a revolving corporate credit facility with a borrowing capacity of $ 600 million (the “Revolving Corporate Credit Facility”), including a letter of credit sub-facility of $ 75 million , that terminates on August 31, 2023 .

In December 2019, we amended the existing credit agreement that governs our Corporate Credit Facility which reduced the interest rate applicable to the Term Loan from LIBOR plus 2.25 percent to LIBOR plus 1.75 percent .

All other terms in the existing credit agreement remain substantially the same.

Our corporate credit facility (“Corporate Credit Facility”), which provides support for our business, including ongoing liquidity and letters of credit, includes a $ 900 million term loan facility (the “Term Loan”), which matures on August 31, 2025, and a revolving credit facility with a borrowing capacity of $ 600 million (the “Revolving Corporate Credit Facility”), including a letter of credit sub-facility of $ 75 million, that terminates on August 31, 2023.

The Term Loan bears interest at LIBOR plus 1.75 percent.

Borrowings under the Revolving Corporate Credit Facility generally bear interest at a floating rate plus an applicable margin that varies from 0.50 percent to 2.75 percent depending on the type of loan and our credit rating.

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

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.

Any amounts borrowed under that facility, as well as obligations with respect to letters of credit issued pursuant to that facility, are secured by a perfected first priority security interest in substantially all of the assets of the borrower under, and guarantors of, that facility (which include Marriott Vacations Worldwide and each of our direct and indirect, existing and future, domestic subsidiaries, excluding certain bankruptcy remote special purpose subsidiaries), in each case including inventory, subject to certain exceptions.

As of December 31, 2019 , we were in compliance with the applicable financial and operating covenants under the Corporate Credit Facility.

We entered into $ 250 million of interest rate swaps under which we pay a fixed rate of 2.9625 percent and receive a floating interest rate through September 2023 and $ 200 million of interest rate swaps under which we pay a fixed rate of 2.2480 percent and receive a floating interest rate through April 2024 , in each case to hedge a portion of our interest rate risk on the Term Loan.

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

The Waiver, among other things, suspends the requirement to comply with the leverage covenant in the Revolving Corporate Credit Facility, commencing with the fiscal quarter ending June 30, 2020.

The initial suspension period included in the Waiver was up to four quarters, however, in February 2021, subsequent to the end of 2020, we further amended the agreement governing our Corporate Credit Facility to extend the suspension period included in the Waiver through the end of 2021.

We are required to maintain monthly minimum liquidity of at least $ 300 million until the later of December 31, 2021 or the end of the suspension period.

In addition, for the duration of the period during which the waiver of the leverage covenant remains in effect, we are prohibited from making certain restricted payments, including share repurchases and dividends.

If we are not in compliance with the leverage covenant at the end of the suspension period, we will seek to negotiate with our lenders to amend such covenant, as needed.

Prior to 2020, we entered into $ 250 million of interest rate swaps under which we pay a fixed rate of 2.9625 percent and receive a floating interest rate through September 2023 and $ 200 million of interest rate swaps under which we pay a fixed rate of 2.2480 percent and receive a floating interest rate through April 2024, in each case to hedge a portion of our interest rate risk on the Term Loan.

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.

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($ in millions) 2020 2019 2018

Derivative Instrument Adjustments

Balance at December 30, 2016

Other comprehensive loss before reclassifications

Reclassification to Income Statement

Net other comprehensive loss

Balance at December 31, 2017

Other comprehensive loss before reclassifications

Reclassification to Income Statement

Net other comprehensive loss

Balance at December 31, 2018

Derivative Instrument Adjustment, Beginning of Year $ ( 21 ) $ ( 6 ) $ —

Other comprehensive loss before reclassifications ( 18 ) ( 15 ) ( 6 )

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Net other comprehensive loss ( 18 ) ( 15 ) ( 6 )

Balance at December 31, 2019

Derivative Instrument Adjustment, End of Year $ ( 39 ) $ ( 21 ) $ ( 6 )

2022 Convertible Notes

During 2017, we issued $ 230 million aggregate principal amount of Convertible Notes that bear interest at a rate of 1.50 percent, payable in cash semi-annually.

During 2017, we issued an aggregate principal amount of $ 230 million of 2022 Convertible Notes that bear interest at a rate of 1.50 percent, payable in cash semi-annually.

The 2022 Convertible Notes mature on September 15, 2022, unless repurchased or converted in accordance with their terms prior to that date.

The conversion rate is subject to adjustment for certain events as described in the indenture governing the notes and was subject to adjustment during the fourth quarter of 2019 to 6.7988 shares of common stock per $1,000 principal amount of

Convertible Notes (equivalent to a conversion price of approximately $ 147.08 per share of our common stock) when we declared a quarterly dividend of $ 0.54 per share, which was greater than the quarterly dividend when the Convertible Notes were issued.

The conversion rate is subject to adjustment for certain events as described in the indenture governing the notes, and was subject to adjustment as of December 31, 2020 to 6.8115 shares of common stock per $1,000 principal amount of 2022 Convertible Notes (equivalent to a conversion price of approximately $ 146.81 per share of our common stock), as a result of the $ 0.54 per share quarterly dividends declared during the first quarter of 2020, which was greater than the quarterly dividend when the 2022 Convertible Notes were issued.

Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.

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.

It is our intent to settle conversions of

the 2022 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.

Holders may convert their 2022 Convertible Notes prior to June 15, 2022 only under certain circumstances.

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The following table shows the net carrying value of the 2022 Convertible Notes:

($ in millions)

At December 31, 2019

At December 31, 2018

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

Liability component

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Amortization of debt issuance costs 1 2 1

$ 11 $ 11 $ 10

See Footnote 23 “Subsequent Events” for information on convertible notes, convertible note hedges and warrants issued subsequent to the end of 2020.

2022 Convertible Note Hedges and Warrants

In connection with the offering of the 2022 Convertible Notes, we concurrently entered into the following privately-negotiated separate transactions:

convertible note hedge transactions with respect to our common stock (“Convertible Note Hedges”), covering a total of approximately 1.55 million shares of our common stock, and warrant transactions (the “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.

The strike price was subject to adjustment during the fourth quarter of 2019 to $ 175.37 per share when we declared a quarterly dividend of $ 0.54 per share.

Taken together, the Convertible Note Hedges and the Warrants are generally expected to reduce the potential dilution to our common stock (or, in the event the conversion of the Convertible Notes is settled in cash, to reduce our cash payment obligation) in the event that at the time of conversion our stock price exceeds the conversion price under the Convertible Notes and to effectively increase the overall conversion price from $ 148.19 (or a conversion premium of 30 percent) to $ 176.68 per share (or a conversion premium of 55 percent).

convertible note hedge transactions with respect to our common stock (“2022 Convertible Note Hedges”), initially covering a total of approximately 1.55 million shares of our common stock, and warrant transactions (“2022 Warrants”), whereby we sold to the counterparties to the 2022 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 December 31, 2020, no 2022 Convertible Note Hedges or 2022 Warrants have been exercised.

The 2022 Warrants will expire in ratable portions on a series of expiration dates commencing on December 15, 2022.

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Holders of any such instrument have no rights with respect to the other instruments.

As of December 31, 2019 , no Convertible Note Hedges or Warrants have been exercised.

Finance Leases

See Footnote 15 “Leases” for information on our finance leases.

Amounts borrowed under the Corporate Credit Facility, as well as obligations with respect to letters of credit issued pursuant to that facility, are secured by a perfected first priority security interest in substantially all of the assets of the borrowers under, and guarantors of, that facility (which include MVWC and certain of our direct and indirect, existing and future, domestic subsidiaries, excluding certain bankruptcy remote special purpose subsidiaries), in each case including inventory, subject to certain exceptions.

In addition, the 2026 Notes and 2028 Notes are guaranteed by MVWC and certain of our direct and indirect, existing and future, domestic subsidiaries, excluding bankruptcy remote special purpose subsidiaries.

See Footnote 21 “ Supplemental Guarantor Information ” for additional information.

Security and Guarantees

Amounts borrowed under the Corporate Credit Facility and the 2025 Notes, as well as obligations with respect to letters of credit issued pursuant to the Corporate Credit Facility, are secured by a perfected first priority security interest in substantially all of the assets of the borrowers under, and guarantors of, that facility (which include MVWC and certain of our direct and indirect, existing and future, domestic subsidiaries, excluding certain bankruptcy remote special purpose subsidiaries), in each case including inventory, subject to certain exceptions.

In addition, the Corporate Credit Facility, the 2025 Notes, the 2026 Notes and the 2028 Notes are guaranteed by MVWC and certain of our direct and indirect, existing and future, domestic subsidiaries, excluding bankruptcy remote special purpose subsidiaries.

SHAREHOLDERS’ EQUITY

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At December 31, 2020, there were 75,279,061 shares of Marriott Vacations Worldwide common stock issued, of which 41,094,248 shares were outstanding and 34,184,813 shares were held as treasury stock.

As part of an internal restructuring to further integrate ILG and right-size our capital structure, we issued 16,929,124 shares of our common stock to Marriott Ownership Resorts, Inc., our wholly owned subsidiary and 16,367,491 shares of our common stock to MVW US Holdings LLC, our wholly owned subsidiary.

In connection with the restructuring, these shares were returned to treasury as of December 31, 2019.

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.

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Share Repurchase Program

The following table summarizes share repurchase activity under our current share repurchase program:

($ in millions, except per share amounts)

Cost of Shares

Average Price

The following table summarizes the share repurchase activity under our share repurchase program, which expired on December 31, 2020:

($ in millions, except per share amounts) Number of

Repurchased Cost of Shares

Repurchased Average Price

Paid per Share

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As of December 31, 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 December 31, 2019 , 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.

The specific timing, amount and other terms of the repurchases will depend on market conditions, corporate and regulatory requirements and other factors.

Acquired shares of our common stock are held as treasury shares carried at cost in our Financial Statements.

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 December 31, 2019 , 2.7 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.

We declared cash dividends to holders of common stock during the year ended December 31, 2020 as follows:

Declaration Date

Shareholder Record Date

Distribution Date

Dividend per Share

February 15, 2019

February 28, 2019

March 14, 2019

September 5, 2019

September 19, 2019

October 3, 2019

December 9, 2019

December 23, 2019

January 6, 2020

Any future dividend payments will be subject to Board approval, and there can be no assurance that we will pay dividends in the future.

Declaration Date Shareholder Record Date Distribution Date Dividend per Share

February 14, 2020 February 27, 2020 March 12, 2020 $ 0.54

Due to the impact of the COVID-19 pandemic, we temporarily suspended cash dividends.

Any future dividend payments will be subject to both the restrictions imposed under the Waiver and other agreements covering our debt, Board approval, and there can be no assurance that we will pay dividends in the future.

Noncontrolling Interests

Property Owners’ Associations

As part of the ILG Acquisition we established a noncontrolling interest in property owners’ associations that Legacy-ILG consolidates under the voting interest model, which represents the portion of the property owners’ associations related to individual or third-party VOI owners.

This noncontrolling interest amounts to $ 12 million and $ 8 million , as of December 31, 2019 and December 31, 2018 , respectively, and is included on our Balance Sheets as a component of equity.

We consolidate certain property owners’ associations.

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

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

SHARE-BASED COMPENSATION

We maintain the MVW Stock Plan for the benefit of our officers, directors and employees.

Under the MVW Stock Plan, we award:

The MVW Equity Plan is maintained for the benefit of our officers, directors and employees.

Under the MVW Equity Plan, we are authorized to award:

(1) RSUs of our common stock, (2) SARs relating to our common stock, and (3) stock options to purchase our common stock.

A total of 6 million shares are authorized for issuance pursuant to grants under the MVW Stock Plan.

As of December 31, 2019 , less than 1 million shares were available for grants under the MVW Stock Plan.

As part of the ILG Acquisition, we assumed the Interval Leisure Group, Inc.

2013 Stock and Incentive Plan (the “ILG Stock Plan”) and equity based awards outstanding under the ILG Stock Plan.

As of December 31, 2019 , 1 million shares were available for grants under the ILG Stock Plan to Legacy-ILG employees.

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

As of December 31, 2020, approximately 1.7 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:

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Stock options — — —

$ 37 $ 37 $ 35

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

($ in millions)

At Year-End 2019 (1)

($ in millions) At Year-End 2020 (1)

At Year-End 2019

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The following table shows the changes in our outstanding RSUs and the associated weighted average grant-date fair values:

Service-based

Performance-based

Number of RSUs

Weighted Average Grant-Date Fair Value Per RSU

Number of RSUs

Weighted Average Grant-Date Fair Value Per RSU

Number of RSUs

Weighted Average Grant-Date Fair Value Per RSU

Service-based Performance-based Total

Number of RSUs Weighted Average Grant-Date Fair Value Per RSU Number of RSUs Weighted Average Grant-Date Fair Value Per RSU Number of RSUs Weighted Average Grant-Date Fair Value Per RSU

Outstanding at year-end 2019 648,575 $ 85.87 489,322 $ 101.35 1,137,897 $ 92.53

Granted 348,890 $ 98.51 177,208 $ 90.82 526,098 $ 95.92

Distributed ( 192,337 ) $ 94.80 ( 65,863 ) $ 93.41 ( 258,200 ) $ 94.44

Forfeited ( 21,639 ) $ 98.02 ( 50,496 ) $ 94.32 ( 72,135 ) $ 95.43

Outstanding at year-end 2020 783,489 $ 88.98 550,171 $ 99.56 1,333,660 $ 93.34

The weighted average grant-date fair value per RSU granted in 2019 and 2018 was $ 92.53 and $ 120.04 , respectively.

The fair value of the RSUs which vested in 2020 was $ 30 million, and included $ 6 million related to RSUs converted from ILG equity-based RSUs to MVW equity-based RSUs in the ILG Acquisition.

The fair value of the RSUs which vested in 2019 was $ 34 million, and included $ 15 million related to RSUs converted in the ILG Acquisition.

The fair value of the RSUs which vested in 2018 was $ 48 million, and included $ 24 million related to RSUs converted in the ILG Acquisition.

The fair value of the RSUs which vested in 2017 was $ 18 million .

Stock Appreciation Rights

The following table shows the changes in our outstanding SARs and the associated weighted average exercise prices:

Weighted Average Exercise Price Per SAR

SARs Weighted Average Exercise Price Per SAR

Outstanding at year-end 2019 696,147 $ 68.18

Granted 116,434 $ 96.82

Exercised ( 184,118 ) $ 29.85

Forfeited or expired ( 6,361 ) $ 97.95

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622,102 $ 84.58

_________________________

(1) As of December 31, 2020, outstanding SARs had a total intrinsic value of $ 33 million and a weighted average remaining term of 6 years.

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The weighted average grant-date fair value per SAR granted in 2020, 2019, and 2018 was $ 29.63 , $ 28.89 , and $ 44.75 , respectively.

The intrinsic value of SARs which vested in 2019 , 2018 and 2017 , was $ 4 million , less than $ 1 million and $ 6 million , respectively.

The intrinsic value of SARs which vested in 2020, 2019, and 2018, was $ 4 million, $ 4 million, and less than $ 1 million, respectively.

The aggregate intrinsic value of SARs which were exercised in 2020, 2019, and 2018 was $ 19 million, $ 11 million, and $ 2 million, respectively.

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The expected stock price volatility was calculated based on the average of the historical and implied volatility from our stock price.

The average expected life was calculated using the simplified method, as we have insufficient historical information to provide a basis for estimate.

The average expected life was calculated using the simplified method, as we have insufficient historical information to provide a basis for estimating average expected life.

The risk-free interest rate was calculated based on U.S.

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The following table outlines the assumptions used to estimate the fair value of grants in 2020, 2019, and 2018:

2020 2019 2018

Expected volatility 38.81 % 31.10 % 30.78 %

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There were no outstanding or exercisable stock options held by our employees at year-end 2020 or 2019, and no stock options were granted to our employees in 2020, 2019, or 2018.

At December 31, 2019 , approximately 3,000 stock options were outstanding and exercisable with a weighted average exercise price per option of $ 20.62 and a weighted average remaining life of approximately one year.

At December 31, 2020, approximately 700 stock options were outstanding and exercisable with a weighted average exercise price per option of $ 23.46 and a weighted average remaining life of less than one year .

Employee Stock Purchase Plan

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The following table shows consolidated assets, which are collateral for the obligations of these VIEs, and consolidated liabilities included on our Balance Sheet at December 31, 2020:

($ in millions)

Vacation Ownership

($ in millions) Vacation Ownership

Notes Receivable

Securitizations

Securitizations Warehouse

Facility Total

Consolidated Assets

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Restricted cash 68 — 68

Total $ 1,572 $ — $ 1,572

Consolidated Liabilities

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Securitized debt 1,604 — 1,604

Total $ 1,605 $ — $ 1,605

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

($ in millions)

Vacation Ownership

($ in millions) Vacation Ownership

Notes Receivable

Securitizations

Securitizations Warehouse

Facility Total

Interest income $ 222 $ 17 $ 239

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Reserve release 16 184

Total 1,092 1,690

Cash Outflows

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Funding of restricted cash ( 20 ) ( 169 )

Total ( 691 ) ( 801 )

Net Cash Flows $ 401 $ 889

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We also made voluntary repurchases, net of substitutions, of $ 383 million, $ 356 million and $ 39 million of other non-defaulted vacation ownership notes receivable during 2020, 2019 and 2018, respectively, to retire previous vacation ownership notes receivable securitizations.

Our maximum exposure to loss relating to the special purpose entities that purchase, sell and own these vacation ownership notes receivable is the overcollateralization amount (the difference between the loan collateral balance and the balance on the outstanding vacation ownership notes receivable), plus cash reserves and any residual interest in future cash flows from collateral.

Our maximum exposure to potential loss relating to the special purpose entities that purchase, sell, and own these vacation ownership notes receivable is the overcollateralization amount (the difference between the loan collateral balance and the balance on the outstanding vacation ownership notes receivable), plus cash reserves and any residual interest in future cash flows from collateral.

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

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Reserve release 2 2

Total 368 231

Cash Outflows

Principal to investors ( 33 ) ( 12 )

Voluntary repurchases of defaulted vacation ownership notes receivable ( 3 ) —

Repayment of Warehouse Credit Facility ( 300 ) ( 285 )

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Funding of restricted cash ( 2 ) ( 2 )

Total ( 342 ) ( 303 )

Net Cash Flows $ 26 $ ( 72 )

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We have a commitment to purchase an operating property located in San Francisco, California, that we currently manage as Marriott Vacation Club Pulse, San Francisco.

Refer to Footnote 11 “ Contingencies and Commitments ” for additional information on the commitment.

We expect to acquire the operating property over time and as of December 31, 2020 are committed to make payments for the operating property as follows:

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

See Footnote 4 “Acquisitions and Dispositions” for information on the purchases that occurred during 2020 and 2019.

We are required to purchase the property from the third party developer unless the developer has sold the property to another party.

The property is held by a VIE for which we are not the primary beneficiary as we cannot prevent the VIE from selling the property at a higher price.

The property is held by a VIE for which we are not the primary beneficiary as we cannot prevent the VIE from selling the property to another party at a higher price.

Accordingly, we have not consolidated the VIE.

As of December 31, 2019 , our Balance Sheet reflected $ 2 million in Accounts Receivable, including a note receivable of less than $ 1 million , and less than $ 1 million in Accrued liabilities.

We believe that our maximum exposure to loss as a result of our involvement with this VIE is $ 2 million as of December 31, 2019 .

As of December 31, 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 December 31, 2020.

Subsequent to the end of 2020, we fulfilled our outstanding commitment to purchase 44 completed vacation ownership units for $ 34 million.

We accounted for this purchase as an asset acquisition with the purchase price allocated to Inventory ($ 29 million) and Other assets ($ 5 million).

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.

Refer to Footnote 11 “ Contingencies and Commitments ” for additional information on the commitment.

See Footnote 4 “Acquisitions and Dispositions” for information on the purchase that occurred during 2020.

We are required to purchase the completed property from the third-party developer unless the developer has sold the property to another party.

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Accordingly, we have not consolidated the VIE.

As of December 31, 2019 , our Balance Sheet reflected $ 28 million in Property and equipment, including a $ 20 million deposit related to the acquisition of a portion of this property, which was completed in January 2020, and $ 8 million related to a finance lease and leasehold improvements, $ 1 million in Accrued liabilities, and $ 7 million in Debt related to the finance lease liability for ancillary and operations space we lease from the VIE.

In addition, a note receivable of less than $ 1 million is included in the Accounts receivable line on the Balance Sheet as of December 31, 2019 .

As of December 31, 2020, our Balance Sheet reflected $ 22 million in Other assets for a deposit related to the acquisition of the remainder of this property which was completed in January 2021, 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 December 31, 2020.

Subsequent to the end of 2020, we fulfilled our outstanding commitment to purchase the remaining 120 completed vacation ownership units for $ 98 million.

We accounted for this purchase as an asset acquisition with the purchase price allocated to Property and equipment.

We have a commitment to purchase a property located in Waikiki, Hawaii, which we assigned to a third party during 2020.

If we are unable to negotiate a capital efficient inventory arrangement, we are committed to purchase the property, in its then current form, for $ 98 million in 2021, unless it has been sold to another party.

The property is held by a VIE for which we are not the primary beneficiary as we do not control the operations of the VIE.

Accordingly, we have not consolidated the VIE.

As of December 31, 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 approximately $ 1 million as of December 31, 2020.

BUSINESS SEGMENTS

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We operate in two operating and reportable business segments:

Vacation Ownership includes a diverse portfolio of resorts that includes seven vacation ownership brands licensed under exclusive, long-term relationships with Marriott International and Hyatt.

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, Westin, and Hyatt Residence Club brands, as well as under Marriott Vacation Club Pulse, an extension to the Marriott Vacation Club brand.

• Vacation Ownership includes a diverse portfolio of resorts that 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 have a license to use the St.

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We allocate depreciation, other gains and losses, equity in earnings or losses from our joint ventures, and noncontrolling interest to each of our segments as appropriate.

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, as our CODM does not use this information to make operating segment resource allocations.

Corporate and other represents that portion of our results that are not allocable to our segments, including those relating to consolidated property owners’ associations, as our CODM does not use this information to make operating segment resource allocations.

Prior year segment information has been reclassified to conform to the current reportable segment presentation.

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Adjusted EBITDA is defined as 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, excluding share-based compensation expense and adjusted for certain items that affect the comparability or our operating performance.

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

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.

($ in millions) 2020 2019 2018

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Corporate and other 47 44 4

$ 2,886 $ 4,259 $ 2,968

Adjusted EBITDA and Reconciliation to Net Income Attributable to Common Shareholders

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Interest expense ( 150 ) ( 132 ) ( 54 )

Tax provision

Tax benefit (provision) 84 ( 83 ) ( 51 )

Depreciation and amortization ( 123 ) ( 141 ) ( 62 )

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Corporate and other 33 26 9

($ in millions)

At December 31, 2019

At December 31, 2018

$ 123 $ 141 $ 62

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

Vacation Ownership $ 6,859 $ 7,345

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Corporate and other 1,088 707

$ 8,898 $ 9,214

Capital Expenditures (including inventory)

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Corporate and other 4 13 2

$ 202 $ 293 $ 252

Geographic Information

We conduct business globally, and our operations outside the United States represented approximately 13 percent of our revenues, excluding cost reimbursements, for 2019 , 2018 and 2017 .

We conduct business globally, and our operations outside the United States represented approximately 10 percent, 11 percent, and 13 percent of our revenues, excluding cost reimbursements, for 2020, 2019, and 2018, respectively.

Revenues (excluding cost reimbursements)

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All other countries 180 341 263

($ in millions)

At December 31, 2019

At December 31, 2018

$ 1,844 $ 3,151 $ 2,043

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

United States $ 640 $ 560

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QUARTERLY RESULTS (UNAUDITED)

($ in millions, except per share data)

Net income (loss) attributable to common shareholders

Earnings (loss) per share attributable to common shareholders

($ in millions, except per share data)

($ in millions, except per share data) First

Quarter Second

Quarter Third

Quarter Fourth

Quarter Fiscal

Revenues $ 1,010 $ 480 $ 649 $ 747 $ 2,886

Expenses $ ( 1,060 ) $ ( 521 ) $ ( 673 ) $ ( 730 ) $ ( 2,984 )

Net loss attributable to common shareholders $ ( 106 ) $ ( 70 ) $ ( 62 ) $ ( 37 ) $ ( 275 )

Loss per share attributable to common shareholders

Basic $ ( 2.56 ) $ ( 1.68 ) $ ( 1.51 ) $ ( 0.88 ) $ ( 6.65 )

Diluted $ ( 2.56 ) $ ( 1.68 ) $ ( 1.51 ) $ ( 0.88 ) $ ( 6.65 )

($ in millions, except per share data) First

Quarter Second

Quarter Third

Quarter Fourth

Quarter Fiscal

Revenues $ 1,034 $ 1,043 $ 1,066 $ 1,116 $ 4,259

Expenses $ ( 943 ) $ ( 900 ) $ ( 996 ) $ ( 962 ) $ ( 3,801 )

Net income (loss) attributable to common shareholders $ 24 $ 49 $ ( 9 ) $ 74 $ 138

Earnings (loss) per share attributable to common shareholders

Basic $ 0.52 $ 1.11 $ ( 0.21 ) $ 1.74 $ 3.13

Diluted $ 0.51 $ 1.10 $ ( 0.21 ) $ 1.71 $ 3.09

_______________________

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SUBSEQUENT EVENTS

On February 14, 2020 , our Board of Directors declared a quarterly dividend of $ 0.54 per share to be paid on March 12, 2020 to shareholders of record as of February 27, 2020 .

SUPPLEMENTAL GUARANTOR INFORMATION

The 2026 Notes are guaranteed by MVWC, Marriott Ownership Resorts, Inc.

(“MORI”), ILG and certain other subsidiaries whose voting securities are wholly owned directly or indirectly by MORI or ILG (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 December 31, 2019 and December 31, 2018 , and for the twelve months ended December 31, 2019 , December 31, 2018 and December 31, 2017 for MVWC on a stand-alone basis, each of MORI and ILG 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 December 31, 2019

Senior Notes Guarantors

Non-Guarantor Subsidiaries

Total Eliminations

MVW Consolidated

($ in millions)

Cash and cash equivalents

Restricted cash

Accounts receivable, net

Vacation ownership notes receivable, net

Property and equipment

Intangibles, net

Investments in subsidiaries

Accounts payable

Advance deposits

Accrued liabilities

Deferred revenue

Payroll and benefits liability

Deferred compensation liability

Securitized debt, net

Deferred taxes

MVW shareholders' equity

Noncontrolling interests

Total liabilities and equity

As of December 31, 2018 (1)

Senior Notes Guarantors

Non-Guarantor Subsidiaries

Total Eliminations

MVW Consolidated

($ in millions)

Cash and cash equivalents

Restricted cash

Accounts receivable, net

Vacation ownership notes receivable, net

Property and equipment

Intangibles, net

Due from parent

Investments in subsidiaries

Accounts payable

Advance deposits

Accrued liabilities

Deferred revenue

Payroll and benefits liability

Deferred compensation liability

Securitized debt, net

Due to subsidiary

Deferred taxes

MVW shareholders' equity

Noncontrolling interests

Total liabilities and equity

_________________________

Amounts have been revised to correct certain immaterial prior period errors as reported in the 2018 Annual Report and have been reclassified to conform to the current year presentation.

Condensed Consolidating Statement of Income

Senior Notes Guarantors

Non-Guarantor Subsidiaries

Total Eliminations

MVW Consolidated

($ in millions)

(Losses) gains and other (expense) income, net

Interest expense

ILG acquisition-related costs

Benefit (provision) for income taxes

Equity in net income of subsidiaries

Net income attributable to noncontrolling interests

Net income attributable to common shareholders

Senior Notes Guarantors

Non-Guarantor Subsidiaries

Total Eliminations

MVW Consolidated

($ in millions)

Gains (losses) and other income (expense), net

Interest expense

ILG acquisition-related costs

Benefit (provision) for income taxes

Equity in net income of subsidiaries

Net loss attributable to noncontrolling interests

Net income attributable to common shareholders

Senior Notes Guarantors

Non-Guarantor Subsidiaries

Total Eliminations

MVW Consolidated

($ in millions)

Gains (losses) and other income (expense), net

Interest expense

ILG acquisition-related costs

Provision for income taxes

Equity in net income of subsidiaries

Net income attributable to noncontrolling interests

Net income attributable to common shareholders

Condensed Consolidating Statement of Cash Flows

Senior Notes Guarantors

Non-Guarantor Subsidiaries

Total Eliminations

MVW Consolidated

($ in millions)

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

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

Net cash, cash equivalents and restricted cash provided by (used in) financing activities

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

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

Senior Notes Guarantors

Non-Guarantor Subsidiaries

Total Eliminations

MVW Consolidated

($ in millions)

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

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

Net cash, cash equivalents and restricted cash provided by (used in) financing activities

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

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

Senior Notes Guarantors

Non-Guarantor Subsidiaries

Total Eliminations

MVW Consolidated

($ in millions)

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

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

Net cash, cash equivalents and restricted cash provided by (used in) financing activities

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

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

Acquisition of Welk Resorts

On January 26, 2021, subsequent to the end of 2020, we entered into a definitive agreement to acquire Welk Resorts, one of the largest independent timeshare companies in North America, for approximately $ 430 million, including approximately 1.4 million shares of our common stock.

The acquisition is expected to close early in the second quarter of 2021.

Issuance of Convertible Notes

During the first quarter of 2021, we issued $ 575 million aggregate principal amount of 0.00 % Convertible Senior Notes due 2026 (the “2026 Convertible Notes”).

The 2026 Convertible Notes will not bear regular interest and will mature on January 15, 2026, unless earlier repurchased or converted.

On or after October 15, 2025, and prior to the close of business on the second scheduled trading day immediately preceding the stated maturity date of the 2026 Convertible Notes, holders may convert their 2026 Convertible Notes at their option.

The 2026 Convertible Notes are convertible at an initial rate of 5.8476 shares of common stock per $1,000 principal amount of 2026 Convertible Notes (equivalent to an initial conversion price of $ 171.01 per share of our common stock).

The conversion rate is subject to adjustment for certain events as described in the Indenture.

Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election.

It is our intent to settle conversions of the 2026 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.

In connection with the offering of the 2026 Convertible Notes, we entered into privately-negotiated convertible note hedge transactions with respect to our common stock with certain counterparties (the “2026 Convertible Note Hedges”), covering a total of 3.4 million shares of our common stock at a cost of approximately $ 100 million.

Concurrently with the entry into the 2026 Convertible Note Hedges, we separately entered into privately-negotiated warrant transactions (the “2026 Warrants”), whereby we sold to the counterparties to the 2026 Convertible Note Hedges warrants to acquire, collectively, subject to anti-dilution adjustments, approximately 3.4 million shares of our common stock at an initial strike price of $ 213.76 per share.

We received aggregate proceeds of approximately $ 70 million from the sale of the 2026 Warrants to the counterparties.

Taken together, the 2026 Convertible Note Hedges and the 2026 Warrants are generally expected to reduce the potential dilution to our common stock (or, in the event the conversion of the 2026 Convertible Notes is settled in cash, to reduce our cash payment obligation) in the event that at the time of conversion our stock price exceeds the conversion price under the 2026 Convertible Notes.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data