MARRIOTT VACATIONS WORLDWIDE Corp 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements You should read the following discussion of our results of operations and financial condition together with our audited historical consolidated financial statements and accompanying notes that we have included elsewhere in this Annual Report, as well as the discussion in the section of this Annual Report entitled “Business.” This discussion contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on our current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those we discuss in the sections of this Annual Report entitled “Risk Factors” and “Special Note About Forward-Looking Statements.” Our consolidated financial statements, which we discuss below, reflect our historical financial condition, results of operations and cash flows. The financial information discussed below and included in this Annual Report may not, however, necessarily reflect what our financial condition, results of operations and cash flows may be in the future. Our discussion and analysis of fiscal year 2020 to fiscal year 2019 is included herein. Our discussion and analysis of fiscal year 2019 to fiscal year 2018 has been omitted from this Form 10-K and can be found in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which was filed with the Securities and Exchange Commission on March 2, 2020. Business Overview We are a leading global vacation company that offers vacation ownership, exchange, rental, and resort and property management, along with related businesses, products and services. Our business operates in two reportable segments: Vacation Ownership and Exchange & Third-Party Management. Corporate and other represents that portion of our results that are not allocable to our segments, including those relating to Consolidated Property Owners’ Associations. COVID-19 Pandemic Update The COVID-19 pandemic has caused significant disruptions in international and U.S. economies and markets. We discuss the COVID-19 pandemic and its current and potential future implications in this report; however, the COVID-19 pandemic is evolving and its potential impact on our business in the future remains uncertain. Please see “ Impact of COVID-19 Pandemic ” included in “ Item 1. Business ” for additional discussion on the COVID-19 pandemic and its impact on our business. 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 restructuring and related charges primarily related to employee severance and benefit costs, including a portion that is included in cost reimbursements. See Footnote 3 “Restructuring Charges” to our Financial Statements for more information about the restructuring charges recorded as a result of the COVID-19 pandemic. Significant Accounting Policies Used in Describing Results of Operations Sale of Vacation Ownership Products We recognize revenues from the sale of VOIs when control of the vacation ownership product is transferred to the customer and the transaction price is deemed collectible. Based upon the different terms of the contracts with the customer and business practices, control of the vacation ownership product is transferred to the customer at closing for Legacy-MVW transactions and upon expiration of the statutory rescission period for Legacy-ILG transactions. Sales of vacation ownership products may be made for cash or we may provide financing. In addition, we recognize settlement fees associated with the transfer of vacation ownership products and commission revenues from sales of vacation ownership products on behalf of third parties, which we refer to as “resales revenue.” We also provide sales incentives to certain purchasers. These sales incentives typically include Marriott Bonvoy points, World of Hyatt points or an alternative sales incentive that we refer to as “plus points.” These plus points are redeemable for stays at our resorts or for use in other third-party offerings, generally up to two years from the date of issuance. Typically, sales incentives are only awarded if the sale is closed. As a result of the revenue recognition requirements included in Accounting Standards Codification (“ASC”) Topic 606, “ Revenue from Contracts with Customers ” (“ASC 606”), there may be timing differences between the date of the contract with the customer and when revenue is recognized. When comparing results year-over-year, this timing difference may generate significant variances, which we refer to as the impact of revenue reportability. 39 Finally, as more fully described in “ Financing ” below, we record the difference between the vacation ownership note receivable and the consideration to which we expect to be entitled (also known as a vacation ownership notes receivable reserve or a sales reserve) as a reduction of revenues from the sale of vacation ownership products at the time we recognize revenues from a sale. We report, on a supplemental basis, contract sales for our Vacation Ownership segment. Contract sales consist of the total amount of vacation ownership product sales under contract signed during the period where we have received a down payment of typically at least ten percent of the contract price, reduced by actual rescissions during the period, inclusive of contracts associated with sales of vacation ownership products on behalf of third-parties, which we refer to as “resales contract sales.” In circumstances where a customer applies any or all of their existing ownership interests as part of the purchase price for additional interests, we include only the incremental value purchased as contract sales. Contract sales differ from revenues from the sale of vacation ownership products that we report on our Income Statements due to the requirements for revenue recognition described above. We consider contract sales to be an important operating measure because it reflects the pace of sales in our business. Cost of vacation ownership products includes costs to develop and construct our projects (also known as real estate inventory costs), other non-capitalizable costs associated with the overall project development process and settlement expenses associated with the closing process. For each project, we expense real estate inventory costs in the same proportion as the revenue recognized. Consistent with the applicable accounting guidance, to the extent there is a change in the estimated sales revenues or inventory costs for the project in a period, a non-cash adjustment is recorded on our Income Statements to true-up costs in that period to those that would have been recorded historically if the revised estimates had been used. These true-ups, which we refer to as product cost true-up activity, can have a positive or negative impact on our Income Statements. We refer to revenues from the sale of vacation ownership products less the cost of vacation ownership products and marketing and sales costs as development margin. Development margin percentage is calculated by dividing development margin by revenues from the sale of vacation ownership products. Management and Exchange Our management and exchange revenues include revenues generated from fees we earn for managing each of our vacation ownership resorts, providing property management, property owners’ association management and related services to third-party vacation ownership resorts and fees we earn for providing rental services and related hotel, condominium resort, and property owners’ association management services to vacation property owners. In addition, we earn revenue from ancillary offerings, including food and beverage outlets, golf courses and other retail and service outlets located at our Vacation Ownership resorts. We also receive annual membership fees, club dues and certain transaction-based fees from members, owners and other third parties. Management and exchange expenses include costs to operate the food and beverage outlets and other ancillary operations and to provide overall customer support services, including reservations, and certain transaction-based expenses relating to external exchange service providers. In our Vacation Ownership segment and Consolidated Property Owners’ Associations, we refer to these activities as “Resort Management and Other Services.” Financing We offer financing to qualified customers for the purchase of most types of our vacation ownership products. The average FICO score of customers who were U.S. citizens or residents who financed a vacation ownership purchase was as follows: Fiscal Years 2020 2019 2018 Average FICO score 730 736 738 The typical financing agreement provides for monthly payments of principal and interest with the principal balance of the loan fully amortizing over the term of the related vacation ownership note receivable, which is approximately ten years. Included within our vacation ownership notes receivable are originated vacation ownership notes receivable and vacation ownership notes receivable acquired in connection with the ILG Acquisition. 40 Acquired vacation ownership notes receivable are accounted for using the purchased credit deteriorated assets provision of the current expected credit loss model. At acquisition, we recorded these vacation ownership notes receivable at fair value. Upon adoption of Accounting Standards Update 2016-13 – “ Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments ” on January 1, 2020, 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, 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. See Footnote 7 “Vacation Ownership Notes Receivable” to our Financial Statements for further information regarding the accounting for acquired vacation ownership notes receivable. The interest income earned from the originated vacation ownership financing arrangements is earned on an accrual basis on the principal balance outstanding over the contractual life of the arrangement and is recorded as Financing revenues on our Income Statements. Financing revenues also include fees earned from servicing the existing vacation ownership notes receivable portfolio. Financing expenses include costs in support of the financing, servicing and securitization processes. The amount of interest income earned in a period depends on the amount of outstanding vacation ownership notes receivable, which, for originated vacation ownership notes receivable, is impacted positively by the origination of new vacation ownership notes receivable and negatively by principal collections. We calculate financing propensity as contract sales volume of financed contracts closed in the period divided by contract sales volume of all contracts closed in the period. We do not include resales contract sales in the financing propensity calculation. Financing propensity was 51 percent in 2020 and 63 percent in 2019, with the year-over-year decline being driven by programs we offered to incent cash purchases. We expect to continue offering financing incentive programs in 2021 and that interest income will begin to increase when new originations of vacation ownership notes receivable outpace the decline in principal of existing vacation ownership notes receivable, most likely in 2022. In the event of a default, we generally have the right to foreclose on or revoke the underlying VOI. We return VOIs that we reacquire through foreclosure or revocation back to inventory. As discussed above, for originated vacation ownership notes receivable, we record a reserve at the time of sale and classify the reserve as a reduction to revenues from the sale of vacation ownership products on our Income Statements. Historical default rates, which represent defaults as a percentage of each year’s beginning gross vacation ownership notes receivable balance, were as follows: Fiscal Years 2020 2019 2018 Historical default rates 6.3% 4.5% 3.8% The increase in default rates in 2020 was predominantly due to the impact of the COVID-19 pandemic on the performance of our notes receivable portfolio. See Footnote 7, “Vacation Ownership Notes Receivable” to our Financial Statements for additional information regarding the COVID-19 impact on our vacation ownership notes receivable reserves. Financing expenses include consumer financing interest expense, which represents interest expense associated with the securitization of our vacation ownership notes receivable. We distinguish consumer financing interest expense from all other interest expense because the debt associated with the consumer financing interest expense is secured by vacation ownership notes receivable that have been sold to bankruptcy remote special purpose entities and is generally non-recourse to us. Rental In our Vacation Ownership segment, we operate a rental business to provide owner flexibility and to help mitigate carrying costs associated with our inventory. We generate revenue from rentals of inventory that we hold for sale as interests in our vacation ownership programs, inventory that we control because our owners have elected alternative usage options permitted under our vacation ownership programs and rentals of owned-hotel properties. We also recognize rental revenue from the utilization of plus points under the MVCD program when the points are redeemed for rental stays at one of our resorts or in the Explorer Collection. We obtain rental inventory from unsold inventory and inventory we control because owners have elected alternative usage options offered through our vacation ownership programs. For rental revenues associated with vacation ownership products which we own and which are registered and held for sale, to the extent that the revenues from rental are less than costs, revenues are reported net in accordance with ASC Topic 978, “ Real Estate - Time-Sharing Activities ” (“ASC 978”). The rental activity associated with discounted vacation packages requiring a tour (“preview stays”) is not included in rental metrics, and because the majority of these preview stays are sourced directly or indirectly from unsold inventory, the associated revenues and expenses are reported net in Marketing and sales expense. 41 In our Exchange & Third-Party Management segment, we offer vacation rental opportunities to members of the Interval International network and certain other membership programs. The offering of Getaways allows us to monetize excess availability of resort accommodations within the applicable exchange network. Resort accommodations available as Getaways typically result from seasonal oversupply or underutilized space, as well as resort accommodations we source specifically for Getaways. Rental expenses include: • Maintenance fees on unsold inventory; • Costs to provide alternative usage options, including Marriott Bonvoy points, offerings available as part of the Explorer Collection and through the Interval Options program, for owners who elect to exchange their inventory; • Marketing costs and direct operating and related expenses in connection with the rental business (such as housekeeping, credit card expenses and reservation services); and • Costs to secure resort accommodations for use in Getaways. Rental metrics, including the average daily transient rate or the number of transient keys rented, may not be comparable between periods given fluctuation in available occupancy by location, unit size (such as two bedroom, one bedroom or studio unit), owner use and exchange behavior. In addition, rental metrics may not correlate with rental revenues due to the requirement to report certain rental revenues net of rental expenses in accordance with ASC 978 (as discussed above). Further, as our ability to rent certain luxury and other inventory is often limited on a site-by-site basis, rental operations may not generate adequate rental revenues to cover associated costs. Our Vacation Ownership segment units are either “full villas” or “lock-off” villas. Lock-off villas are units that can be separated into a master unit and a guest room. Full villas are “non-lock-off” villas because they cannot be separated. A “key” is the lowest increment for reporting occupancy statistics based upon the mix of non-lock-off and lock-off villas. Lock-off villas represent two keys and non-lock-off villas represent one key. The “transient keys” metric represents the blended mix of inventory available for rent and includes all of the combined inventory configurations available in our resort system. Cost Reimbursements Cost reimbursements include direct and indirect costs that are reimbursed to us by customers under management contracts. All costs, with the exception of taxes assessed by a governmental authority, reimbursed to us by customers are reported on a gross basis. We recognize cost reimbursements when we incur the related reimbursable costs. Cost reimbursements consist of actual expenses with no added margin. Interest Expense Interest expense consists of all interest expense other than consumer financing interest expense. Other Items We measure operating performance using the following key metrics: • Contract sales from the sale of vacation ownership products; • Total contract sales include contract sales from the sale of vacation ownership products including joint ventures • Consolidated contract sales exclude contracts sales from the sale of vacation ownership products for non-consolidated joint ventures • Development margin percentage; • Volume per guest (“VPG”), which we calculate by dividing consolidated vacation ownership contract sales, excluding fractional sales, telesales, resales, joint venture sales and other sales that are not attributed to a tour at a sales location, by the number of tours at sales locations in a given period (which we refer to as “tour flow”). We believe that this operating metric is valuable in evaluating the effectiveness of the sales process as it combines the impact of average contract price with the number of touring guests who make a purchase; • Average revenue per member, which we calculate by dividing membership fee revenue, transaction revenue and other member revenue for the Interval International network by the monthly weighted average number of Interval International network active members during the applicable period; and • Total active members, which is the number of Interval International network active members at the end of the applicable period. 42 CONSOLIDATED RESULTS Fiscal Years ($ in millions) 2020 2019 2018 REVENUES 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 TOTAL REVENUES 2,886 4,259 2,968 EXPENSES Cost of vacation ownership products 150 349 260 Marketing and sales 419 748 527 Management and exchange 442 547 259 Rental 321 357 281 Financing 107 91 65 General and administrative 154 248 198 Depreciation and amortization 123 141 62 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 (Losses) gains and other (expense) income, net (26) 16 21 Interest expense (150) (132) (54) ILG acquisition-related costs (62) (118) (127) 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 (LOSS) INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (275) $ 138 $ 55 43 Operating Statistics Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 (Contract sales $ in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact Vacation Ownership Total contract sales $ 669 $ 1,569 $ 1,089 $ (900) (57%) $ 480 $ 50 6% Consolidated contract sales $ 654 $ 1,524 $ 1,073 $ (870) (57%) $ 451 $ 50 6% Exchange & Third-Party Management Total active members at end of period (000's) 1,518 1,670 1,802 (152) (9%) (132) Average revenue per member (1) $ 144.97 $ 168.73 $ 37.37 $ (23.76) (14%) NM _______________ (1) Only includes members of the Interval International exchange network. NM Not meaningful Revenues The following table presents our revenues for 2020, 2019, and 2018. The results for 2018 include Legacy-ILG for the months of September through December 2018, following the ILG Acquisition on September 1, 2018. Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact Vacation Ownership $ 2,530 $ 3,761 $ 2,803 $ (1,231) (33%) $ 958 $ 117 5% Exchange & Third-Party Management 309 454 161 (145) (32%) 293 — —% Total Segment Revenues 2,839 4,215 2,964 (1,376) (33%) 1,251 117 —% Consolidated Property Owners' Associations 47 44 4 3 10% 40 — —% Total Revenues $ 2,886 $ 4,259 $ 2,968 $ (1,373) (32%) $ 1,291 $ 117 5% Earnings Before Interest Expense, Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA EBITDA, a financial measure that is not prescribed by GAAP, is defined as earnings, or net income attributable to common shareholders, before interest expense (excluding consumer financing interest expense associated with term loan securitization transactions), income taxes, depreciation and amortization. Adjusted EBITDA reflects additional adjustments for certain items described below, and excludes share-based compensation expense to address considerable variability among companies in recording compensation expense because companies use share-based payment awards differently, both in the type and quantity of awards granted. For purposes of our EBITDA and Adjusted EBITDA calculations, we do not adjust for consumer financing interest expense associated with term loan securitization transactions because we consider it to be an operating expense of our business. We consider Adjusted EBITDA to be an indicator of operating performance, which we use to measure our ability to service debt, fund capital expenditures and expand our business. We also use Adjusted EBITDA, as do analysts, lenders, investors and others, because this measure excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company’s capital structure, debt levels and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provision for income taxes can vary considerably among companies. EBITDA and Adjusted EBITDA also exclude depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies. We believe Adjusted EBITDA is useful as an indicator of operating performance because it allows for period-over-period comparisons of our on-going core operations before the impact of the excluded items. Adjusted EBITDA also facilitates comparison by us, analysts, investors, and others, of results from our on-going core operations before the impact of these items with results from other vacation companies. 44 EBITDA and Adjusted EBITDA have limitations and should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. In addition, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do or may not calculate them at all, limiting their usefulness as comparative measures. The table below shows our EBITDA and Adjusted EBITDA calculation and reconciles these measures with Net (loss) income attributable to common shareholders, which is the most directly comparable GAAP financial measure. Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact Net (loss) income attributable to common shareholders $ (275) $ 138 $ 55 $ (413) (299%) $ 83 $ (50) (88%) Interest expense 150 132 54 18 14% 78 77 149% Tax (benefit) provision (84) 83 51 (167) (201%) 32 (39) (87%) Depreciation and amortization 123 141 62 (18) (13%) 79 5 23% EBITDA (86) 494 222 (580) (117%) 272 (7) (4%) Share-based compensation 37 37 35 — (1%) 2 4 16% Certain items 284 227 162 57 25% 65 71 58% Adjusted EBITDA $ 235 $ 758 $ 419 $ (523) (69%) $ 339 $ 68 21% Adjusted EBITDA margin percentage 13% 24% 21% (11 pts) 4 pts 3 pts Certain items for 2020 consisted of $100 million of impairment charges, $62 million of ILG acquisition-related costs, $57 million of other charges (including $50 million related to the net sales reserve adjustment, $2 million related to an accrual for the health and welfare costs for furloughed associates, $4 million related to the charge for VAT penalties and interest (see offset included in indemnification below) and $1 million of other miscellaneous charges), $26 million of losses and other expense, $25 million of restructuring costs, $4 million of purchase accounting adjustments, $6 million of litigation charges, and $4 million of transaction costs related to our asset light inventory arrangements. The $26 million of losses and other expense included $32 million related to a true-up to a Marriott International indemnification receivable upon settlement (the true-up to the offsetting accrual is included in the Benefit (provision) for income taxes line), $11 million related to foreign currency translation losses, and a $5 million loss related to the disposition of a formerly consolidated subsidiary, partially offset by $6 million of gains and other income related to the disposition of excess land parcels in Orlando, Florida and Steamboat Springs, Colorado, a $6 million receivable related to indemnification from Marriott International for certain VAT charges, $4 million related to net insurance proceeds from the final settlement of Legacy-MVW business interruption insurance claims arising from a prior year hurricane, $3 million related to other insurance proceeds, and $3 million of miscellaneous gains and other income. Certain items for 2019 consisted of $119 million of acquisition-related costs (including $118 million of ILG acquisition-related costs and $1 million of other acquisition costs), $99 million of asset impairment charges, $17 million of unfavorable purchase price adjustments, $7 million of litigation charges, and $1 million of other severance costs, partially offset by $16 million of miscellaneous gains and other income. The $16 million of miscellaneous gains and other income included $19 million of gains and other income related to the disposition of excess land parcels in Cancun, Mexico and Avon, Colorado, $9 million of gains and other income related to net insurance proceeds from the final settlement of Legacy-MVW business interruption insurance claims arising from prior year hurricanes, and $3 million of gains and other income resulting from the recovery of a portion of the fraudulently induced electronic payment disbursements made to third parties, partially offset by $15 million of integration related tax matters and other miscellaneous expenses. 45 Segment Adjusted EBITDA Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact Vacation Ownership $ 229 $ 794 $ 511 $ (565) (71%) $ 283 $ 79 18% Exchange & Third-Party Management 119 183 77 (64) (36%) 106 — —% Segment Adjusted EBITDA 348 977 588 (629) (64%) 389 79 —% General and administrative (118) (222) (171) 104 47% (51) (11) (11%) Consolidated Property Owners' Associations 5 3 2 2 122% 1 — —% Adjusted EBITDA $ 235 $ 758 $ 419 $ (523) (69%) $ 339 $ 68 21% The following tables present Adjusted EBITDA for our reportable segments reconciled to segment financial results. Vacation Ownership Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact Segment Adjusted EBITDA $ 229 $ 794 $ 511 $ (565) (71%) $ 283 $ 79 5% Depreciation and amortization (71) (68) (37) (3) (4%) (31) (1) (9%) Share-based compensation (6) (8) (7) 2 29% (1) (1) (2%) Certain items (73) (95) (24) 22 22% (71) (57) (316%) Segment financial results $ 79 $ 623 $ 443 $ (544) (87%) $ 180 $ 20 5% Certain items in the Vacation Ownership segment for 2020 consisted of $50 million related to the net sales reserve adjustment, $15 million of restructuring costs, $8 million of asset impairment charges, $6 million of litigation charges, $3 million of unfavorable purchase accounting adjustments, and $3 million of transaction costs associated with asset light inventory arrangements, partially offset by $12 million of gains and other income. Certain items in the Vacation Ownership segment for 2019 consisted of $99 million of asset impairment charges, $17 million of unfavorable purchase accounting adjustments, $6 million of litigation charges, and $1 million of acquisition costs, partially offset by $28 million of gains and other income. Exchange & Third-Party Management Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Segment Adjusted EBITDA $ 119 $ 183 $ 77 $ (64) (36%) $ 106 138% Depreciation and amortization (19) (47) (16) 28 60% (31) (191%) Share-based compensation (2) (3) (1) 1 33% (2) (137%) Certain items (99) (4) (3) (95) (2215%) (1) (25%) Segment financial results $ (1) $ 129 $ 57 $ (130) (101%) $ 72 129% Certain items in the Exchange & Third-Party Management segment for 2020 consisted of $92 million of asset impairment charges, $4 million of restructuring costs, $2 million of miscellaneous losses and other expense, and $1 million of unfavorable purchase accounting adjustments. Certain items in the Exchange & Third-Party Management segment for 2019 consisted of $3 million of miscellaneous losses and other expense and $1 million of unfavorable purchase accounting adjustments. 46 BUSINESS SEGMENTS Our business is grouped into two reportable business segments: Vacation Ownership and Exchange & Third-Party Management. See Footnote 21 “Business Segments” to our Financial Statements for further information on our segments. VACATION OWNERSHIP Fiscal Years ($ in millions) 2020 2019 2018 REVENUES Sale of vacation ownership products $ 546 $ 1,354 $ 990 Resort management and other services 356 488 359 Rental 239 512 352 Financing 265 271 182 Cost reimbursements 1,124 1,136 920 TOTAL REVENUES 2,530 3,761 2,803 EXPENSES Cost of vacation ownership products 150 349 260 Marketing and sales 386 695 513 Resort management and other services 136 229 190 Rental 363 390 277 Financing 106 89 64 Depreciation and amortization 71 68 37 Litigation charges 6 6 46 Restructuring 15 — — Royalty fee 95 106 78 Impairment 8 99 — Cost reimbursements 1,124 1,136 920 TOTAL EXPENSES 2,460 3,167 2,385 Gains and other income, net 12 28 28 ILG acquisition-related costs — — — Other (3) 1 (4) SEGMENT FINANCIAL RESULTS BEFORE NONCONTROLLING INTERESTS 79 623 442 Net loss attributable to noncontrolling interests — — 1 SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 79 $ 623 $ 443 Contract Sales Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact Total consolidated contract sales 654 1,524 1,073 (870) (57%) 451 50 6% Joint venture contract sales 15 45 16 (30) (68%) 29 — —% Total contract sales $ 669 $ 1,569 $ 1,089 $ (900) (57%) $ 480 $ 50 6% 47 Sale of Vacation Ownership Products Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact Total contract sales $ 669 $ 1,569 $ 1,089 $ (900) (57%) $ 480 $ 50 6% Less resales contract sales (12) (30) (30) 18 — — Less joint venture contract sales (15) (45) (16) 30 (29) — Consolidated contract sales, net of resales 642 1,494 1,043 (852) 451 50 Plus: Settlement revenue 14 24 26 (10) (2) 1 Resales revenue 7 14 12 (7) 2 2 Revenue recognition adjustments: Reportability 58 (8) 11 66 (19) (19) Sales reserve (129) (112) (64) (17) (48) (13) Other (1) (46) (58) (38) 12 (20) 1 Sale of vacation ownership products $ 546 $ 1,354 $ 990 $ (808) (60%) $ 364 $ 22 3% _______________ (1) Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue and other adjustments to Sale of vacation ownership products revenue. 2020 Compared to 2019 Sale of vacation ownership products decreased $808 million due primarily to $852 million of lower consolidated contract sales volumes, net of resales, and $17 million of higher sales reserve activity, partially offset by a $66 million favorable change in revenue reportability. The lower contract sales performance as well as the higher sales reserve activity were primarily due to the response to the COVID-19 pandemic. Contract sales and VPG as of March 13, 2020 were 10 percent and 11 percent higher, respectively, than the same period during the first quarter of 2019. However, during the second half of March 2020, as the virus continued to spread and we closed all of our sales centers, contract sales volumes declined significantly. We reopened eight sales centers in the second quarter and continued to reopen sales centers throughout the remainder of the year. At the end of 2020, over 80 percent of our sales centers were open, with the exception of sales centers in Kauai, Hawaii and in California that reopened but closed again in December 2020 due to government restrictions, as well as a handful of our smaller urban sales centers. The higher sales reserve recorded in 2020 reflected an estimate of higher estimated default activity related primarily to the impact of the COVID-19 pandemic, offset partially by the impact of lower contract sales in 2020. We will continue to evaluate our estimate of future default activity and compare it to actual default activity, and may adjust our sales reserve based on changes in actual default activity and other factors, as necessary. Revenue reportability was significantly higher in 2020 as a result of contract sales late in the fourth quarter of 2019 that we recognized as revenue in 2020. However, this shift of revenues from sales in late 2019 to early 2020 was not fully offset by the shift of revenues from sales late in the fourth quarter of 2020 into 2021, given the lower sales volumes in December 2020 due to the impact of the COVID-19 pandemic. 48 Development Margin Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact Sale of vacation ownership products $ 546 $ 1,354 $ 990 $ (808) (60%) $ 364 $ 22 3% Cost of vacation ownership products (150) (349) (260) 199 57% (89) 4 2% Marketing and sales (386) (695) (513) 309 45% (182) (2) (1%) Development margin $ 10 $ 310 $ 217 $ (300) (97%) $ 93 $ 24 13% Development margin percentage 1.8% 22.9% 21.9% (21.1 pts) 1.0 pts 2020 Compared to 2019 Development margin decreased $300 million or 97 percent. The decrease in development margin reflected $174 million of lower vacation ownership contract sales volume, net of the sales reserve and direct variable expenses (i.e., cost of vacation ownership products and marketing and sales), $107 million related to less efficient marketing and sales spend, and $80 million related to the net impact of the higher sales reserve. These declines were partially offset by $45 million of favorable revenue reportability compared to 2019 and $16 million of lower product cost activity mainly from a favorable mix of lower cost inventory being sold. Resort Management and Other Services Revenues, Expenses and Margin Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact Management fee revenues $ 149 $ 144 $ 114 $ 5 4% $ 30 $ 2 2% Ancillary revenues 89 224 160 (135) (60%) 64 5 4% Other management and exchange revenue 118 120 85 (2) (3%) 35 7 9% Resort management and other services revenues 356 488 359 $ (132) (27%) 129 14 5% Resort management and other services expenses (136) (229) (190) 93 41% (39) (3) (2%) Resort management and other services margin $ 220 $ 259 $ 169 $ (39) (15%) 90 $ 11 7% Resort management and other services margin percentage 61.8% 53.0% 47.1% 8.8 pts 5.9 pts 2020 Compared to 2019 Resort management and other services revenues reflected lower ancillary revenues, including revenues from food and beverage and golf offerings, as a result of significant resort and ancillary outlet closings due to the COVID-19 pandemic, partially offset by 4 percent higher management fees resulting from the cumulative increase in the number of vacation ownership products sold and higher operating costs across the system. The decrease in resort management and other services margin reflected the decrease in resort management and other services revenues, partially offset by lower ancillary expenses as a result of the lower ancillary revenues mentioned above. 49 Rental Revenues, Expenses and Margin Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact Rental revenues $ 239 $ 512 $ 352 $ (273) (53%) $ 160 $ 36 13% Rental expenses (363) (390) (277) 27 7% (113) (18) (8%) Rental margin $ (124) $ 122 $ 75 $ (246) (201%) $ 47 $ 18 35% Rental margin percentage NM 23.7% 21.5% NM 2.2 pts Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 (transient keys in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact Transient keys rented (1) 1.1 2.4 1.6 (1.3) (53%) 0.8 0.1 4% Average transient key rate $ 219.82 $ 228.38 $ 222.10 $ (8.56) (4%) $ 6.28 $ 3.65 2% Resort occupancy 57.2% 88.1% 88.5% (30.9 pts) (0.4 pts) 0.9 pts _________________________ (1) Transient keys rented exclude those obtained through the use of plus points and preview stays. 2020 Compared to 2019 The decline in rental margin resulted from a decline in keys rented and transient rate due to the COVID-19 pandemic. Rental margin as of the end of February 2020 was nearly $4 million higher than the comparable period of 2019. In response to quickly evolving travel restrictions and restrictions on business operations, beginning March 25, 2020, we closed our resorts for rental guests with stays at our branded North America vacation ownership resorts. In late May, as many government restrictions were beginning to be relaxed, we began reopening resorts to rental guests. Since the end of the second quarter and through the end of the year, we reopened more resorts to rental guests and expect rental revenues to continue to increase from current levels. At the end of 2020, over 95% of our resorts were open for rental stays. Financing Revenues, Expenses and Margin Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact Financing revenues $ 265 $ 271 $ 182 $ (6) (2%) $ 89 $ 32 22% Financing expenses (48) (34) (24) (14) (45%) (10) (1) (10%) Consumer financing interest expense (58) (55) (40) (3) (5%) (15) (7) (21%) Financing margin $ 159 $ 182 $ 118 (23) (13%) 64 $ 24 25% Financing margin percentage 59.8% 67.3% 64.6% (7.5 pts) 2.7 pts 1.5 pts Financing propensity 51% 63% 62% (12 pts) 1 pts 2020 Compared to 2019 Financing revenues decreased due to higher plus point finance incentive costs related to financing incentive programs we offered prior to the COVID-19 pandemic, as well as a decrease in the average gross vacation ownership notes receivable balance. The higher financing expenses included $14 million related to the higher reserve on the acquired vacation ownership notes receivable balance due primarily to higher estimated defaults as a result of the COVID-19 pandemic and $5 million related to higher technology related costs year over year, partially offset by lower salaries and wages associated with the furlough and reduced work week programs in the current year. Higher consumer financing interest expense resulted from higher overall securitized debt balances, partially offset by lower average borrowing rates . Depreciation and Amortization Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact Depreciation and amortization $ 71 $ 68 $ 37 $ 3 4% $ 31 $ 1 8% 50 Litigation Charges Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact Litigation charges $ 6 $ 6 $ 46 $ — 7% $ (40) $ (40) (87%) 2020 Compared to 2019 In 2020, we incurred $6 million of litigation charges related primarily to projects in Europe. In 2019, we incurred $6 million of litigation charges, including approximately $4 million related to projects in Europe and approximately $1 million related to projects in California. Royalty Fee Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact Royalty fee $ 95 $ 106 $ 78 $ (11) (10%) $ 28 $ — —% 2020 Compared to 2019 Royalty fee expense declined in 2020 as a result of lower contract closings due to the lower contract sales compared to the prior year. Impairment Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact Impairment $ 8 $ 99 $ — $ (91) (91%) $ 99 $ 99 100% 2020 We recorded a non-cash impairment of $6 million related to our Asia Pacific inventory as a result of the COVID-19 pandemic and $2 million of impairment charges for property and equipment. 2019 We recorded a non-cash impairment of $26 million as a result of entering into a contract to sell land and land improvements associated with a future phase of an existing resort located in Orlando, Florida for which the book value of the assets to be sold exceeded the sales price. This contract was subsequently terminated. We also recorded a non-cash impairment charge of $72 million due to a change in our development strategy associated with our comprehensive review of the strategic fit of the land holdings and operating hotels in our Vacation Ownership segment as a result of the ILG Acquisition. Additionally, we recorded a non-cash impairment of $1 million related to an ancillary asset located at a Vacation Ownership segment property in Europe. Cost Reimbursements Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact Cost reimbursements $ 1,124 $ 1,136 $ 920 $ (12) (1%) $ 216 $ 13 2% Other Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact Other $ (3) $ 1 $ (4) $ (4) (441%) $ 5 $ 4 NM 2020 Compared to 2019 In 2020, we incurred $3 million of transaction costs associated with our asset light inventory arrangements. 51 Gains and Other Income, Net Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact Gains and other income, net $ 12 $ 28 $ 28 $ (16) (56%) $ — $ (1) (6%) 2020 We recorded $12 million of gains and other income, including $6 million of net gains related to the disposition of excess land parcels in Orlando, Florida and Steamboat Springs, Colorado, $4 million of net insurance proceeds related to the settlement of Legacy-MVW business interruption insurance claims arising from a prior year hurricane, $1 million related to foreign currency translation and $1 million related to a miscellaneous insurance refund. 2019 We recorded $28 million of gains and other income, including $19 million of net gains related to the disposition of excess land in Cancun, Mexico, and Avon, Colorado, and $9 million gains and other income related to net insurance proceeds from the settlement of Legacy-MVW business interruption insurance claims arising from the 2017 hurricanes. EXCHANGE & THIRD-PARTY MANAGEMENT Our Exchange & Third-Party Management segment offers access to vacation accommodations and other travel-related transactions and services to leisure travelers by providing vacation exchange and management services, including vacation rentals and other services. We provide these services through a variety of brands including Interval International, Trading Places International, Vacation Resorts International, and Aqua-Aston. These brands were acquired as part of our acquisition of ILG on September 1, 2018 and, consequently, are only included in our results for the periods subsequent to that date. Fiscal Years ($ in millions) 2020 2019 2018 REVENUES Management and exchange $ 211 $ 298 $ 109 Rental 37 61 18 Financing 2 4 1 Cost reimbursements 59 91 33 TOTAL REVENUES 309 454 161 EXPENSES Marketing and sales 33 53 14 Management and exchange 89 101 31 Rental 11 28 9 Financing 1 2 1 Amortization of intangibles 19 22 6 Depreciation — 25 10 Restructuring 4 — — Impairment 92 — — Cost reimbursements 59 91 33 TOTAL EXPENSES 308 322 104 (Losses) gains and other (expense) income, net (2) (3) 1 SEGMENT FINANCIAL RESULTS BEFORE NONCONTROLLING INTERESTS (1) 129 58 Net income attributable to noncontrolling interests — — (1) SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (1) $ 129 $ 57 52 Management and Exchange Margin Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Management and exchange revenue $ 211 $ 298 $ 109 $ (87) (29%) $ 189 173% Management and exchange expense (89) (101) (31) 12 12% (70) (224%) Management and exchange margin $ 122 $ 197 $ 78 $ (75) (38%) 119 152% Management and exchange margin percentage 57.4% 65.9% 71.3% (8.5 pts) (5.4 pts) 2020 Compared to 2019 The decline in management and exchange revenue and margin reflected lower exchange revenues and lower average exchange transaction fees at Interval International, primarily due to the closure of a large number of affiliated resorts and the fact that additional resorts stopped taking reservations in response to the COVID-19 pandemic. In addition, Aqua-Aston was negatively impacted by travel restrictions that significantly affected substantially all of their properties in Hawaii. Lower management and exchange expense reflected lower costs associated with the furlough and reduced work week programs and lower print and postage costs. While exchange revenues were down in 2020, exchange transactions increased 8 percent in the second half of the year as compared to the prior year, with the fourth quarter increasing 17 percent, reflecting customers’ more recent desire to travel and pent up demand. As of December 31, 2020, over 90 percent of Interval International’s affiliated resorts had reopened. Rental Revenues, Expenses and Margin Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Rental revenues $ 37 $ 61 $ 18 $ (24) (40%) $ 43 249% Rental expenses (11) (28) (9) 17 62% (19) (203%) Rental margin $ 26 $ 33 $ 9 $ (7) (22%) $ 24 300% Rental margin percentage 71.3% 54.6% 47.7% 16.7 pts 6.9 pts 2020 Compared to 2019 The decline in rental revenue reflected lower Getaways program transactions and lower average Getaways program transaction fees as a result of resort closures in response to the COVID-19 pandemic. The decline in rental margin reflected the declines in rental revenue, partially offset by a reduction in space procurement costs resulting from fewer bookings into purchased inventory, and adjustments for cancellations and resorts closing for rental stays in response to the COVID-19 pandemic. Impairment Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Impairment $ 92 $ — $ — $ 92 NM $ — —% 2020 In 2020, we recorded a non-cash impairment charge of $92 million primarily related to a decrease in the fair value of goodwill and certain trademarks resulting from the impact of the COVID-19 pandemic. See Footnote 12 “Goodwill” and Footnote 13 “Intangible Assets” to our Financial Statements for additional information. 53 Losses / Gains and Other Expense / Income Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change (Losses) gains and other (expense) income, net $ (2) $ (3) $ 1 $ 1 11% $ (4) 518% 2020 We recorded $2 million of net losses and other expense, including a $5 million loss related to the disposition of a previously consolidated subsidiary, partially offset by $3 million of gains and other income from other insurance proceeds. 2019 We recorded $3 million of miscellaneous net losses and other expense. CORPORATE AND OTHER Corporate and Other consists of results that are not allocable to our segments, including company-wide general and administrative costs, corporate interest expense, ILG acquisition-related costs, and provision for income taxes. In addition, Corporate and Other includes the Consolidated Property Owners’ Associations revenues and expenses. Fiscal Years ($ in millions) 2020 2019 2018 REVENUES Resort management and other services $ 188 $ 163 $ 31 Rental — — 1 Cost reimbursements (141) (119) (28) TOTAL REVENUES 47 44 4 EXPENSES Resort management and other services 217 217 38 Rental (53) (61) (5) General and administrative 154 248 198 Depreciation and amortization 33 26 9 Litigation charges — 1 — Restructuring 6 — — Cost reimbursements (141) (119) (28) TOTAL EXPENSES 216 312 212 Losses and other expense, net (36) (9) (8) Interest expense (150) (132) (54) ILG acquisition-related costs (62) (118) (127) FINANCIAL RESULTS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS (418) (527) (397) Benefit (provision) for income taxes 84 (83) (51) Net (income) loss attributable to noncontrolling interests (19) (4) 3 FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (353) $ (614) $ (445) 54 Consolidated Property Owners’ Associations The following table illustrates the impact of the Consolidated Property Owners’ Associations of the acquired Legacy-ILG vacation ownership properties under the relevant accounting guidance, which represents the portion related to individual or third-party VOI owners. Fiscal Years ($ in millions) 2020 2019 2018 REVENUES Resort management and other services $ 188 $ 163 $ 31 Rental — — 1 Cost reimbursements (141) (119) (28) TOTAL REVENUES 47 44 4 EXPENSES Resort management and other services 217 217 38 Rental (53) (61) (5) Cost reimbursements (141) (119) (28) TOTAL EXPENSES 23 37 5 Gains and other income, net 4 — — FINANCIAL RESULTS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS 28 7 (1) Provision for income taxes (4) — — Net (income) loss attributable to noncontrolling interests (19) (4) 3 FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 5 $ 3 $ 2 General and Administrative Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact General and administrative $ 154 $ 248 $ 198 $ (94) (38%) $ 50 $ 15 12% 2020 Compared to 2019 General and administrative expenses decreased $94 million due to $26 million of savings related to synergy efforts and lower costs associated with the furlough and reduced work week programs, $17 million related to lower personnel related costs, a $14 million credit related to the incentive under the CARES Act for companies to continue paying associates’ benefit costs while they were not working, and $37 million of lower overall spending across the business on technology, travel, training and other costs as a result of the COVID-19 pandemic. The lower personnel related and other expenses included suspension of annual merit increases and bonuses in response to the COVID-19 pandemic, offset by inflationary cost increases. Depreciation and Amortization Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact Depreciation and amortization $ 33 $ 26 $ 9 $ 7 28% $ 17 $ 4 88% Losses and Other Expense, net Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact Losses and other expense, net $ (36) $ (9) $ (8) $ (27) (255%) $ (1) $ (11) (163%) 2020 We recorded $36 million of net losses and other expense, including $32 million for the true-up to an indemnification receivable from Marriott International as a result of a settlement of an indemnified liability with a taxing authority (the true-up to the offsetting accrual is included in the Benefit (provision) for income taxes line), and $12 million related to foreign currency 55 translation, partially offset by $6 million of other income related to an indemnification from Marriott International for VAT penalties and interest and $2 million of miscellaneous net gains and other income. 2019 We recorded $9 million of net losses and other expense, including $10 million of ILG integration-related tax matters and $2 million of losses and other expense resulting from foreign currency translation, partially offset by $3 million of gains and other income resulting from the recovery of a portion of the fraudulently induced electronic payment disbursements made in 2018. Interest Expense Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact Interest expense $ (150) $ (132) $ (54) $ (18) (14%) $ (78) $ (77) (149%) 2020 Compared to 2019 Interest expense increased $18 million due primarily to $20 million of higher interest expense associated with the new debt issued in May 2020, partially offset by $2 million of lower interest expense associated with various other debt. ILG Acquisition-Related Costs ILG acquisition-related costs include transaction costs, employee termination costs and integration costs. Transaction costs represent costs related to the planning and execution of the ILG Acquisition, primarily for financial advisory, legal, and other professional service fees, as well as certain tax related accruals. Employee termination costs represent charges for employee severance, retention, and other termination related benefits. Acquisition and integration costs primarily represent integration employee salaries and share-based compensation, fees paid to change management consultants, and technology-related costs. Fiscal Years Change 2020 vs. 2019 Change 2019 vs. 2018 ($ in millions) 2020 2019 2018 Change Change Change Excluding Legacy-ILG Impact ILG acquisition-related costs $ (62) $ (118) $ (127) $ 56 48% $ 9 $ (1) (1%) Income Tax Fiscal Years ($ in millions) 2020 2019 2018 Change 2020 vs. 2019 Change 2019 vs. 2018 Benefit (provision) for income taxes $ 84 $ (83) $ (51) $ 167 201% $ (32) (61%) 2020 Compared to 2019 The change in the Benefit (provision) for income taxes is predominately attributable to a pre-tax loss for fiscal year 2020 compared to pre-tax income for fiscal year 2019 and benefits of the CARES Act. Liquidity and Capital Resources Our capital needs are supported by cash on hand ($524 million at the end of 2020), cash generated from operations, our ability to raise capital through securitizations in the ABS market and, to the extent necessary, funds available under the Warehouse Credit Facility and the Revolving Corporate Credit Facility. We believe these sources of capital will be adequate to meet our short-term and long-term liquidity requirements, finance our long-term growth plans, satisfy debt service requirements, fulfill other cash requirements and return capital to shareholders . At the end of 2020, we had $4.3 billion of total gross debt outstanding, which included $1.6 billion of non-recourse securitized debt, $1.1 billion of gross senior unsecured notes, $0.9 billion of gross secured indebtedness under the Corporate Credit Facility, $0.5 billion of gross senior secured notes, and $0.2 billion of 2022 Convertible Notes. 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, which will be valued at $134 per share. The remaining purchase price will be paid in cash. The acquisition is expected to close early in the second quarter of 2021. 56 Additionally, subsequent to the end of 2020, we issued $575 million of 0.00% Convertible Senior Notes due 2026 (the “2026 Convertible Notes”) with an initial conversion price of $171.01 per share. To reduce the potential dilution to earnings per share upon conversion of the 2026 Convertible Notes, we also entered into privately negotiated convertible note hedges at a strike price that initially corresponds to the initial conversion price of the 2026 Convertible Notes and warrant transactions at an initial strike price of $213.76 per share, which represents a premium of 75% over the last reported sale price of our common stock on January 27, 2021. We expect to use the net proceeds to finance and consummate the acquisition of Welk Resorts, repay certain outstanding Welk Resorts debt, repay a portion of our term loan and pay transaction expenses and other fees in connection therewith, and to the extent of any remaining proceeds, for other general corporate purposes. At the end of 2020, we had $749 million of completed real estate inventory on hand. In addition, we had $162 million of completed vacation ownership units that have been classified as a component of Property and equipment until the time at which they are legally registered for sale as vacation ownership products. Our vacation ownership product offerings allow us to utilize our real estate inventory efficiently. The majority of our sales are of points-based products, which permits us to sell vacation ownership products at most of our sales locations, including those where little or no weeks-based inventory remains available for sale. Because we no longer need specific resort-based inventory at each sales location, we need to have only a few resorts under development at any given time and can leverage successful sales locations at completed resorts. This allows us to maintain long-term sales locations and reduces the need to develop and staff on-site sales locations at smaller projects in the future. We believe our points-based programs enable us to closely align the timing of our real estate inventory acquisitions with the pace of sales of vacation ownership products. We are selectively pursuing growth opportunities in North America and Asia Pacific by targeting high-quality inventory that allows us to add desirable new destinations to our system with new on-site sales locations through transactions that limit our up-front capital investment and allow us to purchase finished inventory closer to the time it is needed for sale. These capital efficient vacation ownership deal structures may consist of the development of new inventory, or the conversion of previously built units by third parties, just prior to sale. Our Exchange & Third-Party Management segment includes exchange networks, membership programs and third-party property management services that were acquired as part of the ILG Acquisition. These networks, programs and services generate revenue that is generally fee-based and derived from membership, exchange and rental transactions, property and association management, and other related products and services. This segment is expected to be less capital intensive than our Vacation Ownership segment and is expected to be funded with cash generated from segment operations. The following table summarizes the changes in cash, cash equivalents and restricted cash: Fiscal Years ($ in millions) 2020 2019 2018 Cash, cash equivalents, and restricted cash provided by (used in): Operating activities $ 299 $ 382 $ 97 Investing activities (32) 37 (1,407) Financing activities 23 (331) 1,433 Effect of change in exchange rates on cash, cash equivalents, and restricted cash 1 (1) — Net change in cash, cash equivalents, and restricted cash $ 291 $ 87 $ 123 Cash from Operating Activities Our primary sources of funds from operations are (1) cash sales and down payments on financed sales, (2) cash from our financing operations, including principal and interest payments received on outstanding vacation ownership notes receivable, (3) cash from fee-based membership, exchange and rental transactions and (4) net cash generated from our rental and resort management and other services operations. Outflows include spending for the development of new phases of existing resorts, the acquisition of additional inventory, enhancement of our inventory exchange network of resorts and related technology infrastructure and funding our working capital needs. We minimize our working capital needs through cash management, strict credit-granting policies and disciplined collection efforts. Our working capital needs fluctuate throughout the year given the timing of annual maintenance fees on unsold inventory we pay to property owners’ associations and certain annual compensation-related outflows. In addition, our cash from operations varies due to the timing of our owners’ repayment of vacation ownership notes receivable, the closing or recording of sales contracts for vacation ownership products, financing propensity and cash outlays for inventory acquisition and development. 57 In 2020, we generated $299 million of cash flows from operating activities compared to $382 million in 2019. Excluding the impact of changes in net income and adjustments for non-cash items, the change in cash flows from operations reflected lower sales and rentals deposits due to the COVID-19 pandemic and higher net inventory activity, partially offset by higher collections of outstanding vacation ownership notes receivable and lower operational expense spending. In 2019, we generated $382 million of cash flows from operating activities compared to $97 million in 2018. Excluding the impact of changes in net income and adjustments for non-cash items, the change in cash flows from operations reflected higher originations of vacation ownership notes receivable driven by higher contract sales and slightly higher financing propensity, higher inventory spending, lower ILG acquisition-related costs, and timing of certain annual compensation-related outflows partially offset by higher collections due to an increasing portfolio of outstanding vacation ownership notes receivable. The impact of changes in operating cash flows in 2019 also included $118 million of ILG acquisition-related costs, partially offset by business interruption insurance proceeds of $6 million for Legacy-MVW losses and $38 million for Legacy-ILG losses. In addition to net (loss) income and adjustments for non-cash items, the following operating activities are key drivers of our cash flow from operating activities: Inventory Spending (In Excess of) Less Than Cost of Sales Fiscal Years ($ in millions) 2020 2019 2018 Inventory spending $ (98) $ (228) $ (212) Purchase of vacation ownership units for future transfer to inventory (61) (20) — Inventory costs 117 292 221 Inventory spending (in excess of) less than cost of sales $ (42) $ 44 $ 9 We measure our real estate inventory capital efficiency by comparing the cash outflow for real estate inventory spending (a cash item) to the amount of real estate inventory costs charged to expense on our Income Statements related to sale of vacation ownership products (a non-cash item). Given the significant level of completed real estate inventory on hand, as well as the capital efficiency resulting from our points programs and capital efficient transactions, our spending for real estate inventory remained below the amount of real estate inventory costs in 2019 and 2018. In 2020, however, while our spending for real estate inventory remained low, given the slowdown in sales pace as a result of the COVID-19 pandemic, inventory spending was above inventory costs for the year. Our inventory spending in 2020 included a payment to acquire 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. Purchase of vacation ownership units for future transfer to inventory also included the balance of the price allocated to acquire 57 completed vacation ownership units at our Marriott Vacation Club Pulse, New York property. Our inventory spending in 2019 included a payment to satisfy our commitment to purchase 78 vacation ownership units located in San Francisco, California for $48 million. Purchase of vacation ownership units for future transfer to inventory for 2019 included a $20 million advance payment to satisfy a portion of our commitment to purchase 57 vacation ownership units located at our Marriott Vacation Club Pulse, New York property. See Footnote 4 “Acquisitions and Dispositions” to our Financial Statements for additional information regarding the transactions discussed above. Through our existing vacation ownership interest repurchase program, we proactively buy back previously sold vacation ownership interests at lower costs than would be required to develop new inventory. By repurchasing inventory, we expect to be able to stabilize the future cost of vacation ownership products. However, given the impact of the COVID-19 pandemic, we have temporarily discontinued the majority of this repurchase activity. Vacation Ownership Notes Receivable Collections In Excess of (Less Than) Originations Fiscal Years ($ in millions) 2020 2019 2018 Vacation ownership notes receivable collections — non-securitized $ 217 $ 61 $ 115 Vacation ownership notes receivable collections — securitized 403 432 271 Vacation ownership notes receivable originations (377) (817) (630) Vacation ownership notes receivable collections in excess of (less than) originations $ 243 $ (324) $ (244) 58 Vacation ownership notes receivable collections include principal from non-securitized and securitized vacation ownership notes receivable. Vacation ownership notes receivable collections increased in 2020 compared to 2019 due to a higher portfolio of outstanding vacation ownership notes receivable at the beginning of 2020. Vacation ownership notes receivable originations in 2020 decreased due to lower sales due to the COVID-19 pandemic and a lower financing propensity. Financing propensity declined to 51 percent in 2020 from 63 percent in 2019 as a result of the various sales programs that we offered to incentivize cash purchases over financed purchases during the year, in response to the COVID-19 pandemic. Cash from Investing Activities Fiscal Years ($ in millions) 2020 2019 2018 Acquisition of a business, net of cash and restricted cash acquired $ — $ — $ (1,393) Disposition of subsidiary shares to noncontrolling interest holder — — 40 Proceeds from collection of notes receivable — 38 — Capital expenditures for property and equipment (excluding inventory) (41) (46) (40) Purchase of company owned life insurance (6) (6) (14) Dispositions, net 15 51 — Net cash, cash equivalents, and restricted cash (used in) provided by investing activities $ (32) $ 37 $ (1,407) Proceeds from Collection of Notes Receivable During 2019, we collected $23 million of notes receivable related to the disposition of our interest in VRI Europe during the fourth quarter of 2018. In addition, we also collected a $15 million note receivable acquired in the ILG Acquisition. Capital Expenditures for Property and Equipment Capital expenditures for property and equipment relate to spending for technology development, buildings and equipment used at sales locations and ancillary offerings, such as food and beverage offerings, at locations where such offerings are provided. Additionally, it includes spending related to maintenance of buildings and equipment used in common areas at some of our resorts. In 2020, capital expenditures for property and equipment of $41 million included $40 million to support business operations (including $27 million for ancillary and other operations assets and $13 million for sales locations) and $1 million for technology spending. Given the impact of the COVID-19 pandemic, we significantly reduced our planned spending for property and equipment beginning with the second quarter of 2020. In 2019, capital expenditures for property and equipment of $46 million included $32 million to support business operations (including $19 million for ancillary and other operations assets and $13 million for sales locations) and $14 million for technology spending. Purchase of Company Owned Life Insurance To support our ability to meet a portion of our obligations under the Marriott Vacations Worldwide Corporation Deferred Compensation Plan (the “Deferred Compensation Plan”), we acquired company owned insurance policies on the lives of certain participants in the Deferred Compensation Plan, the proceeds of which are intended to be aligned with the investment alternatives elected by plan participants as discussed in Footnote 2 “Summary of Significant Accounting Policies” to our Financial Statements. During 2020, 2019, and 2018 we paid $6 million, $6 million, and $14 million, respectively, to acquire these policies. Dispositions, net Dispositions of $15 million during 2020 related to the disposition of excess land parcels in Orlando, Florida and Steamboat Springs, Colorado as part of our strategic decision to reduce holdings in markets where we have excess supply. Dispositions of $51 million during 2019 related to our dispositions of excess land parcels in Cancun, Mexico and Avon, Colorado as part of our strategic decision to reduce holdings in markets where we have excess supply. See additional information on these dispositions in Footnote 4 “Acquisitions and Dispositions” to our Financial Statements for additional information. 59 Cash from Financing Activities Fiscal Years ($ in millions) 2020 2019 2018 Borrowings from securitization transactions $ 690 $ 1,026 $ 539 Repayment of debt related to securitization transactions (960) (880) (382) Proceeds from debt 1,166 935 1,690 Repayments of debt (705) (820) (215) Finance lease payment (11) (12) — Debt issuance costs (14) (20) (34) Repurchase of common stock (82) (465) (96) Payment of dividends (45) (81) (51) Payment of withholding taxes on vesting of restricted stock units (16) (15) (18) Other, net — 1 — Net cash, cash equivalents, and restricted cash provided by (used in) by financing activities $ 23 $ (331) $ 1,433 Borrowings from / Repayment of Debt Related to Securitization Transactions We reflect proceeds from securitizations of vacation ownership notes receivable, including draw downs on the Warehouse Credit Facility, as “Borrowings from securitization transactions.” We reflect repayments of bonds associated with vacation ownership notes receivable securitizations and repayments on the Warehouse Credit Facility (including vacation ownership notes receivable repurchases) as “Repayment of debt related to securitization transactions.” We account for our securitizations of vacation ownership notes receivable as secured borrowings and therefore do not recognize a gain or loss as a result of the transaction. The results of operations for the securitization entities are consolidated within our results of operations as these entities are variable interest entities for which we are the primary beneficiary. 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. During 2020, we securitized vacation ownership notes receivable under our Warehouse Credit Facility. The total carrying amount of the vacation ownership notes receivable securitized was $372 million. The average advance rate was 85 percent, which resulted in total gross proceeds of $315 million. Total net proceeds were $313 million due to the funding of reserve accounts of $2 million. As of December 31, 2020, $147 million of gross vacation ownership notes receivable were eligible for securitization. Proceeds from / Repayments of Debt Borrowings from / Repayment of Corporate Credit Facility During 2020, we borrowed an additional $666 million under our Revolving Corporate Credit Facility, which is part of our Corporate Credit Facility, to facilitate the funding of our short-term working capital needs and to increase our cash position and preserve financial flexibility in light of the impact on global markets resulting from the COVID-19 pandemic. During 2020, we repaid $696 million under the Revolving Corporate Credit Facility and no amounts were outstanding as of December 31, 2020. Additionally, during 2020, we repaid $9 million of the amount outstanding under the Term Loan, which is also part of our Corporate Credit Facility. During 2019, we borrowed $585 million under our Revolving Corporate Credit Facility to facilitate the funding of our short-term working capital needs, of which $554 million was repaid during 2019. Also during 2019, we repaid $7 million of the amount outstanding under the Term Loan. See Footnote 17 “Debt” to our Financial Statements for additional information regarding our Corporate Credit Facility. 60 Proceeds from Senior Secured Debt During the second quarter of 2020, we issued $500 million of senior secured notes, the 2025 Notes, as discussed further in Footnote 17 “Debt” to our Financial Statements. After deducting offering expenses and the underwriting discount, we received net proceeds of approximately $493 million from the offering of the 2025 Notes, which we used to repay all amounts outstanding at that time on our Revolving Corporate Credit Facility. Proceeds from Senior Unsecured Debt During 2019, we issued $350 million of senior unsecured notes, the 2028 Notes, as discussed further in Footnote 17 “Debt” to our Financial Statements. 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. Repayments of Non-interest Bearing Note Payable During 2019, we paid the last installment of $31 million on a non-interest bearing note payable related to the acquisition of 112 completed vacation ownership units located on the Big Island of Hawaii in 2017. Debt Issuance Costs In 2020, we incurred $14 million of debt issuance costs, which included $7 million associated with the issuance of senior secured notes (the 2025 Notes), $5 million associated with the 2020-1 vacation ownership notes receivable securitization, $1 million associated with the Waiver, and $1 million associated with an amendment of the Warehouse Credit Facility In 2019, we incurred $20 million of debt issuance costs, which included $12 million associated with the 2019 vacation ownership notes receivable securitizations, $5 million associated with the issuance of senior unsecured notes (the 2028 Notes), $2 million associated with an amendment and extension of the Warehouse Credit Facility, and $1 million related to an amendment of the Revolving Corporate Credit Facility. Repurchase of Common Stock The following table summarizes share repurchase activity under our share repurchase program, which expired on December 31, 2020: ($ in millions, except per share amounts) Number of Shares Repurchased Cost of Shares Repurchased Average Price Paid per Share As of December 31, 2019 16,418,950 $ 1,258 $ 76.60 For the year ended December 31, 2020 769,935 82 106.60 As of December 31, 2020 17,188,885 $ 1,340 $ 77.95 See Footnote 18 “Shareholders' Equity” to our Financial Statements for further information related to our share repurchase program. Due to the impact of the COVID-19 pandemic, we temporarily suspended repurchasing shares of our common stock. Future share repurchases will be subject to the restrictions imposed under the Waiver as well as Board approval of a new repurchase program, which will depend on our financial condition, results of operations and capital requirements, in addition to applicable law, regulatory constraints, industry practice and other business considerations that our Board of Directors considers relevant. Payment of Dividends to Common Shareholders We distributed cash dividends to holders of common stock for the year ended December 31, 2020 as follows: Declaration Date Shareholder Record Date Distribution Date Dividend per Share December 9, 2019 December 23, 2019 January 6, 2020 $0.54 February 14, 2020 February 27, 2020 March 12, 2020 $0.54 Given the impact of the COVID-19 pandemic, we temporarily suspended cash dividends. In addition, our Corporate Credit Facility and the indentures governing our senior notes contain restrictions on our ability to pay dividends. Future dividend payments will also be subject to both the restrictions imposed under the Waiver and Board approval, which will depend on our financial condition, results of operations and capital requirements, as well as applicable law, regulatory and contractual constraints, industry practice and other business considerations that our Board of Directors considers relevant. The payment of certain cash dividends may also result in an adjustment to the conversion rate of the 2022 Convertible Notes in a manner adverse to us. Accordingly, there can be no assurance that we will pay dividends in the future at the same rate or at all. 61 Supplemental Guarantor Information The 2026 Notes and 2028 Notes are guaranteed by MVWC, Marriott Ownership Resorts, Inc. (“MORI”), and certain other subsidiaries whose voting securities are wholly owned directly or indirectly by MORI (such subsidiaries collectively, the “Senior Notes Guarantors”). These guarantees are full and unconditional and joint and several. The guarantees of the Senior Notes Guarantors are subject to release in limited circumstances only upon the occurrence of certain customary conditions. The following tables present consolidating financial information as of December 31, 2020, and for the twelve months ended December 31, 2020, for MVWC and MORI on a stand-alone basis (collectively, the “Issuers”), the Senior Notes Guarantors, the combined non-guarantor subsidiaries of MVW, and MVW on a consolidated basis. Condensed Consolidating Balance Sheet As of December 31, 2020 Issuers Senior Notes Guarantors Non-Guarantor Subsidiaries Total Eliminations MVW Consolidated ($ in millions) MVWC MORI Cash and cash equivalents $ 25 $ 347 $ 50 $ 102 $ — $ 524 Restricted cash — 19 72 377 — 468 Accounts receivable, net 44 59 121 57 (5) 276 Vacation ownership notes receivable, net — 164 116 1,560 — 1,840 Inventory — 276 383 100 — 759 Property and equipment, net — 213 341 237 — 791 Goodwill — — 2,817 — — 2,817 Intangibles, net — — 894 58 — 952 Investments in subsidiaries 2,775 4,384 — — (7,159) — Other 54 115 214 133 (45) 471 Total assets $ 2,898 $ 5,577 $ 5,008 $ 2,624 $ (7,209) $ 8,898 Accounts payable $ 29 $ 29 $ 145 $ 6 $ — $ 209 Advance deposits — 70 57 20 — 147 Accrued liabilities 1 99 157 99 (7) 349 Deferred revenue — 8 126 355 (1) 488 Payroll and benefits liability 1 81 55 20 — 157 Deferred compensation liability — 104 22 1 — 127 Securitized debt, net — — — 1,604 (16) 1,588 Debt, net 215 2,464 — 1 — 2,680 Other 1 39 130 27 — 197 Deferred taxes — 103 143 28 — 274 MVW shareholders' equity 2,651 2,580 4,173 432 (7,185) 2,651 Noncontrolling interests — — — 31 — 31 Total liabilities and equity $ 2,898 $ 5,577 $ 5,008 $ 2,624 $ (7,209) $ 8,898 62 Condensed Consolidating Statement of Income 2020 Issuers Senior Notes Guarantors Non-Guarantor Subsidiaries Total Eliminations MVW Consolidated ($ in millions) MVWC MORI Revenues $ — $ 375 $ 1,753 $ 789 $ (31) $ 2,886 Expenses (17) (648) (1,955) (637) 31 (3,226) Benefit (provision) for income taxes 5 80 53 (54) — 84 Equity in net (loss) income of subsidiaries (263) (34) — — 297 — Net (loss) income (275) (227) (149) 98 297 (256) Net income attributable to noncontrolling interests — — — (19) — (19) Net (loss) income attributable to common shareholders $ (275) $ (227) $ (149) $ 79 $ 297 $ (275) Contractual Obligations and Off-Balance Sheet Arrangements The following table summarizes our contractual obligations, including material off-balance sheet arrangements as of December 31, 2020: Payments Due by Period ($ in millions) Total Less Than 1 Year 1 - 3 Years 3 - 5 Years More Than 5 Years Contractual Obligations Debt (1) $ 5,247 $ 357 $ 925 $ 1,989 $ 1,976 Purchase obligations (2) 429 307 111 11 — Operating lease obligations 237 27 42 34 134 Finance lease obligations (3) 9 4 4 — 1 Other long-term obligations (4) 30 16 8 4 2 Total contractual obligations $ 5,952 $ 711 $ 1,090 $ 2,038 $ 2,113 _________________________ (1) Includes principal as well as interest payments and excludes unamortized debt discount and issuance costs. (2) Arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure, and approximate timing of the transaction. Amounts reflected herein represent expected funding under such contracts. Amounts reflected on the consolidated balance sheet as accounts payable and accrued liabilities are excluded from the table above. (3) Includes interest. (4) Primarily relates to future guaranteed purchases of rental inventory, operational support services, marketing related benefits, membership fulfillment benefits and other commitments. In the normal course of our resort management business, we enter into purchase commitments on behalf of property owners’ associations to manage the daily operating needs of our resorts. Since we are reimbursed for these commitments from the cash flows of the resorts, these obligations have minimal impact on our net income and cash flow. Leases That Have Not Yet Commenced During the first quarter of 2020, we entered into a finance lease arrangement for a new corporate office building in Orlando, Florida. The new Orlando corporate 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 for the aforementioned period. See Footnote 15 “Leases” to our Financial Statements for additional information on this lease, including additional arrangements made as a result of the COVID-19 pandemic. 63 Recent Accounting Pronouncements See Footnote 2 “Summary of Significant Accounting Policies” to our Financial Statements for information regarding accounting standards adopted in 2020 and other new accounting standards that were issued but not effective as of December 31, 2020. Critical Accounting Estimates The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. Management considers an accounting estimate to be critical if: (1) it requires assumptions to be made that are uncertain at the time the estimate is made; and (2) changes in the estimate, or different estimates that could have been selected, could have a material effect on our results of operations or financial condition. While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information presently available. Actual results may differ significantly. Additionally, changes in our assumptions, estimates or assessments as a result of unforeseen events or otherwise could have a material impact on our consolidated financial position or results of operations. See Footnote 2 “Summary of Significant Accounting Policies” to our Financial Statements for further information on accounting policies that we believe to be critical, including our policies on: Revenue recognition , including how we recognize revenue under Accounting Standards Codification (“ASC”) Topic 606, “ Revenue from Contracts with Customers ” (“ASC 606”); Purchase price allocations of business combinations , which is also discussed in Footnote 2 “Summary of Significant Accounting Policies” and Footnote 4 “Acquisitions and Dispositions” to our Financial Statements; Inventories and cost of vacation ownership products, which requires estimation of future revenues, including incremental revenues from future price increases or from the sale of reacquired inventory resulting from defaulted vacation ownership notes receivable, and development costs to apply a relative sales value method specific to the vacation ownership industry and how we evaluate the fair value of our vacation ownership inventory; Valuation of right-of-use assets and lease liabilities , including determination of lease term which may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option, as further described in Footnote 2 “Summary of Significant Accounting Policies” to our Financial Statements; Valuation of property and equipment , including when we record impairment losses; Valuation of goodwill and intangible assets , including when we record impairment losses; Accounting for acquired vacation ownership notes receivable , which is also discussed in Footnote 7 “Vacation Ownership Notes Receivable” to our Financial Statements; Loss contingencies , including information on how we account for loss contingencies; and Income taxes , including information on how we determine our current year amounts payable or refundable, as well as our estimate of deferred tax assets and liabilities. 64