MARRIOTT VACATIONS WORLDWIDE Corp 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements We make forward-looking statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Quarterly Report on Form 10-Q, based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include, among other things, the information concerning: our possible or assumed future results of operations; business strategies, such as our plans to increase focus on sales to first-time buyers; financing plans; competitive position; potential growth opportunities; potential operating performance improvements, including expectations that contract sales and rental occupancies will continue to improve throughout 2021; the effects of competition; and the ongoing effect of the COVID-19 pandemic and actions we or others may take in response to the COVID-19 pandemic. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “continue,” “may,” “might,” “should,” “could” or the negative of these terms or similar expressions. The Company cautions you that these statements are not guarantees of future performance and are subject to numerous and evolving risks and uncertainties that we may not be able to predict or assess, such as: the effects of the COVID-19 pandemic, including reduced demand for vacation ownership and exchange products and services, volatility in the international and national economy and credit markets, worker absenteeism, quarantines or other government-imposed travel or health-related restrictions; the length and severity of the COVID-19 pandemic, including its short and longer-term impact on the demand for travel and on consumer confidence; the impact of the availability and distribution of effective vaccines on the demand for travel and consumer confidence; the pace of recovery following the COVID-19 pandemic or as effective treatments or vaccines become widely available; competitive conditions; the availability of capital to finance growth; the effects of steps we have taken and may continue to take to reduce operating costs and/or enhance health and cleanliness protocol at our resorts due to the COVID-19 pandemic; political or social strife, and other matters referred to under the heading “Risk Factors” contained herein and also in our most recent Annual Report on Form 10-K, and which may be discussed in our periodic filings with the U.S. Securities and Exchange Commission (the “SEC”), any of which could cause actual results to differ materially from those expressed or implied herein. There may be other risks and uncertainties that we cannot predict at this time or that we currently do not expect will have a material adverse effect on our financial position, results of operations or cash flows. We do not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. Our Financial Statements (as defined below), which we discuss below, reflect our historical financial condition, results of operations and cash flows. The financial information discussed below and included in this Quarterly Report on Form 10-Q may not necessarily reflect what our financial condition, results of operations or cash flows may be in the future. In order to make this report easier to read, we refer to (i) our Interim Consolidated Financial Statements as our “Financial Statements,” (ii) our Interim Consolidated Statements of Income as our “Income Statements,” (iii) our Interim Consolidated Balance Sheets as our “Balance Sheets” and (iv) our Interim Consolidated Statements of Cash Flows as our “Cash Flows.” In addition, references throughout to numbered “Footnotes” refer to the numbered Notes to our Financial Statements that we include in the Financial Statements of this Quarterly Report on Form 10-Q. Business Overview We are a leading global vacation company that offers vacation ownership, exchange, rental, and resort and property management, along with related businesses, products and services. Our business operates in two reportable segments: Vacation Ownership and Exchange & Third-Party Management. Our Vacation Ownership segment includes seven vacation ownership brands licensed under exclusive, long-term relationships with Marriott International and Hyatt Hotels Corporation. We are the exclusive worldwide developer, marketer, seller and manager of vacation ownership and related products under the Marriott Vacation Club, Grand Residences by Marriott, Sheraton Vacation Club, Westin Vacation Club, and Hyatt Residence Club brands, as well as under Marriott Vacation Club Pulse, an extension to the Marriott Vacation Club brand. We are also the exclusive worldwide developer, marketer and seller of vacation ownership and related products under The Ritz-Carlton Destination Club brand, we have the non-exclusive right to develop, market and sell whole ownership residential products under The Ritz-Carlton Residences brand and we have a license to use the St. Regis brand for specified fractional ownership resorts. Our Vacation Ownership segment generates most of its revenues from four primary sources: selling vacation ownership products; managing vacation ownership resorts, clubs and owners’ associations; financing consumer purchases of vacation ownership products; and renting vacation ownership inventory. 35 Table of Contents Our Exchange & Third-Party Management segment includes exchange networks and membership programs, as well as management of resorts and lodging properties. We provide these services through a variety of brands including Interval International, Trading Places International (“TPI”), Vacation Resorts International (“VRI”), and Aqua-Aston. Exchange & Third-Party Management revenue generally is fee-based and derived from membership, exchange and rental transactions, property and association management, and other related products and services. Corporate and other represents that portion of our results that are not allocable to our segments, including those relating to property owners’ associations consolidated under the voting interest model (“Consolidated Property Owners’ Associations”). COVID-19 Pandemic Update The COVID-19 pandemic 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, and any recovery therefrom, is evolving and its potential impact on our business in the future remains uncertain. Significant Accounting Policies Used in Describing Results of Operations Sale of Vacation Ownership Products We recognize revenues from the sale of vacation ownership products (“VOIs”) when control of the vacation ownership product is transferred to the customer and the transaction price is deemed collectible. Based upon the different terms of the contracts with the customer and business practices, control of the vacation ownership product is transferred to the customer at closing for Legacy-MVW transactions and upon expiration of the statutory rescission period for Legacy-ILG transactions. Sales of vacation ownership products may be made for cash or we may provide financing. In addition, we recognize settlement fees associated with the transfer of vacation ownership products and commission revenues from sales of vacation ownership products on behalf of third parties, which we refer to as “resales revenue.” We also provide sales incentives to certain purchasers. These sales incentives typically include Marriott Bonvoy points, World of Hyatt points or an alternative sales incentive that we refer to as “plus points.” These plus points are redeemable for stays at our resorts or for use in other third-party offerings, generally up to two years from the date of issuance. Typically, sales incentives are only awarded if the sale is closed. There may be timing differences between the date of the contract with the customer and when revenue is recognized. When comparing results year-over-year, this timing difference may generate significant variances, which we refer to as the impact of revenue reportability. Finally, as more fully described in “ Financing ” below, we record the difference between the vacation ownership note receivable and the consideration to which we expect to be entitled (also known as a vacation ownership notes receivable reserve or a sales reserve) as a reduction of revenues from the sale of vacation ownership products at the time we recognize revenues from a sale. We report, on a supplemental basis, contract sales for our Vacation Ownership segment. Contract sales consist of the total amount of vacation ownership product sales under contract signed during the period where we have generally received a down payment of at least ten percent of the contract price, reduced by actual rescissions during the period, inclusive of contracts associated with sales of vacation ownership products on behalf of third-parties, which we refer to as “resales contract sales.” In circumstances where a customer applies any or all of their existing ownership interests as part of the purchase price for additional interests, we include only the incremental value purchased as contract sales. Contract sales differ from revenues from the sale of vacation ownership products that we report on our income statements due to the requirements for revenue recognition described above. We consider contract sales to be an important operating measure because it reflects the pace of sales in our business. Cost of vacation ownership products includes costs to develop and construct our projects (also known as real estate inventory costs), other non-capitalizable costs associated with the overall project development process and settlement expenses associated with the closing process. For each project, we expense real estate inventory costs in the same proportion as the revenue recognized. Consistent with the applicable accounting guidance, to the extent there is a change in the estimated sales revenues or inventory costs for the project in a period, a non-cash adjustment is recorded on our income statements to true-up costs in that period to those that would have been recorded historically if the revised estimates had been used. These true-ups, which we refer to as product cost true-up activity, can have a positive or negative impact on our income statements. We refer to revenues from the sale of vacation ownership products less the cost of vacation ownership products and marketing and sales costs as Development profit. Development profit margin is calculated by dividing Development profit by revenues from the sale of vacation ownership products. We previously used the term Development margin to refer to revenues from the Sale of vacation ownership products less the Cost of vacation ownership products and marketing and sales costs. 36 Table of Contents Beginning in the first quarter of 2021, we now refer to this financial measure as Development profit. While the calculation remains unchanged, we believe the revised term better depicts the financial results being presented. 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 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: Three Months Ended March 31, 2021 March 31, 2020 Average FICO score 732 739 The typical financing agreement provides for monthly payments of principal and interest with the principal balance of the loan fully amortizing over the term of the related vacation ownership note receivable, which is generally ten years. Included within our vacation ownership notes receivable are originated vacation ownership notes receivable and vacation ownership notes receivable acquired in connection with the ILG Acquisition. The interest income earned from the originated vacation ownership financing arrangements is earned on an accrual basis on the principal balance outstanding over the contractual life of the arrangement and is recorded as Financing revenues on our Income Statements. Financing revenues also include fees earned from servicing the existing vacation ownership notes receivable portfolio. Financing expenses include costs in support of the financing, servicing and securitization processes and changes in expected credit losses related to acquired vacation ownership notes receivable. The amount of interest income earned in a period depends on the amount of outstanding vacation ownership notes receivable, which, for originated vacation ownership notes receivable, is impacted positively by the origination of new vacation ownership notes receivable and negatively by principal collections. We calculate financing propensity as contract sales volume of finance contracts originated in the period divided by contract sales volume of all contracts originated in the period. We do not include resales contract sales in the financing propensity calculation. Financing propensity was 46 percent in the first quarter of 2021 and 57 percent in the first quarter of 2020; the lower financing propensity in the first quarter of 2021 is due to a higher percentage of sales during this period to existing owners, who tend to have a lower financing propensity. Going forward, we expect to shift back to an increased focus on sales to first-time buyers, which should increase propensity and increase interest income as new originations of vacation ownership notes receivable outpace the decline in principal of existing vacation ownership notes receivable. In the event of a default, we generally have the right to foreclose on or revoke the underlying VOI. We return VOIs that we reacquire through foreclosure or revocation back to inventory. As discussed above, for originated vacation ownership notes receivable, we record a reserve at the time of sale and classify the reserve as a reduction to revenues from the sale of vacation ownership products on our Income Statements. Historical default rates, which represent defaults as a percentage of each year’s beginning gross vacation ownership notes receivable balance, were as follows: Three Months Ended March 31, 2021 March 31, 2020 Historical default rates 1.3% 1.3% 37 Table of Contents 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 our points-based Marriott Vacation Club Destinations program when the points are redeemed for rental stays at one of our resorts or in other third-party offerings. We obtain rental inventory from unsold inventory and inventory we control because owners have elected alternative usage options offered through our vacation ownership programs. For rental revenues associated with vacation ownership products which we own and which are registered and held for sale, to the extent that the revenues from rental are less than costs, revenues are reported net in accordance with ASC Topic 978, “ Real Estate - Time-Sharing Activities ” (“ASC 978”). The rental activity associated with discounted vacation packages requiring a tour (“preview stays”) is not included in transient rental metrics, and because the majority of these preview stays are sourced directly or indirectly from unsold inventory, the associated revenues and expenses are reported net in Marketing and sales expense. In our Exchange & Third-Party Management segment, we offer vacation rental opportunities at managed properties through VRI, TPI, and Aqua-Aston Hospitality. We also offer vacation rental offers knows as Getaways to members of the Interval International Network and certain other membership programs. The offering of Getaways allows us to monetize excess availability of resort accommodations within the applicable exchange network, as well as provide additional vacation opportunities to members. Resort accommodations available as Getaways typically result from seasonal oversupply or underutilized space in the applicable exchange program, as well as resort accommodations specifically sourced for the Getaways program. Rental expenses include: • Maintenance fees on unsold inventory; • Costs to provide alternative usage options, including Marriott Bonvoy points, World of Hyatt points and offerings available as part of third-party offerings, for owners who elect to exchange their inventory; • Marketing costs and direct operating and related expenses in connection with the rental business (such as housekeeping, credit card expenses and reservation services); and • Costs to secure resort accommodations for use in Getaways. Rental metrics, including the average daily transient rate or the number of transient keys rented, may not be comparable between periods given fluctuation in available occupancy by location, unit size (such as two bedroom, one bedroom or studio unit), owner use and exchange behavior. In addition, rental metrics may not correlate with rental revenues due to the requirement to report certain rental revenues net of rental expenses in accordance with ASC 978 (as discussed above). Further, as our ability to rent certain luxury and other inventory is often limited on a site-by-site basis, rental operations may not generate adequate rental revenues to cover associated costs. Our Vacation Ownership segment units are either “full villas” or “lock-off” villas. Lock-off villas are units that can be separated into a master unit and a guest room. Full villas are “non-lock-off” villas because they cannot be separated. A “key” is the lowest increment for reporting occupancy statistics based upon the mix of non-lock-off and lock-off villas. Lock-off villas typically represent two keys and non-lock-off villas represent one key. The “transient keys” metric represents the blended mix of inventory available for rent and includes all of the combined inventory configurations available in our resort system. Cost Reimbursements Cost reimbursements include direct and indirect costs that are reimbursed to us by customers under management contracts. All costs, with the exception of taxes assessed by a governmental authority, reimbursed to us by customers are reported on a gross basis. We recognize cost reimbursements when we incur the related reimbursable costs. Cost reimbursements consist of actual expenses with no added margin. Interest Expense Interest expense consists of all interest expense other than consumer financing interest expense, which is included within Financing expense. 38 Table of Contents Transaction Costs Transaction costs represent costs related to the acquisitions of ILG and Welk, primarily for financial advisory, legal, and other professional service fees, as well as certain tax related accruals. Transaction costs also include charges for employee retention, severance and other termination related benefits, fees paid to change management consultants and technology-related costs related to the integration and transformation of ILG and Welk. 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, and • Consolidated contract sales exclude contract sales from the sale of vacation ownership products for non-consolidated joint ventures • Development profit margin; • 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; • Total active members, which is the number of Interval International network active members at the end of the applicable period; and • 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. 39 Table of Contents Consolidated Results Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 REVENUES Sale of vacation ownership products $ 163 $ 258 Management and exchange 193 227 Rental 89 135 Financing 59 72 Cost reimbursements 255 318 TOTAL REVENUES 759 1,010 EXPENSES Cost of vacation ownership products 40 60 Marketing and sales 109 170 Management and exchange 117 151 Rental 82 98 Financing 21 38 General and administrative 46 70 Depreciation and amortization 41 32 Litigation charges 3 2 Royalty fee 25 26 Impairment — 95 Cost reimbursements 255 318 TOTAL EXPENSES 739 1,060 Gains (losses) and other income (expense), net 6 (56) Interest expense (43) (33) Transaction costs (19) (24) LOSS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS (36) (163) Benefit from income taxes 11 58 NET LOSS (25) (105) Net income attributable to noncontrolling interests (3) (1) NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (28) $ (106) Operating Statistics 2021 First Quarter Three Months Ended (Contract sales $ in millions) March 31, 2021 March 31, 2020 Change % Change Vacation Ownership Total contract sales $ 232 $ 315 $ (83) (26%) Consolidated contract sales $ 226 $ 306 $ (80) (26%) Joint venture contract sales $ 6 $ 9 $ (3) (30%) Exchange & Third-Party Management Total active members at end of period (000's) (1) 1,479 1,636 (157) (10%) Average revenue per member (1) $ 47.13 $ 41.37 $ 5.76 14% _______________ (1) Only includes members of the Interval International exchange network. 40 Table of Contents Revenues 2021 First Quarter The following table presents our revenues for the first quarter of 2021 compared to the first quarter of 2020. Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Change % Change Vacation Ownership $ 661 $ 908 $ (247) (27%) Exchange & Third-Party Management 86 107 (21) (20%) Total Segment Revenues 747 1,015 (268) (26%) Consolidated Property Owners’ Associations 12 (5) 17 382% Total Revenues $ 759 $ 1,010 $ (251) (25%) 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 or loss 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. 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 attributable to common shareholders, which is the most directly comparable GAAP financial measure. 2021 First Quarter Three Months Ended Change ($ in millions) March 31, 2021 March 31, 2020 % Change Net loss attributable to common shareholders $ (28) $ (106) $ 78 73% Interest expense 43 33 10 29% Benefit from income taxes (11) (58) 47 81% Depreciation and amortization 41 32 9 30% EBITDA 45 (99) 144 146% Share-based compensation expense 8 4 4 135% Certain items 16 233 (217) (94%) Adjusted EBITDA $ 69 $ 138 $ (69) (50%) 41 Table of Contents Certain items for the first quarter of 2021 consisted of $19 million of transaction costs (including $17 million of ILG acquisition and integration related costs and $2 million of Welk acquisition related costs) and $3 million of litigation charges, partially offset by $4 million of foreign currency translation gains, and $2 million of miscellaneous gains and other income. Certain items for the first quarter of 2020 consisted of $95 million of asset impairment charges, $56 million of losses and other expense, $54 million of other charges, $24 million of transaction costs, $2 million of purchase price adjustments, and $2 million of litigation charges. The $54 million of other charges included $37 million related to a net sales reserve adjustment due primarily to the impact of the COVID-19 pandemic, $11 million related to an accrual for certain health and welfare costs for furloughed associates, and $6 million related to VAT charges. Segment Adjusted EBITDA 2021 First Quarter Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Change % Change Vacation Ownership $ 68 $ 147 $ (79) (54%) Exchange & Third-Party Management 41 41 — 1% Segment adjusted EBITDA 109 188 (79) (42%) General and administrative (40) (51) 11 21% Consolidated property owners’ associations — 1 (1) (116%) Adjusted EBITDA $ 69 $ 138 $ (69) (50%) The following tables present Adjusted EBITDA for our reportable segments reconciled to segment financial results. Vacation Ownership 2021 First Quarter Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Change % Change Segment adjusted EBITDA $ 68 $ 147 $ (79) (54%) Depreciation and amortization (19) (21) 2 7% Share-based compensation expense (1) (1) — (50%) Certain items (4) (47) 43 92% Segment financial results $ 44 $ 78 $ (34) (45%) Certain items in the Vacation Ownership segment for the first quarter of 2021 consisted of $3 million of litigation charges and $1 million of restructuring costs. Certain items in the Vacation Ownership segment for the first quarter of 2020 consisted of $37 million related to a net sales reserve adjustment due primarily to the impact of the COVID-19 pandemic, $4 million of asset impairment charges, $2 million of purchase accounting adjustments, $2 million of litigation charges, and $3 million of acquisition costs, partially offset by $1 million of gains and other income. 42 Table of Contents Exchange & Third-Party Management 2021 First Quarter Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Change % Change Segment adjusted EBITDA $ 41 $ 41 $ — 1% Depreciation and amortization (20) (9) (11) (122%) Share-based compensation expense — (1) 1 26% Certain items — (90) 90 100% Segment financial results $ 21 $ (59) $ 80 136% Certain items in the Exchange & Third-Party Management segment for the first quarter of 2020 consisted primarily of $91 million of impairment charges related to Goodwill and certain trademarks resulting from the impact of the COVID-19 pandemic. Business Segments Our business is grouped into two reportable business segments: Vacation Ownership and Exchange & Third-Party Management. See Footnote 17 “Business Segments” to our Financial Statements for further information on our segments. Vacation Ownership Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 REVENUES Sale of vacation ownership products $ 163 $ 258 Resort management and other services 94 112 Rental 77 122 Financing 59 71 Cost reimbursements 268 345 TOTAL REVENUES 661 908 EXPENSES Cost of vacation ownership products 40 60 Marketing and sales 109 170 Resort management and other services 35 56 Rental 96 107 Financing 21 37 Depreciation and amortization 19 21 Litigation charges 3 2 Restructuring 1 — Royalty fee 25 26 Impairment — 4 Cost reimbursements 268 345 TOTAL EXPENSES 617 828 Gains and other income, net — 1 Transaction costs — (3) SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 44 $ 78 43 Table of Contents Contract Sales 2021 First Quarter Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Change % Change Total consolidated contract sales $ 226 $ 306 $ (80) (26%) Joint venture contract sales 6 9 (3) (30%) Total contract sales $ 232 $ 315 $ (83) (26%) Sale of Vacation Ownership Products 2021 First Quarter Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Change % Change Total contract sales $ 232 $ 315 $ (83) (26%) Less resales contract sales (5) (7) 2 Less joint venture contract sales (6) (9) 3 Consolidated contract sales, net of resales 221 299 (78) Plus: Settlement revenue 5 6 (1) Resales revenue 2 4 (2) Revenue recognition adjustments: Reportability (36) 34 (70) Sales reserve (14) (71) 57 Other (1) (15) (14) (1) Sale of vacation ownership products $ 163 $ 258 $ (95) (37%) _______________ (1) Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue and other adjustments to Sale of vacation ownership products revenue. Sale of vacation ownership products decreased $95 million due primarily to $78 million of lower consolidated contract sales volume net of resales and a $70 million unfavorable change in revenue reportability, partially offset by $57 million of lower sales reserve activity . Lower contract sales performance was primarily due to the ongoing impact of the COVID-19 pandemic. However, with the reopening of many of our sales centers throughout 2020 and so far in 2021, our contract sales volumes have continued to improve on a sequential basis each quarter and we expect that improvement to continue through the remainder of 2021. Revenue reportability was negative in the first quarter of 2021. While we benefited from contract sales in the fourth quarter of 2020 being recognized as revenue in the first quarter of 2021, given the increasing sales volumes due to our recovery from the COVID-19 pandemic, we saw a higher shift of contract sales late in the first quarter of 2021 into the second quarter for revenue recognition. In contrast, revenue reportability was significantly positive in the first quarter of 2020. The first quarter of 2020 benefited from the contract sales from late in the fourth quarter of 2019 that were recognized as revenue in 2020. However, it was not impacted by an offsetting shift of revenues into the second quarter, given the low sales volumes in March 2020 from the impact of the COVID-19 pandemic. The lower sales reserve recorded in the first quarter of 2021 reflects the prior year increase made to the sales reserve to take into account higher expected default and delinquency activity as a result of the COVID-19 pandemic . 44 Table of Contents Development Profit 2021 First Quarter Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Change % Change Sale of vacation ownership products $ 163 $ 258 $ (95) (37%) Cost of vacation ownership products (40) (60) 20 34% Marketing and sales (109) (170) 61 36% Development profit $ 14 $ 28 $ (14) (50%) Development profit decreased $14 million year-over-year. The change reflected $49 million of unfavorable revenue reportability compared to the first quarter of 2021, $7 million of lower product cost related mainly to more favorable product cost true-up activity in the prior year first quarter, and $3 million related to lower sales volumes as compared to the prior year period. These declines were partially offset by $25 million related to lower marketing and sales spending and $20 million related to lower sales reserve activity. Resort Management and Other Services Revenues, Expenses and Profit 2021 First Quarter Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Change % Change Management fee revenues $ 38 $ 38 $ — (1%) Ancillary revenues 28 46 (18) (40%) Other management and exchange revenues 28 28 — 5% Resort management and other services revenues 94 112 (18) (16%) Resort management and other services expenses (35) (56) 21 37% Resort management and other services profit $ 59 $ 56 $ 3 5% Resort management and other services profit margin 63.0% 50.5% 12.5 pts Resort management and other services revenues reflected lower ancillary revenues, including revenues from food and beverage and golf offerings, as a result of the continued impact of the COVID-19 pandemic. While resort occupancies have continued to increase as an increasing number of resorts that were closed at the start of the COVID-19 pandemic have reopened, given the ongoing effects of the pandemic, ancillary activity remains below prior year levels. The increase in resort management and other services profit 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, as well as lower customer services expenses compared to the prior year period. Rental Revenues, Expenses and Profit 2021 First Quarter Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Change % Change Rental revenues $ 77 $ 122 $ (45) (37%) Rental expenses (96) (107) 11 10% Rental profit $ (19) $ 15 $ (34) (227%) Rental profit margin NM 12.4% Three Months Ended March 31, 2021 March 31, 2020 Change % Change Transient keys rented (1) 385,745 533,583 (147,838) (28%) Average transient key rate $ 230.32 $ 244.20 $ (13.88) (6%) Resort occupancy 66.7% 79.7% (13.0 pts) _________________________ (1) Transient keys rented exclude those occupied through the use of plus points and preview stays. 45 Table of Contents The decline in rental profit resulted from a decline in keys rented and a decline in average transient rate due to the COVID-19 pandemic and higher inventory carry costs due to low sales volumes in the first quarter of 2020 and into the first quarter of 2021, as well as the acquisition of new inventory in the first quarter of 2021. As the majority of the governmental restrictions in response to the pandemic that caused rental activity to decline, such as travel restrictions and quarantine requirements, either were lifted by the end of the first quarter of 2021 or shortly thereafter, we expect rental occupancies to continue to increase throughout 2021. Financing Revenues, Expenses and Profit 2021 First Quarter Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Change % Change Financing revenues 59 71 (12) (17%) Financing expenses (8) (22) 14 62% Consumer financing interest expense (13) (15) 2 17% Financing profit $ 38 $ 34 $ 4 13% Financing propensity 46% 57% Financing revenues decreased due to a $391 million decrease in the average net vacation ownership notes receivable balance resulting from the continued pay-down of the existing vacation ownership notes receivable portfolio without a corresponding increase from new loan originations. Financing expenses decreased due to lower bad debt expense associated with acquired vacation ownership notes receivable in the current year quarter and the benefit of synergy savings and lower salaries and wages associated with the furlough, reduced work week and workforce reduction programs implemented as a result of the COVID-19 pandemic. Lower consumer financing interest expense resulted from the continued pay-down of securitized debt balances. The lower financing propensity in the first quarter of 2021 is due to a higher percentage of sales during this period to existing owners, who tend to have a lower financing propensity. Going forward, we expect to shift back to an increased focus on first-time buyers, which should increase propensity and increase interest income as new originations of vacation ownership notes receivable outpace the decline in principal of existing vacation ownership notes receivable. Royalty Fee 2021 First Quarter Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Change % Change Royalty fee $ 25 $ 26 $ (1) (5%) Royalty fee expense declined in the first quarter of 2021 as a result of lower contract closings compared to the prior year quarter. 46 Table of Contents Exchange & Third-Party Management Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 REVENUES Management and exchange $ 60 $ 72 Rental 12 13 Financing — 1 Cost reimbursements 14 21 TOTAL REVENUES 86 107 EXPENSES Management and exchange 31 40 Rental — 5 Financing — 1 Depreciation and amortization 20 9 Impairment — 91 Cost reimbursements 14 21 TOTAL EXPENSES 65 167 Gains and other income, net — 1 SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 21 $ (59) Management and Exchange Profit 2021 First Quarter Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Change % Change Management and exchange revenue $ 60 $ 72 $ (12) (16%) Management and exchange expense (31) (40) 9 23% Management and exchange profit $ 29 $ 32 $ (3) (9%) Management and exchange profit margin 48.0% 43.9% 4.1 pts The decline in management and exchange revenue and profit reflected lower management fees and membership revenue due primarily to the ongoing impact of the COVID-19 pandemic. In addition, Aqua-Aston was negatively impacted by travel restrictions that significantly impacted the majority of their properties in Hawaii. These declines were partially offset by higher exchange activity and average exchange transaction fees at Interval International, reflecting customers’ more recent desire to travel and pent up demand, as well as lower management and exchange expense which reflected lower costs associated with the furlough, reduced work week and workforce reduction programs, and lower marketing and sales, print and postage costs. Exchange transactions increased 17 percent year-over-year. Rental Revenues, Expenses and Profit 2021 First Quarter Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Change % Change Rental revenues $ 12 $ 13 $ (1) (6%) Rental expenses — (5) 5 (100%) Rental profit $ 12 $ 8 $ 4 43% Rental profit margin 100.0% 65.8% 34.2 pts The increase in rental profit reflected a 26 percent increase in Getaway program transactions reflecting customers’ desire to travel and pent up demand and the benefit of cost savings initiatives. Late in the first quarter of 2021, we also introduced Getaway rentals of less than seven nights, providing members more opportunities to use their membership in ways that better fit their lifestyle. 47 Table of Contents Depreciation and Amortization 2021 First Quarter Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Change % Change Depreciation and amortization $ 20 $ 9 $ 11 122% Increase in depreciation expense relates to a true-up made to accelerate depreciation on a technology asset. 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, transaction costs and benefit from income taxes. In addition, Corporate and Other includes the revenues and expenses from the Consolidated Property Owners’ Associations. Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 REVENUES Resort management and other services $ 39 $ 43 Cost reimbursements (27) (48) TOTAL REVENUES 12 (5) EXPENSES Resort management and other services 51 55 Rental (14) (14) General and administrative 46 70 Depreciation and amortization 2 2 Restructuring (1) — Cost reimbursements (27) (48) TOTAL EXPENSES 57 65 Gains (losses) and other income (expense), net 6 (58) Interest expense (43) (33) Transaction costs (19) (21) FINANCIAL RESULTS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS (101) (182) Benefit from income taxes 11 58 Net income attributable to noncontrolling interests (3) (1) FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (93) $ (125) 48 Table of Contents Consolidated Property Owners’ Associations The following table illustrates the impact of certain Consolidated Property Owners’ Associations under the relevant accounting guidance, which represents the portion related to individual or third-party VOI owners. Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 REVENUES Resort management and other services $ 39 $ 43 Cost reimbursements (27) (48) TOTAL REVENUES 12 (5) EXPENSES Resort management and other services 51 55 Rental (14) (14) Cost reimbursements (27) (48) TOTAL EXPENSES 10 (7) Gains and other income, net 2 — FINANCIAL RESULTS BEFORE NONCONTROLLING INTERESTS 4 2 Net income attributable to noncontrolling interests (3) (1) FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 1 $ 1 Pursuant to a change in control of certain consolidated property owners’ associations, we recorded a non-cash loss of less than $1 million, which is recorded in Gains (losses) and other income (expense), net on our Income Statement for the three months ended March 31, 2021. We continue to act as manager for these property owners’ associations pursuant to existing management contracts and retain membership interests via our ownership of vacation ownership interests. General and Administrative 2021 First Quarter Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Change % Change General and administrative $ 46 $ 70 $ (24) (35%) General and administrative expenses decreased $24 million due to $25 million of savings related to synergy efforts and lower costs associated with the furlough, reduced work week and workforce reduction programs, $6 million of lower net overall spending across the business on technology, travel, training and other costs that we have deferred due to the COVID-19 pandemic, and a $2 million credit related to incentives under the CARES Act for companies to continue paying associates' benefit costs while they are not working, partially offset by $9 million of higher bonus expense. Gains / Losses and Other Income / Expense 2021 First Quarter Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Change % Change Gains (losses) and other income (expense), net $ 6 $ (58) $ 64 110% In the first quarter of 2021, we recorded a gain of $6 million driven mainly by foreign currency translation. In the first quarter of 2020, we recorded a loss of $58 million, including $33 million for the true-up to an indemnification receivable from Marriott International as a result of the settlement of an indemnified liability with a taxing authority (the true-up to the offsetting accrual is included in the Benefit from income taxes line) and $31 million related to foreign currency translation, offset partially by $6 million of other income related to an indemnification from Marriott International for VAT penalties and interest. 49 Table of Contents Interest Expense 2021 First Quarter Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Change % Change Interest expense $ (43) $ (33) $ (10) (29%) Interest expense increased $10 million, including $8 million of higher interest expense associated with the 2025 Notes that were issued in the second quarter of 2020 and $5 million higher non-cash interest expense associated with the 2026 Convertible Notes that were issued in the first quarter of 2021; partially offset by $3 million of lower interest expense associated with various other debt facilities. Transaction Costs 2021 First Quarter Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Change % Change Transaction costs $ (19) $ (21) $ 2 10% In the first quarter of 2021, Transaction costs included $17 million of ILG acquisition and integration related costs and $2 million of costs associated with the acquisition of Welk Resorts that was completed subsequent to the end of the quarter. In the first quarter of 2020, Transaction costs included $21 million of ILG acquisition-related costs. Income Tax 2021 First Quarter Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Change % Change Benefit from income taxes $ 11 $ 58 $ (47) (81%) The change in the Benefit from income taxes is predominately attributable to a decrease in pre-tax loss and a release in provisions on uncertain tax benefits for the three months ended March 31, 2020. Liquidity and Capital Resources Typically, our capital needs are supported by cash on hand ($643 million at the end of the first quarter of 2021), cash generated from operations, our ability to raise capital through securitizations in the ABS market, our ability to issue debt and, to the extent necessary, funds available under the Warehouse Credit Facility and the Revolving Corporate Credit Facility with a borrowing capacity of $600 million. At March 31, 2021, we had $4.6 billion of total gross debt outstanding, which included $1.4 billion of non-recourse debt associated with vacation ownership notes receivable securitizations, $1.1 billion of senior unsecured notes, $0.8 billion of debt under our Corporate Credit Facility, $0.8 billion of convertible notes, $0.5 billion of senior secured notes, and $7 million related to finance lease obligations. At March 31, 2021, we had $776 million of completed real estate inventory on hand. In addition, we had $291 million of completed vacation ownership units that have been classified as a component of Property and equipment until the time at which they are legally registered and held for sale as vacation ownership products. The following table summarizes the changes in cash, cash equivalents and restricted cash: Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Cash, cash equivalents and restricted cash provided by (used in): Operating activities $ (60) $ (122) Investing activities (8) (21) Financing activities 255 468 Effect of change in exchange rates on cash, cash equivalents and restricted cash (1) (6) Net change in cash, cash equivalents and restricted cash $ 186 $ 319 50 Table of Contents Cash from Operating Activities Our primary sources of funds from operations are (1) cash sales and down payments on financed sales, (2) cash from our financing operations, including principal and interest payments received on outstanding vacation ownership notes receivable, (3) cash from fee-based membership, exchange and rental transactions and (4) net cash generated from our rental and resort management and other services operations. Outflows include spending for the development of new phases of existing resorts, the acquisition of additional inventory, enhancement of our inventory exchange network of resorts and related technology infrastructure and funding our working capital needs. We minimize our working capital needs through cash management, strict credit-granting policies and disciplined collection efforts. Our working capital needs fluctuate throughout the year given the timing of annual maintenance fees on unsold inventory we pay to property owners’ associations and certain annual compensation-related outflows. In addition, our cash from operations varies due to the timing of our owners’ repayment of vacation ownership notes receivable, the closing or recording of sales contracts for vacation ownership products, financing propensity and cash outlays for inventory acquisition and development. In the first quarter of 2021, we had $60 million of cash outflows for operating activities, compared to $122 million in the first quarter of 2020. Excluding the impact of changes in net loss and adjustments for non-cash items, severance and benefit payments related to cost management activities, and higher inventory spending, partially offset by higher operational expense accruals and higher sales and rental deposits due to the partial recovery from the COVID-19 pandemic. In addition to net loss and adjustments for non-cash items, the following operating activities are key drivers of our cash flow from operating activities: Inventory Spending In Excess of Cost of Sales Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Inventory spending $ (57) $ (54) Purchase of vacation ownership units for future transfer to inventory (99) (61) Inventory costs 31 49 Inventory spending in excess of cost of sales $ (125) $ (66) Our Vacation Ownership segment product offerings allow us to utilize our inventory efficiently. The majority of our sales are of points-based products, which permits us to sell vacation ownership products at most of our sales locations, including those where little or no weeks-based inventory remains available for sale. Because we do not need specific resort-based inventory at each sales location, we need to have only a few resorts under construction at any given time and can leverage successful sales locations at completed resorts. This allows us to maintain long-term sales locations and reduces the need to develop and staff on-site sales locations at smaller projects in the future. We believe our points-based programs enable us to align our inventory acquisitions with the pace of sales of vacation ownership products. As part of our long-term strategy, we selectively pursue growth opportunities in our Vacation Ownership segment by targeting high-quality inventory that allows us to add desirable new destinations to our systems with new on-site sales locations through transactions that limit our up-front capital investment and allow us to purchase finished inventory closer to the time it is needed for sale. These capital efficient deal structures may consist of the development of new inventory, or the conversion of previously built units, by third parties just prior to sale. We measure our real estate inventory capital efficiency by comparing the cash outflow for real estate inventory spending (a cash item) to the amount of real estate inventory costs charged to expense on our Income Statements related to sale of vacation ownership products (a non-cash item). Our spending for real estate inventory in the first quarter of 2021 was higher than the amount of real estate inventory costs given the timing of payments to satisfy our remaining commitments to purchase vacation ownership units and the slowdown in sales pace as a result of the COVID-19 pandemic. We entered into these commitments in prior periods as part of our capital efficient strategy to limit our up-front capital investment and purchase finished inventory closer to the time it is needed for sale. See Footnote 11 “Contingencies and Commitments” to our Financial Statements for additional information regarding our remaining commitments. 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. 51 Table of Contents Vacation Ownership Notes Receivable Collections In Excess of Originations Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Vacation ownership notes receivable collections — non-securitized $ 42 $ 88 Vacation ownership notes receivable collections — securitized 123 86 Vacation ownership notes receivable originations (108) (174) Vacation ownership notes receivable collections in excess of originations $ 57 $ — Vacation ownership notes receivable collections include principal from non-securitized and securitized vacation ownership notes receivable. Vacation ownership notes receivable collections decreased during the first quarter of 2021, as compared to the first quarter of 2020, due to a decrease in the portfolio of outstanding vacation ownership notes receivable. Vacation ownership notes receivable originations in the first quarter of 2021 decreased due to lower sales in the first quarter of 2021 due to the COVID-19 pandemic and a lower financing propensity. Financing propensity declined to 46 percent for the first quarter of 2021 compared to 57 percent for the first quarter of 2020 due to a higher percentage of sales during this period to existing owners, who tend to have a lower financing propensity. Going forward, we expect to shift back to an increased focus on first-time buyers, which should increase propensity and increase interest income as new originations of vacation ownership notes receivable outpace the decline in principal of existing vacation ownership notes receivable. Cash from Investing Activities Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Capital expenditures for property and equipment (excluding inventory) $ (7) $ (17) Purchase of company owned life insurance (1) (4) Net cash, cash equivalents and restricted cash used in investing activities $ (8) $ (21) Capital Expenditures for Property and Equipment Capital expenditures for property and equipment relate to spending for technology development, buildings and equipment used at sales locations and ancillary offerings, such as food and beverage offerings, at locations where such offerings are provided. Additionally, it includes spending related to maintenance of buildings and equipment used in common areas at some of our resorts. In the first quarter of 2021, capital expenditures for property and equipment of $7 million included $5 million to support business operations (including $3 million for ancillary and other operations assets and $2 million for sales locations) and $2 million for technology spending. Given the impact of the COVID-19 pandemic, we significantly reduced our spending for property and equipment beginning in the second quarter of 2020. However, during the first quarter of 2021, we began to add back business critical spending with long term strategic impacts to our operations. In the first quarter of 2020, capital expenditures for property and equipment of $17 million included $14 million to support business operations (including $9 million for ancillary and other operations assets and $5 million for sales locations) and $3 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. We paid $1 million to acquire these policies during the first quarter of 2021 but we paid $4 million during the first quarter of 2020. 52 Table of Contents Cash from Financing Activities Three Months Ended ($ in millions) March 31, 2021 March 31, 2020 Borrowings from securitization transactions $ — $ 202 Repayment of debt related to securitization transactions (159) (148) Proceeds from debt 561 666 Repayments of debt (100) (102) Purchase of convertible note hedges (100) — Proceeds from issuance of warrants 70 — Finance lease payment — (9) Debt issuance costs (2) — Repurchase of common stock — (82) Payment of dividends — (45) Payment of withholding taxes on vesting of restricted stock units (15) (14) Net cash, cash equivalents and restricted cash provided by financing activities $ 255 $ 468 Borrowings from / Repayment of Debt Related to Securitization Transactions We reflect proceeds from securitizations of vacation ownership notes receivable, including draw downs on the Warehouse Credit Facility, as “Borrowings from securitization transactions.” We reflect repayments of bonds associated with vacation ownership notes receivable securitizations and repayments on the Warehouse Credit Facility (including vacation ownership notes receivable repurchases) as “Repayment of debt related to securitization transactions.” As of March 31, 2021, $240 million of gross vacation ownership notes receivable were eligible for securitization. Proceeds from / Repayments of Debt Borrowings from / Repayment of Corporate Credit Facility During the first quarter of 2021, we repaid $100 million of the amount outstanding under the Term Loan, which is part of our Corporate Credit Facility. We had no borrowings or repayments under our Revolving Corporate Credit Facility during the first quarter of 2021 and also had no amounts outstanding as of March 31, 2021. During the first quarter of 2020, we borrowed $666 million under our Revolving Corporate Credit Facility to facilitate the funding of our short-term working capital needs and to increase our cash position and preserve financial flexibility in light of the impact on global markets resulting from the COVID-19 pandemic. We later repaid $100 million during the first quarter of 2020 and had $596 million outstanding as of March 31, 2020. During the first quarter of 2020, we also repaid $2 million of the amount outstanding under the Term Loan. See Footnote 13 “Debt” to our Financial Statements for additional information regarding our Corporate Credit Facility that includes our Revolving Corporate Credit Facility and the Term Loan. Proceeds from Convertible Notes During the first quarter of 2021, we issued $575 million of convertible notes, the 2026 Convertible Notes, as discussed further in Footnote 13 “Debt” to our Financial Statements. We received net proceeds from the offering of approximately $530 million after adjusting for debt issuance costs, including the discount to the initial purchasers, the cost of the 2026 Convertible Note Hedges, and proceeds from the 2026 Warrants. We used, or expect to use, the net proceeds from the 2026 Convertible Notes to (i) complete the acquisition of Welk Resorts, (ii) repay a portion of our term loan and (iii) in each case, pay transaction expenses and other fees in connection therewith, and to the extent of any remaining proceeds, for other general corporate purposes. Purchase of Convertible Note Hedges / Proceeds from Issuance of Warrants In connection with the issuance of the 2026 Convertible Notes, we entered into the 2026 Convertible Note Hedges with respect to our common stock with certain counterparties, covering a total of 3.4 million shares of our common stock at a cost of $100 million. Concurrently with the entry into the 2026 Convertible Note Hedges, we separately entered into 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 $70 million from the sale of the 2026 Warrants to the counterparties. 53 Table of Contents See Footnote 13 “Debt” to our Financial Statements for additional information regarding the issuance of the 2026 Convertible Notes, including the 2026 Convertible Note Hedges and the 2026 Warrants. As of March 31, 2021, no 2026 Convertible Note Hedges or 2026 Warrants have been exercised. Finance Lease Payment During the first quarter of 2020, in conjunction with the acquisition of the 57 completed vacation ownership units at our Marriott Vacation Club Pulse, New York City property, we made finance lease payments of $7 million related to the purchase of the accompanying ancillary and office space. Additionally, we paid $2 million related to our finance lease obligations for technology and business operations equipment. Debt Issuance Costs During the first quarter of 2021, we paid $2 million of debt issuance costs, which included $1 million associated with the 2026 Convertible Notes and $1 million associated with the extension of the Waiver associated with the Revolving Corporate Credit Facility . Dividends Given the impact of the COVID-19 pandemic, we have temporarily suspended cash dividends. In addition, our Corporate Credit Facility and the indentures governing our senior notes contain restrictions on our ability to pay dividends. Future dividend payments will also be subject to both the restrictions imposed under the Waiver and Board approval, which will depend on our financial condition, results of operations and capital requirements, as well as applicable law, regulatory and contractual constraints, industry practice and other business considerations that our Board of Directors considers relevant. The payment of certain cash dividends may also result in an adjustment to the conversion rate of our convertible notes in a manner adverse to us. Accordingly, there can be no assurance that we will pay dividends in the future at the same rate or at all. 54 Supplemental Guarantor Information The 2026 Notes and 2028 Notes are guaranteed by MVWC, Marriott Ownership Resorts, Inc. (“MORI”), and certain other subsidiaries whose voting securities are wholly owned directly or indirectly by MORI (such subsidiaries collectively, the “Senior Notes Guarantors”). These guarantees are full and unconditional and joint and several. The guarantees of the Senior Notes Guarantors are subject to release in limited circumstances only upon the occurrence of certain customary conditions. The following tables present consolidating financial information as of March 31, 2021 and for the three months ended March 31, 2021 for MVWC and MORI on a stand-alone basis (collectively, the “Issuers”), the Senior Notes Guarantors, the combined non-guarantor subsidiaries of MVW, and MVW on a consolidated basis. Condensed Consolidating Balance Sheet As of March 31, 2021 Issuers Senior Notes Guarantors Non-Guarantor Subsidiaries Total Eliminations MVW Consolidated ($ in millions) MVWC MORI Cash and cash equivalents $ — $ 489 $ 43 $ 111 $ — $ 643 Restricted cash 152 19 36 328 — 535 Accounts receivable, net 7 124 49 46 (7) 219 Vacation ownership notes receivable, net — 214 150 1,405 — 1,769 Inventory — 290 379 116 — 785 Property and equipment — 208 446 233 — 887 Goodwill — — 2,817 — — 2,817 Intangibles, net — — 881 57 — 938 Investments in subsidiaries 3,215 4,450 — — (7,665) — Other 56 112 295 162 (31) 594 Total assets $ 3,430 $ 5,906 $ 5,096 $ 2,458 $ (7,703) $ 9,187 Accounts payable $ 57 $ 11 $ 53 $ 38 $ — $ 159 Advance deposits — 79 65 23 — 167 Accrued liabilities — 97 162 94 (8) 345 Deferred revenue — 10 195 334 (15) 524 Payroll and benefits liability — 89 74 25 — 188 Deferred compensation liability — 100 22 2 — 124 Securitized debt, net — — — 1,446 (15) 1,431 Debt, net 659 2,364 1 1 — 3,025 Other — 32 114 54 — 200 Deferred taxes 5 106 145 30 — 286 MVW shareholders' equity 2,709 3,018 4,265 382 (7,665) 2,709 Noncontrolling interests — — — 29 — 29 Total liabilities and equity $ 3,430 $ 5,906 $ 5,096 $ 2,458 $ (7,703) $ 9,187 55 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 — 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 Condensed Consolidating Statements of Income Three Months Ended March 31, 2021 Issuers Senior Notes Guarantors Non-Guarantor Subsidiaries Total Eliminations MVW Consolidated ($ in millions) MVWC MORI Revenues $ — $ 98 $ 472 $ 197 $ (8) $ 759 Expenses (8) (181) (454) (160) 8 (795) Benefit (provision) for income taxes 5 50 (11) (33) — 11 Equity in net (loss) income of subsidiaries (25) 18 — — 7 — Net (loss) income (28) (15) 7 4 7 (25) Net loss attributable to noncontrolling interests — — — (3) — (3) Net (loss) income attributable to common shareholders $ (28) $ (15) $ 7 $ 1 $ 7 $ (28) 56 Table of Contents Contractual Obligations and Off-Balance Sheet Arrangements The following table summarizes our contractual obligations as of March 31, 2021: Payments Due by Period ($ in millions) Total Remainder of 2021 Years 2022 - 2023 Years 2024 - 2025 Thereafter Contractual Obligations Debt (1) $ 5,478 $ 237 $ 874 $ 1,876 $ 2,491 Purchase obligations (2) 295 158 126 11 — Operating lease obligations 231 19 42 35 135 Finance lease obligations (3) 8 3 4 1 — Other long-term obligations (4) 21 10 6 3 2 Total contractual obligations $ 6,033 $ 427 $ 1,052 $ 1,926 $ 2,628 _________________________ (1) Includes principal as well as interest payments and excludes unamortized debt discount and issuance costs. (2) Arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure, and approximate timing of the transaction. Amounts reflected represent expected funding under such contracts. Amounts reflected on the consolidated balance sheet as accounts payable and accrued liabilities are excluded from the table above. (3) Includes interest. (4) Primarily relates to future guaranteed purchases of rental inventory, operational support services, marketing related benefits, membership fulfillment benefits, and other commitments. 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 2023, 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 11 “Contingencies and Commitments” to our Financial Statements for additional information on this lease, including additional arrangements made as a result of the COVID-19 pandemic. Recent Accounting Pronouncements See Footnote 2 “Significant Accounting Policies and Recent Accounting Standards” to our Financial Statements for a discussion of recently issued accounting pronouncements, including information on new accounting standards and the future adoption of such standards. Critical Accounting Policies and Estimates Our preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. We have discussed those policies and estimates that we believe are critical and require the use of complex judgment in their application in our most recent Annual Report on Form 10-K. Since the date of our most recent Annual Report on Form 10-K, there have been no material changes to our critical accounting policies or the methodologies or assumptions we apply under them. 57 Table of Contents