MARRIOTT VACATIONS WORLDWIDE Corp 10-Q

Item 1. Financial Statements MARRIOTT VACATIONS WORLDWIDE CORPORATION INTERIM CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 REVENUES Sale of vacation ownership products $ 330 $ 98 $ 789 $ 409 Management and exchange 225 176 638 548 Rental 130 56 340 209 Financing 69 64 196 206 Cost reimbursements 298 255 827 767 TOTAL REVENUES 1,052 649 2,790 2,139 EXPENSES Cost of vacation ownership products 71 27 178 110 Marketing and sales 166 78 439 297 Management and exchange 138 106 381 342 Rental 84 74 247 245 Financing 22 24 64 85 General and administrative 54 32 166 121 Depreciation and amortization 35 30 112 93 Litigation charges 2 2 8 4 Restructuring — 20 — 20 Royalty fee 26 23 78 72 Impairment — 2 5 98 Cost reimbursements 298 255 827 767 TOTAL EXPENSES 896 673 2,505 2,254 Losses and other expense, net ( 31 ) — ( 27 ) ( 42 ) Interest expense ( 41 ) ( 37 ) ( 128 ) ( 112 ) Transaction and integration costs ( 27 ) ( 11 ) ( 75 ) ( 47 ) Other 1 — 2 — INCOME (LOSS) BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS 58 ( 72 ) 57 ( 316 ) (Provision for) benefit from income taxes ( 47 ) 14 ( 63 ) 91 NET INCOME (LOSS) 11 ( 58 ) ( 6 ) ( 225 ) Net income attributable to noncontrolling interests ( 1 ) ( 4 ) ( 6 ) ( 13 ) NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 10 $ ( 62 ) $ ( 12 ) $ ( 238 ) EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS Basic $ 0.24 $ ( 1.51 ) $ ( 0.28 ) $ ( 5.76 ) Diluted $ 0.23 $ ( 1.51 ) $ ( 0.28 ) $ ( 5.76 ) CASH DIVIDENDS DECLARED PER SHARE $ 0.54 $ — $ 0.54 $ 0.54 See Notes to Interim Consolidated Financial Statements 1 Table of Contents MARRIOTT VACATIONS WORLDWIDE CORPORATION INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) (Unaudited) Three Months Ended Nine Months Ended September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 NET INCOME (LOSS) $ 11 $ ( 58 ) $ ( 6 ) $ ( 225 ) Foreign currency translation adjustments ( 4 ) 5 ( 3 ) ( 9 ) Derivative instrument adjustment, net of tax 3 3 12 ( 22 ) OTHER COMPREHENSIVE (LOSS) GAIN, NET OF TAX ( 1 ) 8 9 ( 31 ) Net income attributable to noncontrolling interests ( 1 ) ( 4 ) ( 6 ) ( 13 ) Other comprehensive income attributable to noncontrolling interests — — — — COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS ( 1 ) ( 4 ) ( 6 ) ( 13 ) COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 9 $ ( 54 ) $ ( 3 ) $ ( 269 ) See Notes to the Interim Consolidated Financial Statements 2 Table of Contents MARRIOTT VACATIONS WORLDWIDE CORPORATION INTERIM CONSOLIDATED BALANCE SHEETS (In millions, except share and per share data) Unaudited September 30, 2021 December 31, 2020 ASSETS Cash and cash equivalents $ 448 $ 524 Restricted cash (including $ 69 and $ 68 from VIEs, respectively) 434 468 Accounts receivable, net (including $ 10 and $ 11 from VIEs, respectively) 223 276 Vacation ownership notes receivable, net (including $ 1,486 and $ 1,493 from VIEs, respectively) 2,026 1,840 Inventory 741 759 Property and equipment, net 1,077 791 Goodwill 3,086 2,817 Intangibles, net 1,007 952 Other (including $ 70 and $ 54 from VIEs, respectively) 501 471 TOTAL ASSETS $ 9,543 $ 8,898 LIABILITIES AND EQUITY Accounts payable $ 190 $ 209 Advance deposits 166 147 Accrued liabilities (including $ 2 and $ 1 from VIEs, respectively) 375 349 Deferred revenue 540 488 Payroll and benefits liability 201 157 Deferred compensation liability 135 127 Securitized debt, net (including $ 1,611 and $ 1,604 from VIEs, respectively) 1,594 1,588 Debt, net 2,795 2,680 Other 218 197 Deferred taxes 325 274 TOTAL LIABILITIES 6,539 6,216 Contingencies and Commitments (Note 11) Preferred stock — $ 0.01 par value; 2,000,000 shares authorized; none issued or outstanding — — Common stock — $ 0.01 par value; 100,000,000 shares authorized; 75,491,621 and 75,279,061 shares issued, respectively 1 1 Treasury stock — at cost; 32,776,162 and 34,184,813 shares, respectively ( 1,282 ) ( 1,334 ) Additional paid-in capital 4,056 3,760 Accumulated other comprehensive loss ( 39 ) ( 48 ) Retained earnings 237 272 TOTAL MVW SHAREHOLDERS' EQUITY 2,973 2,651 Noncontrolling interests 31 31 TOTAL EQUITY 3,004 2,682 TOTAL LIABILITIES AND EQUITY $ 9,543 $ 8,898 The abbreviation VIEs above means Variable Interest Entities. See Notes to Interim Consolidated Financial Statements 3 Table of Contents MARRIOTT VACATIONS WORLDWIDE CORPORATION INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) (Unaudited) Nine Months Ended September 30, 2021 September 30, 2020 OPERATING ACTIVITIES Net loss $ ( 6 ) $ ( 225 ) Adjustments to reconcile net loss to net cash, cash equivalents and restricted cash used by operating activities: Depreciation and amortization of intangibles 112 93 Amortization of debt discount and issuance costs 41 16 Vacation ownership notes receivable reserve 73 97 Share-based compensation 33 23 Impairment charges 5 98 Deferred income taxes 10 1 Net change in assets and liabilities: Accounts receivable 54 24 Vacation ownership notes receivable originations ( 545 ) ( 265 ) Vacation ownership notes receivable collections 532 487 Inventory 59 ( 4 ) Other assets ( 29 ) 57 Accounts payable, advance deposits and accrued liabilities ( 44 ) ( 231 ) Deferred revenue 119 57 Payroll and benefit liabilities 35 — Deferred compensation liability 14 8 Other liabilities 23 ( 11 ) Deconsolidation of certain Consolidated Property Owners' Associations ( 87 ) — Purchase of vacation ownership units for future transfer to inventory ( 99 ) ( 61 ) Other, net 3 ( 6 ) Net cash, cash equivalents and restricted cash provided by operating activities 303 158 INVESTING ACTIVITIES Acquisition of a business, net of cash and restricted cash acquired ( 157 ) — Capital expenditures for property and equipment (excluding inventory) ( 19 ) ( 36 ) Purchase of company owned life insurance ( 11 ) ( 3 ) Dispositions, net — 15 Net cash, cash equivalents and restricted cash used in investing activities ( 187 ) ( 24 ) Continued See Notes to Interim Consolidated Financial Statements 4 Table of Contents MARRIOTT VACATIONS WORLDWIDE CORPORATION INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (In millions) (Unaudited) Nine Months Ended September 30, 2021 September 30, 2020 FINANCING ACTIVITIES Borrowings from securitization transactions 425 690 Repayment of debt related to securitization transactions ( 602 ) ( 793 ) Proceeds from debt 1,061 1,166 Repayments of debt ( 1,039 ) ( 703 ) Purchase of convertible note hedges ( 100 ) — Proceeds from issuance of warrants 70 — Finance lease payment ( 2 ) ( 10 ) Payment of debt issuance costs ( 17 ) ( 14 ) Repurchase of common stock ( 4 ) ( 82 ) Payment of dividends — ( 45 ) Payment of withholding taxes on vesting of restricted stock units ( 17 ) ( 14 ) Net cash, cash equivalents and restricted cash (used in) provided by financing activities ( 225 ) 195 Effect of changes in exchange rates on cash, cash equivalents and restricted cash ( 1 ) ( 2 ) Change in cash, cash equivalents and restricted cash ( 110 ) 327 Cash, cash equivalents and restricted cash, beginning of period 992 701 Cash, cash equivalents and restricted cash, end of period $ 882 $ 1,028 SUPPLEMENTAL DISCLOSURES Non-cash issuance of treasury stock in connection with Welk Acquisition $ 248 $ — Non-cash transfer from property and equipment to inventory 3 — Non-cash transfer from inventory to property and equipment 105 90 Non-cash issuance of treasury stock for employee stock purchase plan 3 1 Dividends payable 23 — Interest paid, net of amounts capitalized 136 140 Income tax refunds, net of income taxes paid ( 19 ) ( 48 ) See Notes to Interim Consolidated Financial Statements 5 MARRIOTT VACATIONS WORLDWIDE CORPORATION INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In millions) (Unaudited) Common Stock Issued Common Stock Treasury Stock Additional Paid-In Capital Accumulated Other Comprehensive (Loss) Gain Retained Earnings Total MVW Shareholders' Equity Noncontrolling Interests Total Equity 75.3 BALANCE AT DECEMBER 31, 2020 $ 1 $ ( 1,334 ) $ 3,760 $ ( 48 ) $ 272 $ 2,651 $ 31 $ 2,682 — Net (loss) income — — — — ( 28 ) ( 28 ) 3 ( 25 ) — Foreign currency translation adjustments — — — ( 3 ) — ( 3 ) — ( 3 ) — Derivative instrument adjustment — — — 6 — 6 — 6 0.2 Share-based compensation plans — — ( 4 ) — — ( 4 ) — ( 4 ) — Equity component of convertible notes, net of issuance costs — — 117 — — 117 — 117 — Purchase of convertible note hedges — — ( 100 ) — — ( 100 ) — ( 100 ) — Issuance of warrants — — 70 — — 70 — 70 — Deconsolidation of certain Consolidated Property Owners' Associations — — — — — — ( 5 ) ( 5 ) 75.5 BALANCE AT MARCH 31, 2021 1 ( 1,334 ) 3,843 ( 45 ) 244 2,709 29 2,738 — Net income — — — — 6 6 2 8 — Welk Acquisition — 55 193 — — 248 — 248 — Foreign currency translation adjustments — — — 4 — 4 — 4 — Derivative instrument adjustment — — — 3 — 3 — 3 — Share-based compensation plans — 1 9 — — 10 — 10 — Deconsolidation of certain Consolidated Property Owners' Associations — — — — — — ( 1 ) ( 1 ) — Employee stock plan issuance — — 2 — — 2 — 2 75.5 BALANCE AT JUNE 30, 2021 1 ( 1,278 ) 4,047 ( 38 ) 250 2,982 30 3,012 — Net income — — — — 10 10 1 11 — Foreign currency translation adjustments — — — ( 4 ) — ( 4 ) — ( 4 ) — Derivative instrument adjustment — — — 3 — 3 — 3 — Share-based compensation plans — — 8 — — 8 — 8 — Repurchase of common stock — ( 4 ) — — — ( 4 ) — ( 4 ) — Dividends — — — — ( 23 ) ( 23 ) — ( 23 ) — Employee stock plan issuance — — 1 — — 1 — 1 75.5 BALANCE AT SEPTEMBER 30, 2021 $ 1 $ ( 1,282 ) $ 4,056 $ ( 39 ) $ 237 $ 2,973 $ 31 $ 3,004 Continued See Notes to Interim Consolidated Financial Statements 6 MARRIOTT VACATIONS WORLDWIDE CORPORATION INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In millions) (Unaudited) Common Stock Issued Common Stock Treasury Stock Additional Paid-In Capital Accumulated Other Comprehensive (Loss) Gain Retained Earnings Total MVW Shareholders' Equity Noncontrolling Interests Total Equity 75.0 BALANCE AT DECEMBER 31, 2019 $ 1 $ ( 1,253 ) $ 3,738 $ ( 36 ) $ 569 $ 3,019 $ 12 $ 3,031 — Net (loss) income — — — — ( 106 ) ( 106 ) 1 ( 105 ) — Foreign currency translation adjustments — — — ( 17 ) — ( 17 ) — ( 17 ) — Derivative instrument adjustment — — — ( 24 ) — ( 24 ) — ( 24 ) 0.2 Share-based compensation plans — — ( 9 ) — — ( 9 ) — ( 9 ) — Repurchase of common stock — ( 82 ) — — — ( 82 ) — ( 82 ) — Dividends — — — — ( 22 ) ( 22 ) — ( 22 ) 75.2 BALANCE AT MARCH 31, 2020 1 ( 1,335 ) 3,729 ( 77 ) 441 2,759 13 2,772 — Net (loss) income — — — — ( 70 ) ( 70 ) 8 ( 62 ) — Foreign currency translation adjustments — — — 3 — 3 — 3 — Derivative instrument adjustment — — — ( 1 ) — ( 1 ) — ( 1 ) — Share-based compensation plans — — 7 — — 7 — 7 — Employee stock plan issuance — 1 — — — 1 — 1 75.2 BALANCE AT JUNE 30, 2020 1 ( 1,334 ) 3,736 ( 75 ) 371 2,699 21 2,720 — Net (loss) income — — — — ( 62 ) ( 62 ) 4 ( 58 ) — Foreign currency translation adjustments — — — 5 — 5 — 5 — Derivative instrument adjustment — — — 3 — 3 — 3 0.1 Share-based compensation plans — — 13 — — 13 — 13 75.3 BALANCE AT SEPTEMBER 30, 2020 $ 1 $ ( 1,334 ) $ 3,749 $ ( 67 ) $ 309 $ 2,658 $ 25 $ 2,683 See Notes to Interim Consolidated Financial Statements 7 Table of Contents MARRIOTT VACATIONS WORLDWIDE CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The Interim Consolidated Financial Statements present the results of operations, financial position and cash flows of Marriott Vacations Worldwide Corporation (referred to in this report as (i) “we,” “us,” “Marriott Vacations Worldwide,” “MVW” or “the Company,” which includes our consolidated subsidiaries except where the context of the reference is to a single corporate entity, or (ii) “MVWC,” which shall refer only to Marriott Vacations Worldwide Corporation, without its consolidated subsidiaries). In order to make this report easier to read, we refer throughout to (i) our 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 in these Notes to Interim Consolidated Financial Statements, unless otherwise noted. Capitalized terms used and not specifically defined herein have the same meanings given those terms in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “2020 Annual Report”). We use certain other terms that are defined within these Financial Statements. The Financial Statements presented herein and discussed below include 100 percent of the assets, liabilities, revenues, expenses, and cash flows of Marriott Vacations Worldwide, all entities in which Marriott Vacations Worldwide has a controlling voting interest (“subsidiaries”), and those variable interest entities (“VIEs”) for which Marriott Vacations Worldwide is the primary beneficiary in accordance with consolidation accounting guidance. References in these Financial Statements to net income (loss) attributable to common shareholders and MVW shareholders’ equity do not include noncontrolling interests, which represent the outside ownership of our consolidated non-wholly owned entities and are reported separately. Intercompany accounts and transactions between consolidated companies have been eliminated in consolidation. Pursuant to a change in control of certain consolidated property owners’ associations, we recorded a non-cash loss of $ 1 million in Losses and other expense, net on our Income Statement for the nine months ended September 30, 2021, and deconsolidated $ 88 million of assets, inclusive of $ 87 million of restricted cash, and $ 83 million of liabilities, for a decrease in Noncontrolling interests of $ 6 million during the first three quarters of 2021. See our Interim Consolidated Statements of Shareholders’ Equity for further information. 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. These Financial Statements reflect our financial position, results of operations, and cash flows as prepared in conformity with United States Generally Accepted Accounting Principles (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates include, but are not limited to, revenue recognition, allocations of the purchase price paid in business combinations, cost of vacation ownership products, inventory valuation, goodwill and intangibles valuation, accounting for acquired vacation ownership notes receivable, vacation ownership notes receivable reserves, income taxes, and loss contingencies. The uncertainty created by the COVID-19 pandemic, and the ongoing efforts to mitigate it, has made it more challenging to make these estimates. Accordingly, ultimate results could differ from our estimates, and such differences may be material. In our opinion, our Financial Statements reflect all normal and recurring adjustments necessary to present fairly our financial position, the results of our operations, and cash flows for the periods presented. Interim results may not be indicative of fiscal year performance because of, among other reasons, the impact of the COVID-19 pandemic and seasonal and short-term variations. These Financial Statements have not been audited. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP. Although we believe our footnote disclosures are adequate to make the information presented not misleading, the Financial Statements in this report should be read in conjunction with the consolidated financial statements and notes thereto in our 2020 Annual Report. Acquisition of Welk On April 1, 2021, we completed the acquisition of Welk Hospitality Group, Inc. (“Welk”) through a series of transactions (the “Welk Acquisition”), after which Welk became our indirect wholly-owned subsidiary. The Financial Statements in this report include Welk’s results of operations for the second and third quarters of 2021 and reflect the financial position of our combined company at September 30, 2021. We refer to Welk’s business and brands that we acquired as “Legacy-Welk.” See Footnote 3 “Acquisitions and Dispositions” for more information on the Welk Acquisition. 8 Table of Contents Reclassifications We have reclassified certain prior year amounts to conform to our current year presentation. 2. SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING STANDARDS New Accounting Standards Accounting Standards Update 2019-12 – “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”) In the first quarter of 2021, we adopted ASU 2019-12, which amends and simplifies existing guidance in an effort to reduce the complexity of accounting for income taxes while maintaining or enhancing the helpfulness of information provided to financial statement users. Our adoption of ASU 2019-12 did not have a material impact on our Financial Statements or disclosures. Future Adoption of Accounting Standards Accounting Standards Update 2020-04 – “ Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting ” (“ASU 2020-04”) In March 2020, the FASB issued ASU 2020-04, as amended, which provides optional expedients and exceptions to existing guidance on contract modifications and hedge accounting in an effort to ease the financial reporting burdens related to the expected market transition from the LIBOR and other interbank offered rates to alternative reference rates. This update can be adopted no later than December 1, 2022, with early adoption permitted. We expect to adopt ASU 2020-04 in fiscal year 2022 and continue to evaluate the impact that adoption of this update will have on our Financial Statements and disclosures. Accounting Standards Update 2020-06 – “ Debt — Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”) In August 2020, the FASB issued ASU 2020-06, which amends and simplifies existing guidance in an effort to reduce the complexity of accounting for convertible instruments and to provide financial statement users with more meaningful information. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods therein, with early adoption permitted for fiscal years beginning after December 15, 2020. This update may be applied retrospectively or on a modified retrospective basis with the cumulative effect recognized as an adjustment to the opening balance of retained earnings on the date of adoption. We expect to adopt ASU 2020-06 on January 1, 2022 using the modified retrospective method. Any transactions that may be settled prior to adoption will not be impacted by the update. The impacts of the adoption for any remaining instruments will be recorded in its cumulative effect in the opening balance of retained earnings and the conversion feature related to our convertible notes will be reclassified from equity to liabilities. In addition, we will eliminate the related equity adjustment associated with the deferred tax liability. Upon adoption, we will also be required to calculate the impact of the convertible notes on diluted earnings per share under the “if-converted” method. Under the “if-converted” method, diluted earnings per share would generally be calculated assuming that all of our convertible notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be anti-dilutive. The application of the “if-converted” method is expected to reduce our reported diluted earnings per share. Accounting Standards Update 2021-08 - “ Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”) In October 2021, the FASB issued ASU 2021-08, which requires application of ASC 606, Revenue from Contracts with Customers, to recognize and measure contract assets and liabilities from contracts with customers acquired in a business combination. ASU 2021-08 creates an exception to the general recognition and measurement principle in ASC 805 and will result in recognition of contract assets and contract liabilities consistent with those recorded by the acquiree immediately before the acquisition date. The guidance eliminates the complexity of determining the fair value of contract liabilities and may result in higher balances for contract liabilities acquired in a business combination, resulting in more post-combination revenue and a higher amount of goodwill being recognized by the acquirer. This update is effective for fiscal years beginning after December 15, 2022 and interim periods therein, with early adoption permitted. We expect to adopt ASU 2021-08 on a prospective basis in fiscal year 2022, and do not expect the adoption to have a material impact on our Financial Statements or disclosures. 9 Table of Contents 3. ACQUISITIONS AND DISPOSITIONS Welk Acquisition On April 1, 2021 (the “Welk Acquisition Date”), we completed the Welk Acquisition for consideration of $ 405 million, including approximately 1.4 million shares of our common stock. Welk was one of the largest independent vacation ownership companies in North America. The following table presents the fair value of each type of consideration transferred at the Welk Acquisition Date at September 30, 2021. (in millions, except per share amounts) Equivalent shares of Marriott Vacations Worldwide common stock issued 1.4 Marriott Vacations Worldwide common stock price per share as of Welk Acquisition Date $ 174.18 Fair value of Marriott Vacations Worldwide common stock issued 248 Cash consideration to Welk, net of cash and restricted cash acquired of $ 48 million 157 Total consideration transferred, net of cash and restricted cash acquired $ 405 Preliminary Fair Values of Assets Acquired and Liabilities Assumed We accounted for the Welk Acquisition as a business combination, which requires us to record the assets acquired and liabilities assumed at fair value as of the Welk Acquisition Date. The amounts recorded are preliminary in nature and are subject to adjustment as additional information is obtained about the facts and circumstances that existed as of the Welk Acquisition Date. We continue to evaluate the underlying inputs and assumptions used in our valuation for all assets acquired and liabilities assumed. The values attributed to Vacation ownership notes receivable, Inventory, Property and equipment, Intangible assets, Deferred taxes and Securitized debt from VIEs are based on preliminary valuations prepared using Level 3 inputs and assumptions in accordance with ASC Topic 820, “ Fair Value Measurements ” (“ASC 820”). The value attributed to Debt is based on Level 2 inputs in accordance with ASC 820. We are in the process of finalizing our valuations in accordance with the authoritative guidance by continuing our evaluation of the underlying inputs and assumptions that are being utilized in the valuations. Our evaluation of Welk’s historical tax positions remains ongoing. Accordingly, these preliminary estimates are subject to change during the measurement period, which is up to one year from the Welk Acquisition Date, as permitted under GAAP. Any potential adjustments could be material in relation to the values presented in the table below. The following table presents our preliminary estimates of the fair value of the assets that we acquired and the liabilities that we assumed in connection with the business combination as previously reported at June 30, 2021 and as adjusted at September 30, 2021. During the third quarter of 2021, we refined our valuation models related to certain acquired assets and liabilities as follows: ($ in millions) April 1, 2021 (as reported at June 30, 2021) Adjustments April 1, 2021 (as adjusted at September 30, 2021) Vacation ownership notes receivable, net (1) $ 240 $ 14 $ 254 Inventory (2) 83 53 136 Property and equipment 151 ( 40 ) 111 Intangible assets (3) 94 6 100 Other assets 19 — 19 Deferred taxes ( 41 ) ( 4 ) ( 45 ) Debt ( 189 ) — ( 189 ) Securitized debt ( 184 ) — ( 184 ) Other liabilities ( 67 ) 1 ( 66 ) Net assets acquired 106 30 136 Goodwill (4) 299 ( 30 ) 269 $ 405 $ — $ 405 _________________________ (1) Vacation ownership notes receivable, net have been determined to constitute purchased credit deteriorated assets under the provisions of ASC Topic 326, “ Financial Instruments - Credit Losses ,” due to the impact of the COVID-19 pandemic on Welk and the greater vacation ownership industry as a whole, and have been accounted for as such. 10 Table of Contents ($ in millions) Vacation ownership notes receivable $ 287 Allowance for credit losses ( 33 ) Vacation ownership notes receivable, net $ 254 (2) Inventory consists of completed unsold VOIs. We valued inventory using an income approach, which includes significant Level 3 assumptions, such as estimates of future income growth, marketing and sales costs and discount rates. (3) Intangible assets consist of management contracts with an estimated 20 year useful life. (4) Goodwill is calculated as total consideration transferred, net of cash acquired, less identified net assets acquired and it represents the value that we expect to obtain from growth opportunities from our combined operations, and is not deductible for tax purposes. Pro Forma Results of Operations The following unaudited pro forma information presents the combined results of operations of Marriott Vacations Worldwide and Welk as if we had completed the Welk Acquisition on December 31, 2019, the last day of our 2019 fiscal year, but using our preliminary estimates of the fair values of assets and liabilities as of the Welk Acquisition Date. As required by GAAP, these unaudited pro forma results do not reflect any synergies from operating efficiencies. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the Welk Acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations. There were no Welk acquisition-related costs included in the unaudited pro forma results below for the nine months ended September 30, 2021, and $ 18 million included for the nine months ended September 30, 2020. Nine Months Ended ($ in millions, except per share data) September 30, 2021 September 30, 2020 Revenues $ 2,837 $ 2,246 Net income (loss) $ 6 $ ( 251 ) Net income (loss) attributable to common shareholders $ — $ ( 264 ) EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS Basic $ 0.01 $ ( 6.40 ) Diluted $ 0.01 $ ( 6.40 ) Welk Results of Operations The following table presents the results of Welk operations included in our Income Statement for the three and nine months ended September 30, 2021. ($ in millions) Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021 Revenue $ 53 $ 101 Net income $ 10 $ 16 Other Acquisitions Costa Rica During the first quarter of 2021, we acquired 24 completed vacation ownership units and an operations building located at our Marriott Vacation Club at Los Suenos resort in Costa Rica for $ 14 million. We accounted for the transaction as an asset acquisition with the purchase price allocated to Inventory ($ 13 million) and Property and equipment ($ 1 million). New York, New York During the first quarter of 2021, we acquired the remaining 120 completed vacation ownership units located at our Marriott Vacation Club Pulse, New York City property for $ 98 million. We accounted for the transaction as an asset acquisition with the purchase price allocated to Property and equipment. 11 Table of Contents During the first quarter of 2020, we acquired 57 completed vacation ownership units, as well as office and ancillary space, located at our Marriott Vacation Club Pulse, New York City property for $ 89 million, of which $ 22 million was a prepayment for future tranches of completed vacation ownership units and $ 20 million was paid in December 2019. We accounted for the transaction as an asset acquisition with the purchase price allocated to Property and equipment ($ 67 million) and Other assets ($ 22 million). San Francisco, California During the first quarter of 2021, we acquired 44 completed vacation ownership units located at our Marriott Vacation Club Pulse, San Francisco property for $ 34 million. We accounted for the transaction as an asset acquisition with the purchase price allocated to Inventory ($ 29 million) and Other assets ($ 5 million). During the first quarter of 2020, we acquired 34 completed vacation ownership units located at our Marriott Vacation Club Pulse, San Francisco property for $ 26 million, of which $ 5 million was a prepayment for future tranches of completed vacation ownership units. We accounted for the transaction as an asset acquisition with the purchase price allocated to Inventory ($ 18 million), Property and equipment ($ 3 million), and Other assets ($ 5 million). See Footnote 16 “Variable Interest Entities” for information on our remaining commitment to purchase future inventory and additional information on our activities relating to the VIE involved in this transaction. Dispositions During the third quarter of 2020, we recorded a loss of $ 5 million in the Losses and other expense, net line on our Income Statement for the three and nine months ended September 30, 2020 relating to the redemption of our interest in a joint venture in our Exchange & Third-Party Management segment which was consolidated under the voting interest model. We received nominal cash proceeds and a note receivable which we measured at a fair value of $ 1 million using Level 3 inputs. Additionally, during the third quarter of 2020, we disposed of excess Vacation Ownership segment land parcels in Orlando, Florida and Steamboat Springs, Colorado for combined proceeds of $ 15 million, as part of our strategic decision to reduce holdings in markets where we have excess supply. We recorded a combined net gain of $ 6 million in the Losses and other expense, net line on our Income Statement for the three and nine months ended September 30, 2020 relating to these transactions. 4. REVENUE AND RECEIVABLES Sources of Revenue by Segment The following tables detail the sources of revenue by segment for the time periods presented. Three Months Ended September 30, 2021 ($ in millions) Vacation Ownership Exchange & Third-Party Management Corporate and Other Total Sale of vacation ownership products $ 330 $ — $ — $ 330 Ancillary revenues 55 1 — 56 Management fee revenues 40 10 ( 4 ) 46 Exchange and other services revenues 31 48 44 123 Management and exchange 126 59 40 225 Rental 121 9 — 130 Cost reimbursements 328 9 ( 39 ) 298 Revenue from contracts with customers 905 77 1 983 Financing 69 — — 69 Total Revenues $ 974 $ 77 $ 1 $ 1,052 12 Table of Contents Three Months Ended September 30, 2020 ($ in millions) Vacation Ownership Exchange & Third-Party Management Corporate and Other Total Sale of vacation ownership products $ 98 $ — $ — $ 98 Ancillary revenues 17 — — 17 Management fee revenues 37 4 ( 5 ) 36 Exchange and other services revenues 28 45 50 123 Management and exchange 82 49 45 176 Rental 46 10 — 56 Cost reimbursements 281 12 ( 38 ) 255 Revenue from contracts with customers 507 71 7 585 Financing 64 — — 64 Total Revenues $ 571 $ 71 $ 7 $ 649 Nine Months Ended September 30, 2021 ($ in millions) Vacation Ownership Exchange & Third-Party Management Corporate and Other Total Sale of vacation ownership products $ 789 $ — $ — $ 789 Ancillary revenues 135 2 — 137 Management fee revenues 117 24 ( 15 ) 126 Exchange and other services revenues 91 153 131 375 Management and exchange 343 179 116 638 Rental 308 32 — 340 Cost reimbursements 882 38 ( 93 ) 827 Revenue from contracts with customers 2,322 249 23 2,594 Financing 196 — — 196 Total Revenues $ 2,518 $ 249 $ 23 $ 2,790 13 Table of Contents Nine Months Ended September 30, 2020 ($ in millions) Vacation Ownership Exchange & Third-Party Management Corporate and Other Total Sale of vacation ownership products $ 409 $ — $ — $ 409 Ancillary revenues 69 1 — 70 Management fee revenues 113 14 ( 14 ) 113 Exchange and other services revenues 85 145 135 365 Management and exchange 267 160 121 548 Rental 180 29 — 209 Cost reimbursements 824 45 ( 102 ) 767 Revenue from contracts with customers 1,680 234 19 1,933 Financing 204 2 — 206 Total Revenues $ 1,884 $ 236 $ 19 $ 2,139 Timing of Revenue from Contracts with Customers by Segment The following tables detail the timing of revenue from contracts with customers by segment for the time periods presented. Three Months Ended September 30, 2021 ($ in millions) Vacation Ownership Exchange & Third-Party Management Corporate and Other Total Services transferred over time $ 517 $ 38 $ 1 $ 556 Goods or services transferred at a point in time 388 39 — 427 Revenue from contracts with customers $ 905 $ 77 $ 1 $ 983 Three Months Ended September 30, 2020 ($ in millions) Vacation Ownership Exchange & Third-Party Management Corporate and Other Total Services transferred over time $ 394 $ 35 $ 7 $ 436 Goods or services transferred at a point in time 113 36 — 149 Revenue from contracts with customers $ 507 $ 71 $ 7 $ 585 Nine Months Ended September 30, 2021 ($ in millions) Vacation Ownership Exchange & Third-Party Management Corporate and Other Total Services transferred over time $ 1,388 $ 118 $ 23 $ 1,529 Goods or services transferred at a point in time 934 131 — 1,065 Revenue from contracts with customers $ 2,322 $ 249 $ 23 $ 2,594 Nine Months Ended September 30, 2020 ($ in millions) Vacation Ownership Exchange & Third-Party Management Corporate and Other Total Services transferred over time $ 1,197 $ 119 $ 19 $ 1,335 Goods or services transferred at a point in time 483 115 — 598 Revenue from contracts with customers $ 1,680 $ 234 $ 19 $ 1,933 14 Table of Contents Sale of Vacation Ownership Products Revenues were reduced during the third quarter and first three quarters of 2021 by $ 1 million and $ 9 million, respectively, due to changes in our estimates of variable consideration for performance obligations that were satisfied in prior periods. Receivables from Contracts with Customers, Contract Assets & Contract Liabilities The following table shows the composition of our receivables from contracts with customers and contract liabilities. We had no contract assets at either September 30, 2021 or December 31, 2020. ($ in millions) At September 30, 2021 At December 31, 2020 Receivables from Contracts with Customers Accounts receivable $ 140 $ 150 Vacation ownership notes receivable, net 2,026 1,840 $ 2,166 $ 1,990 Contract Liabilities Advance deposits $ 166 $ 147 Deferred revenue 540 488 $ 706 $ 635 Revenue recognized during the third quarter and first three quarters of 2021 that was included in our contract liabilities balance at December 31, 2020 was $ 133 million and $ 336 million, respectively. Remaining Performance Obligations Our remaining performance obligations represent the expected transaction price allocated to our contracts that we expect to recognize as revenue in future periods when we perform under the contracts. At September 30, 2021, approximately 84 percent of this amount is expected to be recognized as revenue over the next two years . Accounts Receivable Accounts receivable is comprised of amounts due from customers, primarily property owners’ associations, resort developers and members, credit card receivables, interest receivables, amounts due from taxing authorities, indemnification assets and other miscellaneous receivables. The following table shows the composition of our accounts receivable balances: ($ in millions) At September 30, 2021 At December 31, 2020 Receivables from contracts with customers $ 140 $ 150 Interest receivable 14 13 Tax receivable 19 60 Indemnification assets 21 15 Employee tax credit receivable 19 19 Other 10 19 $ 223 $ 276 15 Table of Contents 5. INCOME TAXES Our provision for income taxes is calculated using an estimated annual effective tax rate, based upon expected annual income, less losses in certain jurisdictions, permanent items, statutory rates and planned tax strategies in the various jurisdictions in which we operate. However, discrete items related to prior year tax items are treated separately. Our interim effective tax rate was 81.5 percent and 19.8 percent for the three months ended September 30, 2021 and September 30, 2020, respectively. The change in the effective tax rate is predominately attributable to an increase in pre-tax income and an increase in the reserve for uncertain tax benefits. Our interim effective tax rate was 110.6 percent and 28.7 percent for the nine months ended September 30, 2021 and September 30, 2020, respectively. The change in the effective tax rate is predominately attributable to an increase in pre-tax income and an increase in the reserve for uncertain tax benefits. U.S. Tax Law Update We have considered the income tax accounting and disclosure implications of the relief provided by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), enacted in March 2020, and the Consolidated Appropriations Act, 2021, enacted in December 2020. As of September 30, 2021, we evaluated the income tax provisions of the above mentioned acts and have determined there to be minimal effect on either the September 30, 2021 tax rate or the computation of the estimated effective tax rate for the year ended December 31, 2021. We will continue to evaluate the income tax provisions of the above mentioned acts and monitor the developments in the jurisdictions where we have significant operations for tax law changes that could have additional income tax accounting and disclosure implications. Unrecognized Tax Benefits The following table summarizes the activity related to our unrecognized tax benefits (excluding interest and penalties) during the nine months ended September 30, 2021. These unrecognized tax benefits relate to uncertain income tax positions, which would affect the effective tax rate if recognized. ($ in millions) Unrecognized Tax Benefits Balance at December 31, 2020 $ 14 Increases related to tax positions taken during a prior period 12 Increases related to tax positions taken during the current period 1 Decreases as a result of a lapse of the applicable statute of limitations ( 1 ) Balance at September 30, 2021 $ 26 The total amount of gross interest and penalties accrued was $ 38 million at September 30, 2021 and $ 25 million at December 31, 2020. We anticipate $ 14 million of unrecognized tax benefits, including interest and penalties, to be indemnified pursuant to a Tax Matters Agreement dated May 11, 2016 by and among Starwood Hotels & Resorts Worldwide, Inc., Vistana Signature Experiences, Inc., and Interval Leisure Group, Inc., and consequently have recorded a corresponding indemnification asset. The unrecognized tax benefits, including accrued interest and penalties, are included in Other liabilities on our Balance Sheet. Our income tax returns are subject to examination by relevant tax authorities. Certain of our returns are being audited in various jurisdictions for tax years 2007 through 2019. The amount of the unrecognized tax benefit may increase or decrease as a result of audits or audit settlements. 16 Table of Contents 6. VACATION OWNERSHIP NOTES RECEIVABLE The following table shows the composition of our vacation ownership notes receivable balances, net of reserves. September 30, 2021 December 31, 2020 ($ in millions) Originated Acquired Total Originated Acquired Total Securitized $ 1,097 $ 389 $ 1,486 $ 1,220 $ 273 $ 1,493 Non-securitized Eligible for securitization (1) 242 2 244 126 2 128 Not eligible for securitization (1) 269 27 296 185 34 219 Subtotal 511 29 540 311 36 347 $ 1,608 $ 418 $ 2,026 $ 1,531 $ 309 $ 1,840 _________________________ (1) Refer to Footnote 7 “Financial Instruments” for a discussion of eligibility of our vacation ownership notes receivable for securitization. We reflect interest income associated with vacation ownership notes receivable in our Income Statements in the Financing revenues caption. The following table summarizes interest income associated with vacation ownership notes receivable. Three Months Ended Nine Months Ended ($ in millions) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 Interest income associated with vacation ownership notes receivable — securitized $ 55 $ 59 $ 160 $ 186 Interest income associated with vacation ownership notes receivable — non-securitized 13 4 30 13 Total interest income associated with vacation ownership notes receivable $ 68 $ 63 $ 190 $ 199 COVID-19 Impact on Vacation Ownership Notes Receivable Reserves We increased our vacation ownership notes receivable reserves by $ 52 million in the first quarter of 2020 as a result of higher actual and projected default activity related predominantly to the COVID-19 pandemic. In the fourth quarter of 2020, we increased our vacation ownership notes receivable reserve by an additional $ 17 million due to higher than previously expected default activity. During the first three quarters of 2021, there were no additional increases to our vacation ownership notes receivable reserves attributed to the COVID-19 pandemic. 17 Table of Contents Acquired Vacation Ownership Notes Receivable Acquired vacation ownership notes receivable represent vacation ownership notes receivable acquired as part of the ILG Acquisition and the Welk Acquisition. The following table shows future contractual principal payments, net of reserves, and interest rates for our acquired vacation ownership notes receivable at September 30, 2021. Acquired Vacation Ownership Notes Receivable ($ in millions) Non-Securitized Securitized Total 2021, remaining $ 1 $ 13 $ 14 2022 3 53 56 2023 3 54 57 2024 3 53 56 2025 3 50 53 Thereafter 16 166 182 Balance at September 30, 2021 $ 29 $ 389 $ 418 Weighted average stated interest rate 13.7 % 14.1 % 14.1 % Range of stated interest rates 0.0 % to 21.9 % 0.0 % to 21.9 % 0.0 % to 21.9 % The following table summarizes activity related to our acquired vacation ownership notes receivable reserve. Acquired Vacation Ownership Notes Receivable Reserve ($ in millions) Non-Securitized Securitized Total Balance at December 31, 2020 $ 39 $ 21 $ 60 Securitizations ( 6 ) 6 — Clean-up call 3 ( 3 ) — Write-offs ( 36 ) — ( 36 ) Recoveries 19 — 19 Defaulted vacation ownership notes receivable repurchase activity (1) 25 ( 25 ) — Initial allowance for credit losses for Legacy-Welk vacation ownership notes receivable 12 21 33 (Decrease) increase in vacation ownership notes receivable reserve ( 6 ) 6 — Balance at September 30, 2021 $ 50 $ 26 $ 76 _________________________ (1) Decrease in securitized vacation ownership notes receivable reserve and increase in non-securitized vacation ownership notes receivable reserve are attributable to the transfer of the reserve when we voluntarily repurchased defaulted securitized vacation ownership notes receivable. 18 Table of Contents Originated Vacation Ownership Notes Receivable Originated vacation ownership notes receivable represent vacation ownership notes receivable originated by Legacy-ILG and Legacy-Welk subsequent to each respective acquisition date and all Legacy-MVW vacation ownership notes receivable. The following table shows future principal payments, net of reserves, and interest rates for our originated vacation ownership notes receivable at September 30, 2021. Originated Vacation Ownership Notes Receivable ($ in millions) Non-Securitized Securitized Total 2021, remaining $ 14 $ 28 $ 42 2022 46 115 161 2023 40 116 156 2024 39 117 156 2025 37 121 158 Thereafter 335 600 935 Balance at September 30, 2021 $ 511 $ 1,097 $ 1,608 Weighted average stated interest rate 12.8 % 12.8 % 12.8 % Range of stated interest rates 0.0 % to 20.9 % 0.0 % to 19.9 % 0.0 % to 20.9 % For originated vacation ownership notes receivable, we record the difference between the vacation ownership note receivable and the variable consideration included in the transaction price for the sale of the related vacation ownership product as a reserve on our vacation ownership notes receivable. The following table summarizes the activity related to our originated vacation ownership notes receivable reserve. Originated Vacation Ownership Notes Receivable Reserve ($ in millions) Non-Securitized Securitized Total Balance at December 31, 2020 $ 193 $ 117 $ 310 Increase in vacation ownership notes receivable reserve 48 23 71 Securitizations ( 29 ) 29 — Clean-up call 3 ( 3 ) — Write-offs ( 49 ) — ( 49 ) Defaulted vacation ownership notes receivable repurchase activity (1) 53 ( 53 ) — Balance at September 30, 2021 $ 219 $ 113 $ 332 _________________________ (1) Decrease in securitized vacation ownership notes receivable reserve and increase in non-securitized vacation ownership notes receivable reserve are attributable to the transfer of the reserve when we voluntarily repurchased defaulted securitized vacation ownership notes receivable. 19 Table of Contents Credit Quality of Vacation Ownership Notes Receivable Legacy-MVW Vacation Ownership Notes Receivable For both Legacy-MVW non-securitized and securitized vacation ownership notes receivable, we estimated average remaining default rates of 6.67 percent as of September 30, 2021, and 6.74 percent as of December 31, 2020. A 0.5 percentage point increase in the estimated default rate would have resulted in an increase in the related vacation ownership notes receivable reserve of $ 6 million as of both September 30, 2021 and December 31, 2020. We use the aging of the vacation ownership notes receivable as the primary credit quality indicator for our Legacy-MVW vacation ownership notes receivable, as historical performance indicates that there is a relationship between the default behavior of borrowers and the age of the receivable associated with the vacation ownership interest. The following table shows our recorded investment in non-accrual Legacy-MVW vacation ownership notes receivable, which are vacation ownership notes receivable that are 90 days or more past due. Legacy-MVW Vacation Ownership Notes Receivable ($ in millions) Non-Securitized Securitized Total Investment in vacation ownership notes receivable on non-accrual status at September 30, 2021 $ 98 $ 7 $ 105 Investment in vacation ownership notes receivable on non-accrual status at December 31, 2020 $ 100 $ 14 $ 114 The following table shows the aging of the recorded investment in principal, before reserves, in Legacy-MVW vacation ownership notes receivable as of September 30, 2021 and December 31, 2020. Legacy-MVW Vacation Ownership Notes Receivable As of September 30, 2021 As of December 31, 2020 ($ in millions) Non-Securitized Securitized Total Non-Securitized Securitized Total 31 – 90 days past due $ 9 $ 18 $ 27 $ 8 $ 25 $ 33 91 – 150 days past due 3 7 10 5 14 19 Greater than 150 days past due 95 — 95 95 — 95 Total past due 107 25 132 108 39 147 Current 286 900 1,186 231 1,011 1,242 Total vacation ownership notes receivable $ 393 $ 925 $ 1,318 $ 339 $ 1,050 $ 1,389 The following table details the origination year of our Legacy-MVW vacation ownership notes receivable as of September 30, 2021. Legacy-MVW Vacation Ownership Notes Receivable ($ in millions) Non-Securitized Securitized Total Year of Origination 2021 $ 207 $ 79 $ 286 2020 33 169 202 2019 60 269 329 2018 35 178 213 2017 18 107 125 2016 and Prior 40 123 163 $ 393 $ 925 $ 1,318 20 Table of Contents Legacy-ILG and Legacy-Welk Vacation Ownership Notes Receivable At September 30, 2021 and December 31, 2020, the weighted average FICO score within our consolidated Legacy-ILG and Legacy-Welk vacation ownership notes receivable pools was 707 and 708 , respectively, based upon the outstanding vacation ownership notes receivable balance at the time of origination. The average estimated rate for all future defaults for our Legacy-ILG and Legacy-Welk consolidated outstanding pool of vacation ownership notes receivable was 17.13 percent as of September 30, 2021 and 14.63 percent as of December 31, 2020. A 0.5 percentage point increase in the estimated default rate on the Legacy-ILG and Legacy-Welk vacation ownership notes receivable would have resulted in an increase in the related vacation ownership notes receivable reserve of $ 4 million as of September 30, 2021, and $ 3 million as of December 31, 2020. We use the origination of the vacation ownership notes receivable by brand (Westin, Sheraton, Hyatt, Welk) and the FICO scores of the customer as the primary credit quality indicators for our Legacy-ILG and Legacy-Welk vacation ownership notes receivable, as historical performance indicates that there is a relationship between the default behavior of borrowers and the brand associated with the vacation ownership interest they have acquired, supplemented by the FICO scores of the customers. Vacation ownership notes receivable with no FICO score in the tables below primarily relate to non-U.S. resident borrowers. The following table shows our recorded investment in non-accrual Legacy-ILG and Legacy-Welk vacation ownership notes receivable, which are vacation ownership notes receivable that are 90 days or more past due. Legacy-ILG and Legacy-Welk Vacation Ownership Notes Receivable ($ in millions) Non-Securitized Securitized Total Investment in vacation ownership notes receivable on non-accrual status at September 30, 2021 $ 116 $ 8 $ 124 Investment in vacation ownership notes receivable on non-accrual status at December 31, 2020 $ 109 $ 12 $ 121 The following table shows the aging of the recorded investment in principal, before reserves, in Legacy-ILG and Legacy-Welk vacation ownership notes receivable as of September 30, 2021 and December 31, 2020. Legacy-ILG and Legacy-Welk Vacation Ownership Notes Receivable As of September 30, 2021 As of December 31, 2020 ($ in millions) Non-Securitized Securitized Total Non-Securitized Securitized Total 31 – 90 days past due $ 11 $ 16 $ 27 $ 8 $ 19 $ 27 91 – 120 days past due 2 5 7 2 7 9 Greater than 120 days past due 114 3 117 107 5 112 Total past due 127 24 151 117 31 148 Current 289 676 965 123 550 673 Total vacation ownership notes receivable $ 416 $ 700 $ 1,116 $ 240 $ 581 $ 821 The following tables show the Legacy-ILG and Legacy-Welk acquired vacation ownership notes receivable, before reserves, by brand and FICO score. Acquired Vacation Ownership Notes Receivable as of September 30, 2021 ($ in millions) 700 + 600 - 699 < 600 No Score Total Westin $ 59 $ 36 $ 3 $ 9 $ 107 Sheraton 59 54 10 24 147 Hyatt 9 6 1 1 17 Welk 128 87 1 3 219 Other 2 1 — 1 4 $ 257 $ 184 $ 15 $ 38 $ 494 21 Table of Contents Acquired Vacation Ownership Notes Receivable as of December 31, 2020 ($ in millions) 700 + 600 - 699 < 600 No Score Total Westin $ 81 $ 48 $ 4 $ 11 $ 144 Sheraton 81 73 13 31 198 Hyatt 12 9 1 — 22 Other 2 1 — 2 5 $ 176 $ 131 $ 18 $ 44 $ 369 The following tables detail the origination year of our Legacy-ILG and Legacy-Welk acquired vacation ownership notes receivable by brand and FICO score as of September 30, 2021. Acquired Vacation Ownership Notes Receivable - Westin ($ in millions) 2021 2020 2019 2018 2017 2016 & Prior Total 700 + $ — $ — $ — $ 16 $ 17 $ 26 $ 59 600 - 699 — — — 9 10 17 36 < 600 — — — 2 — 1 3 No Score — — — 2 3 4 9 $ — $ — $ — $ 29 $ 30 $ 48 $ 107 Acquired Vacation Ownership Notes Receivable - Sheraton ($ in millions) 2021 2020 2019 2018 2017 2016 & Prior Total 700 + $ — $ — $ — $ 17 $ 17 $ 25 $ 59 600 - 699 — — — 14 15 25 54 < 600 — — — 6 2 2 10 No Score — — — 7 7 10 24 $ — $ — $ — $ 44 $ 41 $ 62 $ 147 Acquired Vacation Ownership Notes Receivable - Hyatt and Other ($ in millions) 2021 2020 2019 2018 2017 2016 & Prior Total 700 + $ — $ — $ — $ 3 $ 2 $ 6 $ 11 600 - 699 — — — 1 2 4 7 < 600 — — — — — 1 1 No Score — — — — — 2 2 $ — $ — $ — $ 4 $ 4 $ 13 $ 21 Acquired Vacation Ownership Notes Receivable - Welk ($ in millions) 2021 2020 2019 2018 2017 2016 & Prior Total 700 + $ 22 $ 14 $ 21 $ 33 $ 27 $ 11 $ 128 600 - 699 17 11 15 23 16 5 87 < 600 — — — — 1 — 1 No Score 1 — 1 1 — — 3 $ 40 $ 25 $ 37 $ 57 $ 44 $ 16 $ 219 22 Table of Contents The following tables show the Legacy-ILG and Legacy-Welk originated vacation ownership notes receivable, before reserves, by brand and FICO score. Originated Vacation Ownership Notes Receivable as of September 30, 2021 ($ in millions) 700 + 600 - 699 < 600 No Score Total Westin $ 136 $ 63 $ 7 $ 28 $ 234 Sheraton 127 91 19 45 282 Hyatt 21 10 1 — 32 Welk 52 21 1 — 74 $ 336 $ 185 $ 28 $ 73 $ 622 Originated Vacation Ownership Notes Receivable as of December 31, 2020 ($ in millions) 700 + 600 - 699 < 600 No Score Total Westin $ 109 $ 52 $ 6 $ 23 $ 190 Sheraton 106 72 16 43 237 Hyatt 16 8 — — 24 $ 231 $ 132 $ 22 $ 66 $ 451 The following tables detail the origination year of our Legacy-ILG and Legacy-Welk originated vacation ownership notes receivable by brand and FICO score as of September 30, 2021. Originated Vacation Ownership Notes Receivable - Westin ($ in millions) 2021 2020 2019 2018 2017 2016 & Prior Total 700 + $ 58 $ 24 $ 45 $ 9 $ — $ — $ 136 600 - 699 23 11 24 5 — — 63 < 600 3 2 2 — — — 7 No Score 13 5 9 1 — — 28 $ 97 $ 42 $ 80 $ 15 $ — $ — $ 234 Originated Vacation Ownership Notes Receivable - Sheraton ($ in millions) 2021 2020 2019 2018 2017 2016 & Prior Total 700 + $ 47 $ 26 $ 43 $ 11 $ — $ — $ 127 600 - 699 34 17 31 9 — — 91 < 600 6 4 7 2 — — 19 No Score 8 10 22 5 — — 45 $ 95 $ 57 $ 103 $ 27 $ — $ — $ 282 Originated Vacation Ownership Notes Receivable - Hyatt ($ in millions) 2021 2020 2019 2018 2017 2016 & Prior Total 700 + $ 9 $ 3 $ 7 $ 2 $ — $ — $ 21 600 - 699 4 2 3 1 — — 10 < 600 1 — — — — — 1 No Score — — — — — — — $ 14 $ 5 $ 10 $ 3 $ — $ — $ 32 Originated Vacation Ownership Notes Receivable - Welk ($ in millions) 2021 2020 2019 2018 2017 2016 & Prior Total 700 + $ 52 $ — $ — $ — $ — $ — $ 52 600 - 699 21 — — — — — 21 < 600 1 — — — — — 1 No Score — — — — — — — $ 74 $ — $ — $ — $ — $ — $ 74 23 Table of Contents 7. FINANCIAL INSTRUMENTS The following table shows the carrying values and the estimated fair values of financial assets and liabilities that qualify as financial instruments, determined in accordance with the authoritative guidance for disclosures regarding the fair value of financial instruments. Considerable judgment is required in interpreting market data to develop estimates of fair value. The use of different market assumptions and/or estimation methodologies could have a material effect on the estimated fair value amounts. The table excludes Cash and cash equivalents, Restricted cash, Accounts receivable, deposits included in Other assets, Accounts payable, Advance deposits and Accrued liabilities, all of which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments. At September 30, 2021 At December 31, 2020 ($ in millions) Carrying Amount Fair Value Carrying Amount Fair Value Vacation ownership notes receivable $ 2,026 $ 2,084 $ 1,840 $ 1,886 Other assets 70 70 60 60 Total financial assets $ 2,096 $ 2,154 $ 1,900 $ 1,946 Securitized debt, net $ ( 1,594 ) $ ( 1,646 ) $ ( 1,588 ) $ ( 1,653 ) 2025 Notes, net ( 495 ) ( 529 ) ( 494 ) ( 533 ) 2026 Notes, net — — ( 744 ) ( 784 ) 2028 Notes, net ( 346 ) ( 356 ) ( 346 ) ( 359 ) 2029 Notes, net ( 493 ) ( 507 ) — — Term Loan, net ( 776 ) ( 769 ) ( 873 ) ( 864 ) 2022 Convertible Notes, net ( 221 ) ( 280 ) ( 215 ) ( 262 ) 2026 Convertible Notes, net ( 455 ) ( 648 ) — — Total financial liabilities $ ( 4,380 ) $ ( 4,735 ) $ ( 4,260 ) $ ( 4,455 ) Vacation Ownership Notes Receivable At September 30, 2021 At December 31, 2020 ($ in millions) Carrying Amount Fair Value Carrying Amount Fair Value Vacation ownership notes receivable Securitized $ 1,486 $ 1,532 $ 1,493 $ 1,530 Eligible for securitization 244 256 128 137 Not eligible for securitization 296 296 219 219 Non-securitized 540 552 347 356 $ 2,026 $ 2,084 $ 1,840 $ 1,886 We estimate the fair value of our vacation ownership notes receivable that have been securitized using a discounted cash flow model. We believe this is comparable to the model that an independent third party would use in the current market. Our model uses default rates, prepayment rates, coupon rates and loan terms for our securitized vacation ownership notes receivable portfolio as key drivers of risk and relative value to determine the fair value of the underlying vacation ownership notes receivable. We concluded that this fair value measurement should be categorized within Level 3. Due to factors that impact the general marketability of our vacation ownership notes receivable that have not been securitized, as well as current market conditions, we bifurcate our non-securitized vacation ownership notes receivable at each balance sheet date into those eligible and not eligible for securitization using criteria applicable to current securitization transactions in the ABS market. Generally, vacation ownership notes receivable are considered not eligible for securitization if any of the following attributes are present: (1) payments are greater than 30 days past due; (2) the first payment has not been received; or (3) the collateral is located in Asia or Europe. In some cases, eligibility may also be determined based on the credit score of the borrower, the remaining term of the loans and other similar factors that may reflect investor demand in a securitization transaction or the cost to effectively securitize the vacation ownership notes receivable. 24 Table of Contents The table above shows the bifurcation of our vacation ownership notes receivable that have not been securitized into those eligible and not eligible for securitization based upon the aforementioned eligibility criteria. We estimate the fair value of the portion of our vacation ownership notes receivable that have not been securitized that we believe will ultimately be securitized in the same manner as vacation ownership notes receivable that have been securitized. We value the remaining vacation ownership notes receivable that have not been securitized at their carrying value, rather than using our pricing model. We believe that the carrying value of these particular vacation ownership notes receivable approximates fair value because the stated, or otherwise imputed, interest rates of these loans are consistent with current market rates and the reserve for these vacation ownership notes receivable appropriately accounts for risks in default rates, prepayment rates, discount rates and loan terms. We concluded that this fair value measurement should be categorized within Level 3. Other Assets Other assets include $ 70 million of company owned insurance policies (the “COLI policies”), acquired on the lives of certain participants in the Marriott Vacations Worldwide Deferred Compensation Plan, that are held in a rabbi trust. The carrying value of the COLI policies is equal to their cash surrender value (Level 2 inputs). Securitized Debt We generate cash flow estimates by modeling all bond tranches for our active vacation ownership notes receivable securitization transactions, with consideration for the collateral specific to each tranche. The key drivers in our analysis include default rates, prepayment rates, bond interest rates and other structural factors, which we use to estimate the projected cash flows. In order to estimate market credit spreads by rating, we obtain indicative credit spreads from investment banks that actively issue and facilitate the market for vacation ownership securities and determine an average credit spread by rating level of the different tranches. We then apply those estimated market spreads to swap rates in order to estimate an underlying discount rate for calculating the fair value of the active bonds payable. We concluded that this fair value measurement should be categorized within Level 3. Senior Notes We estimate the fair value of our 2025 Notes, 2026 Notes, 2028 Notes, and 2029 Notes (each as defined in Footnote 13 “Debt”) using quoted market prices as of the last trading day for the quarter; however these notes have only a limited trading history and volume, and as such this fair value estimate is not necessarily indicative of the value at which these notes could be retired or transferred. We concluded that this fair value measurement should be categorized within Level 2. Term Loan We estimate the fair value of our Term Loan (as defined in Footnote 13 “Debt”) using quotes from securities dealers as of the last trading day for the quarter; however this loan has only a limited trading history and volume, and as such this fair value estimate is not necessarily indicative of the value at which the Term Loan could be retired or transferred. We concluded that this fair value measurement should be categorized within Level 3. Convertible Notes We estimate the fair value of our 2022 Convertible Notes and 2026 Convertible Notes (each as defined in Footnote 13 “Debt” and referred to collectively as our “convertible notes”) using quoted market prices as of the last trading day for the quarter; however these notes have only a limited trading history and volume, and as such this fair value estimate is not necessarily indicative of the value at which the convertible notes could be retired or transferred. We concluded that this fair value measurement should be categorized within Level 2. The difference between the carrying value and the fair value is primarily attributed to the underlying conversion feature and the spread between the conversion price and the market value of the shares underlying the convertible notes. 25 Table of Contents 8. EARNINGS PER SHARE Basic earnings or loss per common share attributable to common shareholders is calculated by dividing net income or loss attributable to common shareholders by the weighted average number of shares of common stock outstanding during the reporting period. Treasury stock is excluded from the weighted average number of shares of common stock outstanding. Diluted earnings or loss per common share attributable to common shareholders is calculated to give effect to all potentially dilutive common shares that were outstanding during the reporting period, except in periods when there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect. The dilutive effect of outstanding equity-based compensation awards is reflected in diluted earnings or loss per common share applicable to common shareholders by application of the treasury stock method using average market prices during the period. Our calculation of diluted earnings or loss per share attributable to common shareholders reflects our intent to settle conversions of our convertible notes through a combination settlement, which contemplates repayment in cash of the principal amount and repayment in shares of our common stock of any excess of the conversion value over the principal amount (the “conversion premium”). Therefore, we include only the shares that may be issued with respect to any conversion premium in total dilutive weighted average shares outstanding, which we calculate using the treasury stock method based upon an average price per share for the quarter. As of September 30, 2021, a conversion premium existed for our 2022 Convertible Notes (as defined in Footnote 13 “Debt”). As no conversion premium existed as of September 30, 2020, there was no potential dilutive impact from our 2022 Convertible Notes for the third quarter or first three quarters of 2020. Additionally, as no conversion premium existed for our 2026 Convertible Notes (as defined in Footnote 13 “Debt”) as of September 30, 2021, there was no potential dilutive impact from our 2026 Convertible Notes for the third quarter or first three quarters of 2021. The shares issuable on exercise of the warrants sold in connection with the issuance of our convertible notes will not impact the total dilutive weighted average shares outstanding unless and until the price of our common stock exceeds the respective strike price. If and when the price of our common stock exceeds the respective strike price of either of the warrants, we will include the dilutive effect of the additional shares that may be issued upon exercise of the warrants in total dilutive weighted average shares outstanding, which we calculate using the treasury stock method. The convertible note hedges purchased in connection with each issuance of convertible notes are considered to be anti-dilutive and do not impact our calculation of diluted earnings per share attributable to common shareholders for any periods presented herein. See Footnote 13 “Debt” for further information on our convertible notes. The table below illustrates the reconciliation of the earnings and number of shares used in our calculation of basic and diluted earnings or loss per share attributable to common shareholders. Three Months Ended Nine Months Ended (in millions, except per share amounts) September 30, 2021 (1) September 30, 2020 September 30, 2021 September 30, 2020 Computation of Basic Earnings (Loss) Per Share Attributable to Common Shareholders Net income (loss) attributable to common shareholders $ 10 $ ( 62 ) $ ( 12 ) $ ( 238 ) Shares for basic earnings (loss) per share 42.9 41.2 42.4 41.3 Basic earnings (loss) per share $ 0.24 $ ( 1.51 ) $ ( 0.28 ) $ ( 5.76 ) Computation of Diluted Earnings (Loss) Per Share Attributable to Common Shareholders Net income (loss) attributable to common shareholders $ 10 $ ( 62 ) $ ( 12 ) $ ( 238 ) Shares for basic earnings (loss) per share 42.9 41.2 42.4 41.3 Effect of dilutive shares outstanding (2) Employee stock options and SARs 0.2 — — — Restricted stock units 0.5 — — — 2022 Convertible Notes 0.1 — — — Shares for diluted earnings (loss) per share 43.7 41.2 42.4 41.3 Diluted earnings (loss) per share $ 0.23 $ ( 1.51 ) $ ( 0.28 ) $ ( 5.76 ) _______________________________ (1) The computation of diluted earnings per share attributable to common shareholders excludes approximately 298,000 shares of common stock, the maximum number of shares issuable as of September 30, 2021, upon the vesting of certain performance-based awards because the performance condition required to be met for the shares subject to such awards to vest were not achieved by the end of the reporting period. 26 Table of Contents (2) For the first three quarters of 2021 and the third quarter and the first three quarters of 2020, the following potentially dilutive securities were excluded from the above calculation of diluted net loss per share attributable to common shareholders during the periods presented, as the effects of including these securities would have been anti-dilutive. Three Months Ended Nine Months Ended (in millions) September 30, 2020 September 30, 2021 September 30, 2020 Employee stock options and SARs 0.1 0.2 0.2 Restricted stock units 0.3 0.5 0.2 2022 Convertible Notes — 0.1 — 0.4 0.8 0.4 In accordance with the applicable accounting guidance for calculating earnings per share, for the third quarter of 2021, we excluded from our calculation of diluted earnings per share 127,008 shares underlying stock appreciation rights (“SARs”) that may settle in shares of common stock because the exercise price of $ 173.88 of such SARs was greater than the average market price for the applicable period. 9. INVENTORY The following table shows the composition of our inventory balances: ($ in millions) At September 30, 2021 At December 31, 2020 Real estate inventory (1) $ 732 $ 749 Other 9 10 $ 741 $ 759 _________________________ (1) Represents completed inventory that is registered for sale as vacation ownership interests and vacation ownership inventory expected to be reacquired pursuant to estimated future foreclosures. We value vacation ownership products at the lower of cost or fair market value less costs to sell, in accordance with applicable accounting guidance, and we record operating supplies at the lower of cost (using the first-in, first-out method) or net realizable value. Product cost true-up activity relating to vacation ownership products increased carrying values of inventory by $ 6 million during the first three quarters of 2021 and by $ 4 million during the first three quarters of 2020. In addition to the above, at September 30, 2021 and December 31, 2020, we had $ 465 million and $ 162 million, respectively, of completed vacation ownership units which are classified as a component of Property and equipment, net until the time at which they are legally registered for sale as vacation ownership products. We also have $ 24 million and $ 43 million of deposits on future purchases of inventory at September 30, 2021 and December 31, 2020, respectively, which are included in the Other assets line on our Balance Sheets. 10. GOODWILL AND INTANGIBLES Goodwill The following table details the carrying amount of our goodwill at September 30, 2021 and December 31, 2020, and reflects goodwill attributed to the ILG Acquisition and the Welk Acquisition. ($ in millions) Vacation Ownership Reporting Unit Exchange & Third-Party Management Reporting Unit Total Consolidated Balance at December 31, 2020 $ 2,445 $ 372 $ 2,817 Welk Acquisition 299 — 299 Balance at June 30, 2021 2,744 372 3,116 Measurement period adjustments ( 30 ) — ( 30 ) Balance at September 30, 2021 $ 2,714 $ 372 $ 3,086 27 Table of Contents Q1 2021, Q2 2021, and Q3 2021 We periodically monitor for indicators of impairment of our goodwill and none were identified during the third quarter or first three quarters of 2021. While the goodwill of our reporting units was not impaired during the first three quarters of 2021, we cannot assure you that our goodwill will not be impaired in future periods. Q1 2020 We recognized a non-cash impairment charge of $ 73 million in the Impairment line on our Income Statement during the first quarter of 2020 related to the Exchange & Third-Party Management reporting unit, which was primarily driven by the change in expected future operating results as a result of the impact of the COVID-19 pandemic. Intangible Assets The following table details the composition of our intangible asset balances: ($ in millions) At September 30, 2021 At December 31, 2020 Definite-lived intangible assets Member relationships $ 671 $ 671 Management contracts 451 351 1,122 1,022 Accumulated amortization ( 179 ) ( 134 ) 943 888 Indefinite-lived intangible assets Trade names 64 64 $ 1,007 $ 952 Q1 2020 We recognized a non-cash impairment charge of $ 18 million in the Impairment line on our Income Statement during the first quarter of 2020 related to the indefinite-lived intangible assets in our Exchange & Third-Party Management segment, which was primarily attributed to the decline in estimated near-term revenues and related recovery of long-term revenues as a result of the impact of the COVID-19 pandemic. 11. CONTINGENCIES AND COMMITMENTS Commitments and Letters of Credit As of September 30, 2021, we had the following commitments outstanding: • We have various contracts for the use of information technology hardware and software that we use in the normal course of business. Our aggregate commitment under these contracts was $ 87 million, of which we expect $ 14 million, $ 40 million, $ 21 million, $ 6 million, $ 5 million and $ 1 million will be paid in the remainder of 2021, 2022, 2023, 2024, 2025, and thereafter, respectively. • We have various commitments to acquire real estate for use in our Vacation Ownership segment via our involvement with VIEs. Refer to Footnote 16 “Variable Interest Entities” for additional information and our activities relating to the VIEs involved in these transactions. • We have a remaining commitment to purchase 88 vacation ownership units located in Bali, Indonesia for use in our Vacation Ownership segment, contingent upon completion of construction to agreed-upon standards. We expect to complete the acquisition in 2022 and to make the remaining payments of $ 23 million in 2022 with respect to these units, when specific construction milestones are completed. Surety bonds issued as of September 30, 2021 totaled $ 123 million, the majority of which were requested by federal, state, or local governments in connection with our operations. As of September 30, 2021, we had $ 2 million of letters of credit outstanding under our Revolving Corporate Credit Facility (as defined in Footnote 13 “Debt”). In addition, as of September 30, 2021, we had $ 2 million in letters of credit outstanding related to and in lieu of reserves required for several vacation ownership notes receivable securitization transactions outstanding. These letters of credit are not issued pursuant to, nor do they impact our borrowing capacity under, the Revolving Corporate Credit Facility. 28 Table of Contents We estimate the cash outflow associated with completing the phases of our existing portfolio of vacation ownership projects currently under development will be approximately $ 2 million, of which $ 1 million is included within liabilities on our Balance Sheet at September 30, 2021. This estimate is based on our current development plans, which remain subject to change, and we expect the phases currently under development will be completed in 2022. Guarantees Certain of our rental management agreements in our Exchange & Third-Party Management segment provide for owners of properties we manage to receive specified percentages of rental revenue or guaranteed amounts generated under our management. In these cases, the operating expenses for the rental operations are paid from the revenue generated by the rentals, the owners are then paid their contractual percentages or guaranteed amounts, and our vacation rental business either retains the balance (if any) as its fee or makes up the deficit. At September 30, 2021, our maximum exposure under fixed dollar guarantees was $ 12 million, of which $ 1 million, $ 4 million, $ 2 million, $ 2 million, $ 1 million, and $ 2 million relate to the remainder of 2021, 2022, 2023, 2024, 2025, and thereafter, respectively. We have a commitment to a property owners’ association that we manage to pay for any shortfall between the actual expenses incurred by the property owners’ association and the income received by the property owners’ association. The agreement will terminate on the earlier of: 1) sale of 80% of the total ownership interests; or 2) upon our written notification of termination. At September 30, 2021, our expected commitment for the remainder of 2021 is $ 3 million. Loss Contingencies In March 2017, RCHFU, L.L.C. and other owners at The Ritz-Carlton Club, Aspen Highlands (“RCC Aspen Highlands”) filed a complaint in an action pending in the U.S. District Court for the District of Colorado against us and certain third parties, alleging that their fractional interests were devalued by the affiliation of the RCC Aspen Highlands and other Ritz-Carlton Clubs with our points-based Marriott Vacation Club Destinations (“MVCD”) program. The plaintiffs sought compensatory damages, disgorgement, punitive damages, fees and costs. In September 2021, the District Court granted our motion for summary judgment and dismissed the case. In October 2021, the plaintiffs appealed the ruling. Subsequently, the parties have agreed in principle to the dismissal of plaintiffs’ appeal in exchange for a dismissal of our claim for attorneys’ fees and expenses. In May 2016, a purported class-action lawsuit was filed in the U.S. District Court for the Middle District of Florida by Anthony and Beth Lennen against us and certain third parties. The complaint challenged the characterization of the beneficial interests in the MVCD trust that are sold to customers as real estate interests under Florida law, the structure of the trust, and associated operational aspects of the trust. The plaintiffs sought declaratory relief, an unwinding of the MVCD product, and punitive damages. In August 2019, the District Court granted our motion for judgment on the pleadings and dismissed the case. The plaintiffs have appealed the ruling. In February 2019, the owners’ association for the St. Regis Residence Club, New York, filed a lawsuit in the Supreme Court for the State of New York, New York County, Commercial Division against ILG and several of its subsidiaries and certain third parties. The operative complaint alleges that the defendants breached their fiduciary duties related to sale and rental practices, aided and abetted certain breaches of fiduciary duty, engaged in self-dealing as the sponsor and manager of the club, tortiously interfered with the management agreement, was unjustly enriched, and engaged in anticompetitive conduct. The plaintiff is seeking unspecified damages, punitive damages and disgorgement of payments under the management and purchase agreements. In April 2019, a purported class-action lawsuit was filed by Alan and Marjorie Helman and others against us in the Superior Court of the Virgin Islands, Division of St. Thomas alleging that their fractional interests were devalued by the affiliation of The Ritz-Carlton Club, St. Thomas and other Ritz-Carlton Clubs with our MVCD program. The lawsuit was subsequently removed to the U.S. District Court for the District of the Virgin Islands. The plaintiffs are seeking unspecified damages, disgorgement of profits, fees and costs. In May 2019, the G.A. Resort Condominium Association Inc., the owners’ association for the fractional owners at the Hyatt Residence Club Grand Aspen resort (“HRC Grand Aspen”) filed a lawsuit against us in the District Court for the County of Pitkin, Colorado relating to the transfer of ownership of developer-owned fractional interests at HRC Grand Aspen to the HPC Trust Club for sale and use as a part of the Hyatt Residence Club Portfolio Program. The lawsuit was subsequently removed to the U.S. District Court for the District of Colorado. The plaintiff sought termination of the management agreement with the owners’ association, the annulment of certain amendments to governing documents at HRC Grand Aspen, the removal of fractional interests at HRC Grand Aspen from the HPC Trust Club, unspecified damages, disgorgement of profits, fees and costs. In November 2020, the District Court granted our motion to dismiss and dismissed the case. The plaintiffs have appealed the ruling. 29 Table of Contents We believe we have meritorious defenses to the claims in each of the above matters and intend to vigorously defend each matter. In the ordinary course of our business, various claims and lawsuits have been filed or are pending against us. A number of these lawsuits and claims may exist at any given time. Additionally, the COVID-19 pandemic may give rise to various claims and lawsuits from owners, members and other parties. We record and accrue for legal contingencies when we determine that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In making such determinations, we evaluate, among other things, the degree of probability of an unfavorable outcome and, when it is probable that a liability has been incurred, our ability to make a reasonable estimate of loss. We review these accruals each reporting period and make revisions based on changes in facts and circumstances. We have not accrued for any of the pending matters described above and we cannot estimate a range of the potential liability associated with these pending matters, if any, at this time. We have accrued for other claims and lawsuits, but the amount accrued is not material individually or in the aggregate. For matters not requiring accrual, we do not believe that the ultimate outcome of such matters, individually or in the aggregate, will materially harm our financial position, cash flows, or overall trends in results of operations based on information currently available. However, legal proceedings are inherently uncertain, and while we believe that our accruals are adequate and/or we have valid defenses to the claims asserted, unfavorable rulings could occur that could, individually or in the aggregate, have a material adverse effect on our business, financial condition, or operating results. Leases That Have Not Yet Commenced During the first quarter of 2020, we entered into a finance lease arrangement for our new global headquarters in Orlando, Florida. The initial lease term is approximately 16 years with total lease payments of $ 129 million for the aforementioned period. During 2020, in response to the COVID-19 pandemic and our ongoing evaluation of future space needs, we entered into a standstill arrangement with the developer/lessor, which expired in June 2021. During the second quarter of 2021, we amended our lease agreement with the developer/lessor and expect the new office building to be completed in 2023. Upon commencement of the lease term, a right-of-use asset and corresponding liability will be recorded on our balance sheet. 12. SECURITIZED DEBT The following table provides detail on our securitized debt, net of unamortized debt discount and issuance costs. ($ in millions) At September 30, 2021 At December 31, 2020 Vacation ownership notes receivable securitizations, gross (1) $ 1,611 $ 1,604 Unamortized debt discount and issuance costs ( 17 ) ( 16 ) $ 1,594 $ 1,588 _________________________ (1) Interest rates as of September 30, 2021 range from 1.5 % to 4.4 %, with a weighted average interest rate of 2.5 % All of our securitized debt is non-recourse to us. See Footnote 16 “Variable Interest Entities” for a discussion of the collateral for the non-recourse debt associated with our securitized debt. The following table shows scheduled future principal payments for our securitized debt as of September 30, 2021. Vacation Ownership Notes Receivable Securitizations ($ in millions) Payments Year 2021, remaining $ 44 2022 175 2023 179 2024 182 2025 183 Thereafter 848 $ 1,611 30 Table of Contents Vacation Ownership Notes Receivable Securitizations Each of the securitized vacation ownership notes receivable transactions contains various triggers relating to the performance of the underlying vacation ownership notes receivable. If a pool of securitized vacation ownership notes receivable fails to perform within the pool’s established parameters (default or delinquency thresholds vary by transaction), transaction provisions effectively redirect the monthly excess spread we would otherwise receive from that pool (attributable to the interests we retained) to accelerate the principal payments to investors (taking into account the subordination of the different tranches to the extent there are multiple tranches) until the performance trigger is cured. During the third quarter of 2021, and as of September 30, 2021, no securitized vacation ownership notes receivable pools were out of compliance with their respective established parameters. As of September 30, 2021, we had 13 securitized vacation ownership notes receivable pools outstanding. As the contractual terms of the underlying securitized vacation ownership notes receivable determine the maturities of the non-recourse debt associated with them, actual maturities may occur earlier than shown above due to prepayments by the vacation ownership notes receivable obligors. During the second quarter of 2021, we completed the securitization of a pool of $ 434 million of vacation ownership notes receivable. In connection with the securitization, investors purchased in a private placement $ 425 million in vacation ownership loan backed notes from MVW 2021-1W LLC (the “2021-1W LLC”). Four classes of vacation ownership loan backed notes were issued by the 2021-1W LLC: $ 207 million of Class A Notes, $ 107 million of Class B Notes, $ 80 million of Class C Notes, and $ 31 million of Class D Notes. The Class A Notes have an interest rate of 1.14 percent, the Class B Notes have an interest rate of 1.44 percent, the Class C Notes have an interest rate of 1.94 percent, and the Class D Notes have an interest rate of 3.17 percent, for an overall weighted average interest rate of 1.52 percent. Of the $ 425 million in proceeds from the transaction, $ 8 million was used to pay transaction expenses and fund required reserves, and the remainder will be used for general corporate purposes. In connection with the 2021-1W securitization, we redeemed certain remaining vacation ownership notes receivable securitizations from 2014 and 2015, as well as certain vacation ownership notes receivable securitizations acquired as part of the Welk Acquisition. Warehouse Credit Facility Our warehouse credit facility (the “Warehouse Credit Facility”), which has a borrowing capacity of $ 350 million, allows for the securitization of vacation ownership notes receivable on a revolving non-recourse basis. During the second quarter of 2021, we amended certain agreements associated with this facility, and as a result, the revolving period was extended from December 20, 2021 to April 21, 2023 and the interest rate increased from primarily LIBOR plus 1.1 % to primarily LIBOR plus 1.35 %. Our borrowing capacity was not modified by these amendments. The amended facility expanded our ability to monetize vacation ownership notes receivable loans originated by Welk. The other terms were substantially similar to those in effect prior to the execution of the amendments. As of September 30, 2021, there were no cash borrowings outstanding under our Warehouse Credit Facility. 31 Table of Contents 13. DEBT The following table provides detail on our debt balances, net of unamortized debt discount and issuance costs. ($ in millions) At September 30, 2021 At December 31, 2020 Senior Secured Notes 2025 Notes $ 500 $ 500 Unamortized debt discount and issuance costs ( 5 ) ( 6 ) 495 494 Senior Unsecured Notes 2026 Notes — 750 Unamortized debt discount and issuance costs — ( 6 ) — 744 2028 Notes 350 350 Unamortized debt discount and issuance costs ( 4 ) ( 4 ) 346 346 2029 Notes 500 — Unamortized debt discount and issuance costs ( 7 ) — 493 — Corporate Credit Facility Term Loan 784 884 Unamortized debt discount and issuance costs ( 8 ) ( 11 ) 776 873 Convertible Notes 2022 Convertible Notes 230 230 Unamortized debt discount and issuance costs ( 9 ) ( 15 ) 221 215 2026 Convertible Notes 575 — Unamortized debt discount and issuance costs ( 120 ) — 455 — Finance Leases 9 8 $ 2,795 $ 2,680 The following table shows scheduled future principal payments for our debt, excluding finance leases, as of September 30, 2021. ($ in millions) 2025 Notes 2028 Notes 2029 Notes Term Loan 2022 Convertible Notes 2026 Convertible Notes Total Payments Year 2021, remaining $ 250 $ — $ — $ — $ — $ — $ 250 2022 — — — — 230 — 230 2023 — — — — — — — 2024 — — — — — — — 2025 250 — — 784 — — 1,034 Thereafter — 350 500 — — 575 1,425 $ 500 $ 350 $ 500 $ 784 $ 230 $ 575 $ 2,939 32 Table of Contents Senior Notes Our senior notes include: • $ 500 million aggregate principal amount of 6.125 % Senior Secured Notes due 2025 issued in the second quarter of 2020 with a maturity date of September 15, 2025 (the “2025 Notes”). • $ 350 million aggregate principal amount of 4.750 % Senior Unsecured Notes due 2028 issued in the fourth quarter of 2019 with a maturity date of January 15, 2028 (the “2028 Notes”). • $ 500 million aggregate principal amount of 4.500 % Senior Unsecured Notes due 2029 issued in the second quarter of 2021 with a maturity date of June 15, 2029 (the “2029 Notes”). Issuance and Redemption of Senior Notes The 2029 Notes were issued under an indenture dated June 21, 2021 with The Bank of New York Mellon Trust Company, N.A., as trustee. We received net proceeds of $ 493 million from the offering, after deducting the underwriting fees and transaction expenses. We used these proceeds in July 2021 to redeem, prior to maturity, $ 500 million of the $ 750 million aggregate principal amount of 6.500 % Senior Unsecured Notes due 2026 issued in the third quarter of 2018 with a maturity date of September 15, 2026 (the “2026 Notes”) and pay transaction expenses and fees in connection with the transaction. We will pay interest on the 2029 Notes on June 15 and December 15 of each year, commencing on December 15, 2021. We may redeem some or all of the 2029 Notes prior to maturity under the terms provided in the indenture. As noted above, in July 2021, we redeemed, prior to maturity, $ 500 million aggregate principal amount of the 2026 Notes pursuant to a redemption notice issued in June 2021 and the terms of the indenture governing the 2026 Notes. Additionally, in September 2021, we issued a redemption notice and redeemed, prior to maturity, the remaining $ 250 million aggregate principal amount of the 2026 Notes pursuant to the terms of the indenture governing the 2026 Notes. In connection with the redemptions that occurred during the third quarter of 2021, we incurred charges of $ 36 million, inclusive of a redemption premium and the write-off of unamortized debt issuance costs, which was recorded in the Losses and other expense, net line on our Income Statement for the three and nine months ended September 30, 2021. During the third quarter of 2021, we delivered a redemption notice of $ 250 million aggregate principal amount of the 2025 Notes pursuant to the terms of the indenture governing the 2025 Notes. Subsequent to the end of the third quarter of 2021, we redeemed, prior to maturity, $ 250 million aggregate principal amount of the 2025 Notes. In connection with this redemption, we expect to incur charges of approximately $ 19 million, inclusive of a redemption premium and the write-off of unamortized debt issuance costs, which will be recorded in the fourth quarter of 2021. Corporate Credit Facility Our corporate credit facility (“Corporate Credit Facility”), which provides support for our business, including ongoing liquidity and letters of credit, includes a $ 900 million term loan facility (the “Term Loan”), which matures on August 31, 2025, and a revolving credit facility with a borrowing capacity of $ 600 million (the “Revolving Corporate Credit Facility”), including a letter of credit sub-facility of $ 75 million, that terminates on August 31, 2023. The Term Loan bears interest at LIBOR plus 1.75 percent. Borrowings under the Revolving Corporate Credit Facility generally bear interest at a floating rate plus an applicable margin that varies from 0.50 percent to 2.75 percent depending on the type of loan and our credit rating. In addition, we pay a commitment fee on the unused availability under the Revolving Corporate Credit Facility at a rate that varies from 20 to 40 basis points per annum, also depending on our credit rating. In 2020, we entered into a waiver (the “Waiver”) to the agreement that governs our Corporate Credit Facility, which, among other things, suspended the requirement to comply with the leverage covenant in the Revolving Corporate Credit Facility, commencing with the fiscal quarter ending June 30, 2020. The initial suspension period included in the Waiver was up to four quarters, however in February 2021, we further amended the agreement governing our Corporate Credit Facility to extend the suspension period included in the Waiver through the end of 2021. The Waiver prohibited us from making certain restricted payments, including share repurchases and dividends. On September 9, 2021, we elected to terminate the Waiver. Prior to 2020, we entered into $ 250 million of interest rate swaps under which we pay a fixed rate of 2.9625 percent and receive a floating interest rate through September 2023 and $ 200 million of interest rate swaps under which we pay a fixed rate of 2.2480 percent and receive a floating interest rate through April 2024, in each case to hedge a portion of our interest rate risk on the Term Loan. We also entered into a $ 100 million interest rate collar with a cap strike rate of 2.5000 percent and a floor strike rate of 1.8810 percent through April 2024 to further hedge our interest rate risk on the Term Loan. Both the interest rate swaps and the interest rate collar have been designated and qualify as cash flow hedges of interest rate risk and recorded in Other liabilities on our Balance Sheet as of September 30, 2021 and December 31, 2020. We 33 Table of Contents characterize payments we make in connection with these derivative instruments as interest expense and a reclassification of accumulated other comprehensive income for presentation purposes. The following table reflects the activity in accumulated other comprehensive loss related to our derivative instruments during the first three quarters of 2021 and 2020. There were no reclassifications to the Income Statement for any of the periods presented below. ($ in millions) 2021 2020 Derivative instrument adjustment balance, January 1 $ ( 39 ) $ ( 21 ) Other comprehensive gain (loss) before reclassifications 6 ( 24 ) Derivative instrument adjustment balance, March 31 ( 33 ) ( 45 ) Other comprehensive gain (loss) before reclassifications 3 ( 1 ) Derivative instrument adjustment balance, June 30 ( 30 ) ( 46 ) Other comprehensive gain before reclassifications 3 3 Derivative instrument adjustment balance, September 30 $ ( 27 ) $ ( 43 ) Convertible Notes 2022 Convertible Notes During 2017, we issued $ 230 million of aggregate principal amount of convertible senior notes (the “2022 Convertible Notes”) that bear interest at a rate of 1.50 percent, payable in cash semi-annually. The 2022 Convertible Notes mature on September 15, 2022, unless repurchased or converted in accordance with their terms prior to that date. The conversion rate is subject to adjustment for certain events as described in the indenture governing the notes, and was subject to adjustment as of September 30, 2021 to 6.8201 shares of common stock per $ 1,000 principal amount of 2022 Convertible Notes (equivalent to a conversion price of $ 146.63 per share of our common stock), as a result of the dividends that have been declared since issuance that were greater than the quarterly dividend when the 2022 Convertible Notes were issued. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. It is our intent to settle conversions of the 2022 Convertible Notes through combination settlement, which contemplates repayment in cash of the principal amount and repayment in shares of our common stock of any excess of the conversion value over the principal amount. As of September 30, 2021, the effective interest rate was 4.73 % and the remaining discount amortization period was one year . The following table shows the net carrying value of the 2022 Convertible Notes. ($ in millions) At September 30, 2021 At December 31, 2020 Liability component Principal amount $ 230 $ 230 Unamortized debt discount ( 8 ) ( 13 ) Unamortized debt issuance costs ( 1 ) ( 2 ) Net carrying amount of the liability component $ 221 $ 215 Carrying amount of equity component, net of issuance costs $ 33 $ 33 The following table shows interest expense information related to the 2022 Convertible Notes. Three Months Ended Nine Months Ended ($ in millions) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 Contractual interest expense $ 1 $ 1 $ 3 $ 3 Amortization of debt discount 1 1 5 5 Amortization of debt issuance costs — — 1 1 $ 2 $ 2 $ 9 $ 9 34 Table of Contents 2022 Convertible Note Hedges and Warrants In connection with the offering of the 2022 Convertible Notes, we concurrently entered into the following privately-negotiated separate transactions: convertible note hedge transactions with respect to our common stock (“2022 Convertible Note Hedges”), covering a total of approximately 1.5 million shares of our common stock, and warrant transactions (“2022 Warrants”), whereby we sold to the counterparties to the 2022 Convertible Note Hedges warrants to acquire approximately 1.5 million shares of our common stock. As of September 30, 2021, the strike prices of the 2022 Convertible Note Hedges and the 2022 Warrants were subject to adjustment to approximately $ 148.73 and $ 177.33 , respectively, and no 2022 Convertible Note Hedges or 2022 Warrants have been exercised. 2026 Convertible Notes During the first quarter of 2021, we issued $ 575 million aggregate principal amount of 0.00 % Convertible Senior Notes due 2026 (the “2026 Convertible Notes”). The 2026 Convertible Notes are governed by an indenture dated February 2, 2021 (the Indenture) among the Company, Marriott Ownership Resorts, Inc. and the other guarantors party thereto (the “Guarantors”) and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). 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 (both as defined below). The 2026 Convertible Notes will not bear regular interest and will mature on January 15, 2026, unless earlier repurchased or converted in accordance with their terms prior to that date. On or after October 15, 2025, and prior to the close of business on the second scheduled trading day immediately preceding the stated maturity date of the 2026 Convertible Notes, holders may convert their 2026 Convertible Notes at their option. The conversion rate is subject to adjustment for certain events as described in the indenture governing the notes, and was subject to adjustment as of September 30, 2021 to 5.8685 shares of common stock per $1,000 principal amount of 2026 Convertible Notes (equivalent to a conversion price of $ 170.40 per share of our common stock), as a result of the dividends that have been declared since issuance. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election. It is our intent to settle conversions of the 2026 Convertible Notes through combination settlement, which contemplates repayment in cash of the principal amount and repayment in shares of our common stock of any excess of the conversion value over the principal amount. Holders may convert their 2026 Convertible Notes prior to October 15, 2025 only under the following circumstances: • during any calendar quarter commencing after the calendar quarter ending on March 31, 2021 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 percent of the conversion price on each applicable trading day; • during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of 2026 Convertible Notes for each trading day of the measurement period was less than 98 percent of the product of the last reported sale price of the common stock and the conversion rate on each such trading day; or • upon the occurrence of specified corporate events as described in the Indenture. We may not redeem the 2026 Convertible Notes prior to their maturity date, and no sinking fund is provided for them. If we undergo a fundamental change, as described in the Indenture, subject to certain conditions, holders may require us to repurchase for cash all or any portion of their 2026 Convertible Notes. The repurchase price as a result of a fundamental change is equal to 100 percent of the principal amount of the 2026 Convertible Notes to be repurchased, plus accrued and unpaid special interest, if any, to, but excluding, the repurchase date. If certain fundamental changes referred to in the Indenture as make-whole fundamental changes occur, the conversion rate applicable to the 2026 Convertible Notes may increase. The 2026 Convertible Notes are unconditionally guaranteed, on a joint and several basis, by the Guarantors on a senior, unsecured basis. The 2026 Convertible Notes are our general senior unsecured obligations and rank equally in right of payment with all of our existing and future senior indebtedness, and senior in right of payment to all of our future subordinated debt. The 2026 Convertible Notes will be effectively subordinated to any of our existing and future secured debt to the extent of the value of the assets securing such debt, including the guarantees of borrowings outstanding under the Corporate Credit Facility and our 2025 Notes. The 2026 Convertible Notes will be structurally subordinated to any existing and future indebtedness and any other liabilities and obligations of any of our subsidiaries that are not guarantors of the 2026 35 Table of Contents Convertible Notes. The guarantees will be the Guarantors’ general senior unsecured obligations and will rank equally in right of payment with all of the Guarantors’ existing and future senior indebtedness, and senior in right of payment to all of the Guarantors’ future subordinated debt. The guarantees will be effectively subordinated to any of the Guarantors’ existing and future secured debt to the extent of the value of the assets securing such debt, including any borrowings outstanding under the Corporate Credit Facility and the 2025 Notes. The guarantees will be structurally subordinated to any existing and future indebtedness and any other liabilities and obligations of any of our subsidiaries that are not guarantors of the 2026 Convertible Notes. There are no financial or operating covenants related to the 2026 Convertible Notes. The indenture governing these notes contains customary events of default with respect to the 2026 Convertible Notes and provides that upon the occurrence and continuation of certain events of default, the Trustee or the holders of at least 25 percent in aggregate principal amount of the 2026 Convertible Notes then outstanding may declare all principal of and accrued and any unpaid interest on the 2026 Convertible Notes then outstanding to be immediately due and payable. In case of certain events of bankruptcy or insolvency involving the Company, all of the principal of and accrued and unpaid interest on the 2026 Convertible Notes will automatically become immediately due and payable. In accounting for the issuance of the 2026 Convertible Notes, we separated the 2026 Convertible Notes into liability and equity components and allocated $ 449 million to the liability component and $ 126 million to the equity component. The resulting debt discount is amortized as interest expense. As of September 30, 2021, the effective interest rate was 4.96 % and the remaining debt discount amortization period was 4.3 years. We had debt issuance costs, including initial purchasers’ discount to underwriters, of $ 15 million related to the 2026 Convertible Notes, which were allocated to the liability and equity components based on their relative values. Issuance costs attributable to the liability component are amortized to interest expense over the term of the 2026 Convertible Notes, and issuance costs attributable to the equity component are included along with the equity component in shareholders’ equity. The following table shows the net carrying value of the 2026 Convertible Notes. ($ in millions) At September 30, 2021 At December 31, 2020 Liability component Principal amount $ 575 $ — Unamortized debt discount ( 110 ) — Unamortized debt issuance costs ( 10 ) — Net carrying amount of the liability component $ 455 $ — Carrying amount of equity component, net of issuance costs $ 117 $ — The following table shows interest expense information related to the 2026 Convertible Notes. Three Months Ended Nine Months Ended ($ in millions) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 Amortization of debt discount $ 6 $ — $ 16 $ — Amortization of debt issuance costs 1 — 2 — $ 7 $ — $ 18 $ — 2026 Convertible Note Hedges and Warrants In connection with the offering of the 2026 Convertible Notes, we entered into privately-negotiated convertible note hedge transactions with respect to our common stock with certain counterparties (the “2026 Convertible Note Hedges”), covering a total of 3.4 million shares of our common stock at a cost of $ 100 million. The 2026 Convertible Note Hedges are subject to anti-dilution provisions substantially similar to those of the 2026 Convertible Notes, have a strike price that initially corresponded to the initial conversion price of the 2026 Convertible Notes, are exercisable by us upon any conversion under the 2026 Convertible Notes, and expire when the 2026 Convertible Notes mature. The cost of the 2026 Convertible Note Hedges is expected to be tax deductible as an original issue discount over the life of the 2026 Convertible Notes, as the 2026 Convertible Notes and the 2026 Convertible Note Hedges represent an integrated debt instrument for tax purposes. The cost of the 2026 Convertible Note Hedges was recorded as a reduction of Additional paid-in capital on our Balance Sheet. 36 Table of Contents Concurrently with the entry into the 2026 Convertible Note Hedges, we separately entered into privately-negotiated warrant transactions (the “2026 Warrants”), whereby we sold to the counterparties to the 2026 Convertible Note Hedges warrants to acquire, collectively, subject to anti-dilution adjustments, approximately 3.4 million shares of our common stock at an initial strike price of $ 213.76 per share. We received aggregate proceeds of $ 70 million from the sale of the 2026 Warrants to the counterparties. The proceeds from the issuance of the 2026 Warrants were recorded as an increase to Additional paid-in capital on our Balance Sheet. Taken together, the 2026 Convertible Note Hedges and the 2026 Warrants are generally expected to reduce the potential dilution to our common stock (or, in the event the conversion of the 2026 Convertible Notes is settled in cash, to reduce our cash payment obligation) in the event that at the time of conversion our stock price exceeds the conversion price under the 2026 Convertible Notes and to effectively increase the overall conversion price to the Company from $ 171.01 per share to $ 213.76 per share. The 2026 Warrants will expire in ratable portions on a series of expiration dates commencing on April 15, 2026. The 2026 Convertible Notes, the 2026 Convertible Note Hedges, and the 2026 Warrants are transactions that are separate from each other. Holders of any such instrument have no rights with respect to the other instruments. As of September 30, 2021, the strike prices of the 2026 Convertible Note Hedges and the 2026 Warrants were subject to adjustment to approximately $ 170.40 and $ 213.00 , respectively, and no 2026 Convertible Notes or 2026 Warrants have been exercised. Security and Guarantees Amounts borrowed under the Corporate Credit Facility and the 2025 Notes, as well as obligations with respect to letters of credit issued pursuant to the Corporate Credit Facility, are secured by a perfected first priority security interest in substantially all of the assets of the borrowers under, and guarantors of, that facility (which include MVWC and certain of our direct and indirect, existing and future, domestic subsidiaries, excluding certain bankruptcy remote special purpose subsidiaries), in each case including inventory, subject to certain exceptions. In addition, the Corporate Credit Facility, the 2026 Convertible Notes, the 2025 Notes, the 2028 Notes, and the 2029 Notes are guaranteed by MVWC and certain of our direct and indirect, existing and future, domestic subsidiaries, excluding bankruptcy remote special purpose subsidiaries. 14. SHAREHOLDERS’ EQUITY Marriott Vacations Worldwide has 100,000,000 authorized shares of common stock, par value of $ 0.01 per share. At September 30, 2021, there were 75,491,621 shares of Marriott Vacations Worldwide common stock issued, of which 42,715,459 shares were outstanding and 32,776,162 shares were held as treasury stock. At December 31, 2020, there were 75,279,061 shares of Marriott Vacations Worldwide common stock issued, of which 41,094,248 shares were outstanding and 34,184,813 shares were held as treasury stock. Marriott Vacations Worldwide has 2,000,000 authorized shares of preferred stock, par value of $ 0.01 per share, none of which were issued or outstanding as of September 30, 2021 or December 31, 2020. Share Repurchase Program During the third quarter of 2021, our Board of Directors authorized a share repurchase program under which we may purchase shares of our common stock for an aggregate purchase price not to exceed $ 250 million, prior to December 31, 2022. Share repurchases may be made through open market purchases, privately negotiated transactions, block transactions, tender offers, or otherwise. The specific timing, amount and other terms of the repurchases will depend on market conditions, corporate and regulatory requirements and other factors. Acquired shares of our common stock are held as treasury shares carried at cost in our Financial Statements. In connection with the repurchase program, we are authorized to adopt one or more plans pursuant to the provisions of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. The following table summarizes share repurchase activity under our share repurchase programs: ($ in millions, except per share amounts) Number of Shares Repurchased Cost of Shares Repurchased Average Price Paid per Share As of December 31, 2020 17,188,885 $ 1,340 $ 77.95 For the first three quarters of 2021 29,035 4 $ 154.84 As of September 30, 2021 17,217,920 $ 1,344 $ 78.08 As of September 30, 2021, $ 246 million remained available for repurchase under the authorization approved by the Board of Directors in the third quarter of 2021. The authorization for the current share repurchase program may be suspended, terminated, increased or decreased by our Board of Directors at any time without prior notice. 37 Table of Contents Dividends We declared cash dividends to holders of common stock during the quarter ended September 30, 2021 as follows. Any future dividend payments will be subject to the restrictions imposed under the agreements covering our debt, and Board approval. There can be no assurance that we will pay dividends in the future. Declaration Date Shareholder Record Date Distribution Date Dividend per Share September 10, 2021 September 23, 2021 October 7, 2021 $ 0.54 Noncontrolling Interests - Property Owners’ Associations We consolidate certain property owners’ associations. Noncontrolling interests represent the portion of the property owners’ associations related to third-party vacation ownership interest owners. Noncontrolling interests of $ 31 million as of both September 30, 2021 and December 31, 2020 are included on our Balance Sheets as a component of equity. 15. SHARE-BASED COMPENSATION We maintain the Marriott Vacations Worldwide Corporation 2020 Equity Incentive Plan (the “MVW Equity Plan”) for the benefit of our officers, directors, and employees. Under the MVW Equity Plan, we are authorized to award: (1) restricted stock units (“RSUs”) of our common stock, (2) stock appreciation rights (“SARs”) relating to our common stock, and (3) stock options to purchase our common stock. A total of 1.8 million shares are authorized for issuance pursuant to grants under the MVW Equity Plan. As of September 30, 2021, approximately 1.5 million shares were available for grants under the MVW Equity Plan. The following table details our share-based compensation expense related to award grants to our officers, directors, and employees: Three Months Ended Nine Months Ended ($ in millions) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 Service-based RSUs $ 8 $ 5 $ 23 $ 16 Performance-based RSUs 1 4 4 3 ILG Acquisition Converted RSUs — 1 — 2 9 10 27 21 SARs 2 1 6 3 $ 11 $ 11 $ 33 $ 24 The following table details our deferred compensation costs related to unvested awards: ($ in millions) At September 30, 2021 At December 31, 2020 Service-based RSUs $ 32 $ 27 Performance-based RSUs 2 6 34 33 SARs 4 1 $ 38 $ 34 Restricted Stock Units We granted 171,625 service-based RSUs, which are subject to time-based vesting conditions, with a weighted average grant-date fair value of $ 169.19 , to our employees and non-employee directors during the first three quarters of 2021. Stock Appreciation Rights We granted 127,857 SARs, with a weighted average grant-date fair value of $ 70.66 and a weighted average exercise price of $ 173.88 , to members of management during the first three quarters of 2021. We use the Black-Scholes model to estimate the fair value of the SARs granted. The expected stock price volatility was calculated based on the average of the historical and implied volatility of our stock price. The average expected life was calculated using the simplified method, as we have insufficient historical information to provide a basis for estimating average expected life. The risk-free interest rate was calculated based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. The dividend yield assumption listed below is based on the expectation of future payouts. 38 Table of Contents The following table outlines the assumptions used to estimate the fair value of grants during the first three quarters of 2021: Expected volatility 48.35 % Dividend yield 1.48 % Risk-free rate 0.97 % Expected term (in years) 6.25 16. VARIABLE INTEREST ENTITIES Variable Interest Entities Related to Our Vacation Ownership Notes Receivable Securitizations We periodically securitize, without recourse, through bankruptcy remote special purpose entities, notes receivable originated in connection with the sale of vacation ownership products. These vacation ownership notes receivable securitizations provide funding for us and transfer the economic risks and substantially all the benefits of the consumer loans we originate to third parties. In a vacation ownership notes receivable securitization, various classes of debt securities issued by a special purpose entity are generally collateralized by a single tranche of transferred assets, which consist of vacation ownership notes receivable. With each vacation ownership notes receivable securitization, we may retain a portion of the securities, subordinated tranches, interest-only strips, subordinated interests in accrued interest and fees on the securitized vacation ownership notes receivable or, in some cases, overcollateralization and cash reserve accounts. We created these bankruptcy remote special purpose entities to serve as a mechanism for holding assets and related liabilities, and the entities have no equity investment at risk, making them VIEs. We continue to service the vacation ownership notes receivable, transfer all proceeds collected to these special purpose entities, and retain rights to receive benefits that are potentially significant to the entities. Accordingly, we concluded that we are the entities’ primary beneficiary and, therefore, consolidate them. There is no noncontrolling interest balance related to these entities and the creditors of these entities do not have general recourse to us. The following table shows consolidated assets, which are collateral for the obligations of these VIEs, and consolidated liabilities included on our Balance Sheet at September 30, 2021: ($ in millions) Vacation Ownership Notes Receivable Securitizations Warehouse Credit Facility Total Consolidated Assets Vacation ownership notes receivable, net $ 1,486 $ — $ 1,486 Interest receivable 10 — 10 Restricted cash 69 — 69 Total $ 1,565 $ — $ 1,565 Consolidated Liabilities Interest payable $ 2 $ — $ 2 Securitized Debt 1,611 — 1,611 Total $ 1,613 $ — $ 1,613 The following table shows the interest income and expense recognized as a result of our involvement with these VIEs during the third quarter of 2021: ($ in millions) Vacation Ownership Notes Receivable Securitizations Warehouse Credit Facility Total Interest income $ 55 $ — $ 55 Interest expense to investors $ 11 $ — $ 11 Debt issuance cost amortization $ 2 $ — $ 2 Administrative expenses $ 1 $ — $ 1 39 Table of Contents The following table shows the interest income and expense recognized as a result of our involvement with these VIEs during the first three quarters of 2021: ($ in millions) Vacation Ownership Notes Receivable Securitizations Warehouse Credit Facility Total Interest income $ 160 $ — $ 160 Interest expense to investors $ 33 $ 1 $ 34 Debt issuance cost amortization $ 5 $ 1 $ 6 Administrative expenses $ 2 $ — $ 2 The following table shows cash flows between us and the vacation ownership notes receivable securitization VIEs: Nine Months Ended ($ in millions) September 30, 2021 September 30, 2020 Cash Inflows Net proceeds from vacation ownership notes receivable securitizations $ 421 $ 371 Principal receipts 432 360 Interest receipts 167 166 Reserve release 109 16 Total 1,129 913 Cash Outflows Principal to investors ( 452 ) ( 370 ) Voluntary repurchases of defaulted vacation ownership notes receivable ( 78 ) ( 69 ) Voluntary clean-up call ( 72 ) ( 18 ) Interest to investors ( 33 ) ( 37 ) Funding of restricted cash ( 110 ) ( 20 ) Total ( 745 ) ( 514 ) Net Cash Flows $ 384 $ 399 Under the terms of our vacation ownership notes receivable securitizations, we have the right to substitute loans for, or repurchase, defaulted loans at our option, subject to certain limitations. Our maximum exposure to potential loss relating to the special purpose entities that purchase, sell and own these vacation ownership notes receivable is the overcollateralization amount (the difference between the loan collateral balance and the balance of the outstanding vacation ownership notes receivable), plus cash reserves and any residual interest in future cash flows from collateral. The following table shows cash flows between us and the Warehouse Credit Facility VIE: Nine Months Ended ($ in millions) September 30, 2021 September 30, 2020 Cash Inflows Proceeds from vacation ownership notes receivable securitizations $ — $ 315 Principal receipts — 34 Interest receipts — 17 Reserve release — 2 Total — 368 Cash Outflows Principal to investors — ( 33 ) Voluntary repurchases of defaulted vacation ownership notes receivable — ( 3 ) Repayment of Warehouse Credit Facility — ( 300 ) Interest to investors ( 1 ) ( 4 ) Funding of restricted cash — ( 2 ) Total ( 1 ) ( 342 ) Net Cash Flows $ ( 1 ) $ 26 40 Table of Contents Other Variable Interest Entities We have a commitment to purchase an operating property located in San Francisco, California, that we currently manage as Marriott Vacation Club Pulse, San Francisco. We expect to acquire the operating property over time and as of September 30, 2021 are committed to make payments for the operating property as follows: $ 25 million in 2022 and $ 32 million in 2023. See Footnote 3 “Acquisitions and Dispositions” for information on the purchases that occurred during the first quarters of 2021 and 2020. We are required to purchase the property from the third-party developer unless the developer has sold the property to another party. The property is held by a VIE for which we are not the primary beneficiary as we cannot prevent the VIE from selling the property to another party at a higher price. Accordingly, we have not consolidated the VIE. As of September 30, 2021, our Balance Sheet reflected $ 2 million in Accounts Receivable, including a note receivable of less than $ 1 million, and $ 10 million in Other assets for a deposit related to the future acquisition of a portion of this property. We believe that our maximum exposure to loss as a result of our involvement with this VIE is approximately $ 12 million as of September 30, 2021. We have a commitment to purchase a property located in Waikiki, Hawaii, which was assigned to a third party during 2020. If we are unable to negotiate a capital efficient inventory arrangement, we are committed to purchase the property, in its then current form, for $ 104 million in 2022, unless it has been sold to another party. The property is held by a VIE for which we are not the primary beneficiary as we do not control the operations of the VIE. Accordingly, we have not consolidated the VIE. As of September 30, 2021, our Balance Sheet reflected $ 1 million in Accounts Receivable, including a note receivable of less than $ 1 million. We believe that our maximum exposure to loss as a result of our involvement with this VIE is approximately $ 1 million as of September 30, 2021. Deferred Compensation Plan We consolidate the liabilities of the Marriott Vacations Worldwide Deferred Compensation Plan and the related assets, which consist of the COLI policies held in the rabbi trust. The rabbi trust is considered a VIE. We are considered the primary beneficiary of the rabbi trust because we direct the activities of the trust and are the beneficiary of the trust. At September 30, 2021, the value of the assets held in the rabbi trust was $ 70 million, which is included in the Other line within assets on our Balance Sheets. 17. BUSINESS SEGMENTS We define our reportable segments based on the way in which the chief operating decision maker (“CODM”), currently our chief executive officer, manages the operations of the Company for purposes of allocating resources and assessing performance. We operate in two operating and reportable business segments: • Vacation Ownership includes a diverse portfolio of resorts that includes seven vacation ownership brands licensed under exclusive, long-term relationships with Marriott International and Hyatt 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. In addition, as part of the Welk Acquisition, we acquired a short-term license to use the Welk brand in connection with the continued operations of that business. MVW intends to rebrand all Welk resorts as Hyatt-branded resorts once it has obtained all necessary approvals. 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. • Exchange & Third-Party Management 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, Vacation Resorts International, 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. Our CODM evaluates the performance of our segments based primarily on the results of the segment without allocating corporate expenses or income taxes. We do not allocate corporate interest expense or indirect general and administrative expenses to our segments. We include interest income specific to segment activities within the appropriate 41 Table of Contents segment. We allocate depreciation, other gains and losses, equity in earnings or losses from our joint ventures and noncontrolling interest to each of our segments as appropriate. Corporate and other represents that portion of our results that are not allocable to our segments, including those relating to property owners’ associations consolidated under the voting interest model, as our CODM does not use this information to make operating segment resource allocations. Prior year segment information has been reclassified to conform to the current reportable segment presentation. Our CODM uses Adjusted EBITDA to evaluate the profitability of our operating segments, and the components of net income attributable to common shareholders excluded from Adjusted EBITDA are not separately evaluated. Adjusted EBITDA is defined as 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, excluding share-based compensation expense and adjusted for certain items that affect the comparability of our operating performance. Our reconciliation of the aggregate amount of Adjusted EBITDA for our reportable segments to consolidated net income (loss) attributable to common shareholders is presented below. Revenues Three Months Ended Nine Months Ended ($ in millions) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 Vacation Ownership $ 974 $ 571 $ 2,518 $ 1,884 Exchange & Third-Party Management 77 71 249 236 Total segment revenues 1,051 642 2,767 2,120 Corporate and other 1 7 23 19 $ 1,052 $ 649 $ 2,790 $ 2,139 Adjusted EBITDA and Reconciliation to Net Income (Loss) Attributable to Common Shareholders Three Months Ended Nine Months Ended ($ in millions) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 Adjusted EBITDA Vacation Ownership $ 215 $ 28 $ 465 $ 156 Adjusted EBITDA Exchange & Third-Party Management 35 31 113 91 Reconciling items: Corporate and other ( 45 ) ( 24 ) ( 140 ) ( 84 ) Interest expense ( 41 ) ( 37 ) ( 128 ) ( 112 ) Tax (provision) benefit ( 47 ) 14 ( 63 ) 91 Depreciation and amortization ( 35 ) ( 30 ) ( 112 ) ( 93 ) Share-based compensation expense ( 11 ) ( 11 ) ( 33 ) ( 24 ) Certain items ( 61 ) ( 33 ) ( 114 ) ( 263 ) Net income (loss) attributable to common shareholders $ 10 $ ( 62 ) $ ( 12 ) $ ( 238 ) Assets ($ in millions) At September 30, 2021 At December 31, 2020 Vacation Ownership $ 7,750 $ 6,859 Exchange & Third-Party Management 927 951 Total segment assets 8,677 7,810 Corporate and other 866 1,088 $ 9,543 $ 8,898 We conduct business globally, and our operations outside the United States represented approximately 10 percent and 8 percent of our revenues, excluding cost reimbursements, for the three months ended September 30, 2021 and September 30, 2020, respectively, and 10 percent of our revenues, excluding cost reimbursements, for each of the nine months ended September 30, 2021 and September 30, 2020. 42 Table of Contents