MARRIOTT VACATIONS WORLDWIDE Corp 10-K

Item 8. Financial Statements and Supplementary Data The following financial information is included on the pages indicated. Page Financial Statements and Supplementary Data 68 Management’s Report on Internal Control Over Financial Reporting 69 Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) Internal Control Over Financial Reporting 70 Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) Financial Statements 71 Financial Statements 74 Consolidated Statements of Income 74 Consolidated Statements of Comprehensive Income 75 Consolidated Balance Sheets 76 Consolidated Statements of Cash Flows 77 Consolidated Statements of Shareholders’ Equity 79 Notes to Consolidated Financial Statements 80 68 MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management of Marriott Vacations Worldwide Corporation (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurance on the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the Company’s transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (3) provide reasonable assurance on prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In connection with the preparation of the Company’s annual consolidated financial statements, management has undertaken an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”). Based on this assessment, management has concluded that, applying the COSO criteria, as of December 31, 2021, the Company’s internal control over financial reporting was effective to provide reasonable assurance of the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. In the second quarter of 2021, the Company completed its acquisition of Welk Hospitality Group, Inc. (“Welk”). The Company is in the process of evaluating Welk’s existing controls and procedures and integrating Welk into its internal control over financial reporting. In accordance with SEC Staff guidance permitting a company to exclude an acquired business from management’s assessment of the effectiveness of internal control over financial reporting for the year in which the acquisition is completed, the Company has excluded the business acquired from its assessment of the effectiveness of internal control over financial reporting as of December 31, 2021. The business that the Company acquired represented 9% of the Company’s total assets as of December 31, 2021, and 4% of the Company’s revenues and 11% of the Company’s income before income taxes and noncontrolling interests for the year ended December 31, 2021. Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements included in this report, has issued a report on the effectiveness of the Company’s internal control over financial reporting, a copy of which appears on the next page of this Annual Report on Form 10-K. 69 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Marriott Vacations Worldwide Corporation Opinion on Internal Control over Financial Reporting We have audited Marriott Vacations Worldwide Corporation’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Marriott Vacations Worldwide Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria. As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Welk Hospitality Group, Inc. (Welk), which is included in the 2021 consolidated financial statements of the Company and constituted 9% of total assets, as of December 31, 2021 and 4% and 11% of revenues and income before income taxes and noncontrolling interests, respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Welk. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the accompanying consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated March 1, 2022 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Orlando, Florida March 1, 2022 70 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Marriott Vacations Worldwide Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Marriott Vacations Worldwide Corporation (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2022 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Cost of Vacation Ownership Products Description of the Matter The Company’s cost of vacation ownership products was $250 million for the year ended December 31, 2021. As discussed in Note 2 to the consolidated financial statements, the Company accounts for the cost of vacation ownership products utilizing the relative sales value method in accordance with the authoritative guidance for accounting for real estate time-sharing transactions. Changes in estimates used in applying the relative sales value method are recognized in the period that the changes occur. Auditing the Company’s application of the relative sales value method was challenging due to the nature and extent of audit effort required as the calculations are complex and contain a significant volume of data. Additionally, the determination of the cost of vacation ownership products was sensitive to certain estimates, such as estimated future revenue from sale of vacation ownership products, which are affected by expectations about future market and economic conditions. 71 Cost of Vacation Ownership Products How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process to determine the cost of vacation ownership products. For example, we tested controls over management’s review of the calculations, including the inputs and certain estimates, such as estimated future revenue from sale of vacation ownership products. To test the cost of vacation ownership products, we performed audit procedures that included, among others, assessing the methodologies used, evaluating the estimates discussed above and testing the completeness and accuracy of the data used by the Company in the calculations. For example, we agreed inputs to the calculations to historical data and source documentation and evaluated the estimates used in the calculations, such as estimated future revenue from sale of vacation ownership products, utilizing historical operating results and relevant market information available. We involved real estate subject matter resources on our team because the application of the relative sales value method is unique to companies in the real estate time-sharing industry. Valuation of Originated and Acquired Vacation Ownership Notes Receivable Description of the Matter As of December 31, 2021, the Company’s vacation ownership notes receivable was $2,045 million, of which $1,671 million related to originated vacation ownership notes receivable and $374 million related to acquired vacation ownership notes receivable. As discussed in Note 2 to the consolidated financial statements, for originated notes, the Company records the difference between the vacation ownership note receivable and variable consideration included in the transaction price for the sale of the related vacation ownership products as a reserve on the Company’s originated vacation ownership notes receivable. The Company’s acquired vacation ownership notes receivable are accounted for using the purchased credit deteriorated assets provision of the current expected credit loss model, whereby the Company estimates the reserve of its acquired vacation ownership receivables on a quarterly basis and any changes in the reserve are recorded as financing expense. The estimates of the variable consideration for originated vacation ownership notes receivable and the reserve for credit losses on the acquired vacation ownership notes receivable are based on default rates that are an output of the Company’s static pool analyses and the estimates regarding future defaults. Auditing the Company’s valuation of originated and acquired vacation ownership notes receivable was challenging because significant audit effort is required as the static pool analyses are complex and contain a significant volume of data. Furthermore, the valuation of originated and acquired vacation ownership notes receivable was sensitive to management’s assumptions regarding future default rates. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s vacation ownership notes receivable process. For example, we tested controls over management’s review of the static pool analyses, including the significant inputs to the analyses, and review of the assumption regarding future default rates. To test the valuation of originated and acquired vacation ownership notes receivable, we performed audit procedures that included, among others, assessing the methodologies used, evaluating the assumptions regarding future defaults as discussed above, and testing the completeness and accuracy of the static pool analyses, including the significant inputs to the analyses. For example, we agreed inputs to the static pool analyses to historical data and source documentation. We also compared the assumptions regarding future defaults to the Company’s historical and current default rates by customer class and performed a retrospective review of prior analyses. We involved real estate subject matter resources on our team because the static pool analyses are unique to companies in the real estate time-sharing industry. 72 Accounting for the Acquisition of Welk Hospitality Group, Inc. Description of the Matter As more fully described in Note 3, the Company completed the acquisition of Welk Hospitality Group, Inc. (“Welk”) in April 2021 for $405 million. The acquisition was accounted for as a business combination, and as such, the Company measured the acquired assets and liabilities assumed at their acquisition-date fair values. The Company has finalized the valuations of the acquired assets and liabilities assumed, except for the valuation of certain property and equipment and evaluation of historical tax positions. Accordingly, these estimates are subject to change during the measurement period. Auditing the Company’s accounting for the Welk acquisition was challenging due to a high degree of subjectivity and significant audit effort in evaluating the fair value of the intangible assets, inventory and vacation ownership notes receivable. The fair value of the intangible assets, inventory and vacation ownership notes receivable is sensitive to changes in significant assumptions, such as the discount rates for intangible assets and inventory, and the default rates for vacations ownership notes receivable. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the effectiveness of controls over the recognition and measurement of intangible assets, inventory and vacation ownership notes receivable, including the controls over the valuation methodologies, models and significant inputs and assumptions used in estimating the fair values. To test the fair values of the intangible assets, inventory and vacation ownership notes receivable, we performed audit procedures that included, among others, evaluating the Company’s methodologies and related assumptions used as well as testing the completeness and accuracy of the underlying data supporting the fair values. For example, we compared the discount rates utilized for intangible assets and inventory to current industry, market and economic trends, and to assumptions used to value similar assets. For vacation ownership notes receivable, we compared the default rates to Welk’s historical and current default rates by customer class and tested the historical and current default rates by agreeing information to Welk’s historical data and source documentation. In addition, we involved valuation specialists to assist in the evaluation of the Company’s methodologies and significant assumptions used in estimating the fair values. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2011. Orlando, Florida March 1, 2022 73 MARRIOTT VACATIONS WORLDWIDE CORPORATION CONSOLIDATED STATEMENTS OF INCOME Fiscal Years 2021, 2020 and 2019 (In millions, except per share amounts) 2021 2020 2019 REVENUES Sale of vacation ownership products $ 1,153 $ 546 $ 1,354 Management and exchange 855 755 949 Rental 486 276 573 Financing 268 267 275 Cost reimbursements 1,128 1,042 1,108 TOTAL REVENUES 3,890 2,886 4,259 EXPENSES Cost of vacation ownership products 250 150 349 Marketing and sales 617 386 748 Management and exchange 521 475 547 Rental 344 321 357 Financing 88 107 91 General and administrative 227 154 248 Depreciation and amortization 146 123 141 Litigation charges 10 6 7 Restructuring — 25 — Royalty fee 106 95 106 Impairment 3 100 99 Cost reimbursements 1,128 1,042 1,108 TOTAL EXPENSES 3,440 2,984 3,801 (Losses) gains and other (expense) income, net ( 51 ) ( 26 ) 16 Interest expense ( 164 ) ( 150 ) ( 132 ) Transaction and integration costs ( 110 ) ( 66 ) ( 118 ) Other 2 — 1 INCOME (LOSS) BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS 127 ( 340 ) 225 (Provision for) benefit from income taxes ( 74 ) 84 ( 83 ) NET INCOME (LOSS) 53 ( 256 ) 142 Net income attributable to noncontrolling interests ( 4 ) ( 19 ) ( 4 ) NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 49 $ ( 275 ) $ 138 EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS Basic $ 1.15 $ ( 6.65 ) $ 3.13 Diluted $ 1.13 $ ( 6.65 ) $ 3.09 CASH DIVIDENDS DECLARED PER SHARE $ 1.08 $ 0.54 $ 1.89 See Notes to Consolidated Financial Statements 74 MARRIOTT VACATIONS WORLDWIDE CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Fiscal Years 2021, 2020 and 2019 (In millions) 2021 2020 2019 NET INCOME (LOSS) $ 53 $ ( 256 ) $ 142 Foreign currency translation adjustments 11 6 ( 27 ) Derivative instrument adjustment, net of tax 21 ( 18 ) ( 15 ) OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX 32 ( 12 ) ( 42 ) Net income attributable to noncontrolling interests ( 4 ) ( 19 ) ( 4 ) Other comprehensive income attributable to noncontrolling interests — — — COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS ( 4 ) ( 19 ) ( 4 ) COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 81 $ ( 287 ) $ 96 See Notes to Consolidated Financial Statements 75 MARRIOTT VACATIONS WORLDWIDE CORPORATION CONSOLIDATED BALANCE SHEETS Fiscal Year-End 2021 and 2020 (In millions, except share and per share data) 2021 2020 ASSETS Cash and cash equivalents $ 342 $ 524 Restricted cash (including $ 139 and $ 68 from VIEs, respectively) 461 468 Accounts receivable, net (including $ 12 and $ 11 from VIEs, respectively) 279 276 Vacation ownership notes receivable, net (including $ 1,662 and $ 1,493 from VIEs, respectively) 2,045 1,840 Inventory 719 759 Property and equipment, net 1,136 791 Goodwill 3,150 2,817 Intangibles, net 993 952 Other (including $ 76 and $ 54 from VIEs, respectively) 488 471 TOTAL ASSETS $ 9,613 $ 8,898 LIABILITIES AND EQUITY Accounts payable $ 265 $ 209 Advance deposits 160 147 Accrued liabilities (including $ 2 and $ 1 from VIEs, respectively) 345 349 Deferred revenue 453 488 Payroll and benefits liability 201 157 Deferred compensation liability 142 127 Securitized debt, net (including $ 1,877 and $ 1,604 from VIEs, respectively) 1,856 1,588 Debt, net 2,631 2,680 Other 224 197 Deferred taxes 350 274 TOTAL LIABILITIES 6,627 6,216 Contingencies and Commitments (Note 13) 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; 75,519,049 and 75,279,061 shares issued, respectively 1 1 Treasury stock — at cost; 33,235,671 and 34,184,813 shares, respectively ( 1,356 ) ( 1,334 ) Additional paid-in capital 4,072 3,760 Accumulated other comprehensive loss ( 16 ) ( 48 ) Retained earnings 275 272 TOTAL MVW SHAREHOLDERS' EQUITY 2,976 2,651 Noncontrolling interests 10 31 TOTAL EQUITY 2,986 2,682 TOTAL LIABILITIES AND EQUITY $ 9,613 $ 8,898 The abbreviation VIEs above means Variable Interest Entities. See Notes to Consolidated Financial Statements 76 MARRIOTT VACATIONS WORLDWIDE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Years 2021, 2020 and 2019 (In millions) 2021 2020 2019 OPERATING ACTIVITIES Net income (loss) $ 53 $ ( 256 ) $ 142 Adjustments to reconcile net income (loss) to net cash, cash equivalents, and restricted cash provided by operating activities: Depreciation and amortization of intangibles 146 123 141 Amortization of debt discount and issuance costs 56 22 19 Vacation ownership notes receivable reserve 101 150 112 Share-based compensation 51 36 33 Impairment charges 3 100 99 Gain on disposal of property and equipment, net — ( 4 ) ( 18 ) Deferred income taxes 34 ( 38 ) 5 Net change in assets and liabilities, net of the effects of acquisition: Accounts receivable — 21 69 Vacation ownership notes receivable originations ( 750 ) ( 377 ) ( 817 ) Vacation ownership notes receivable collections 686 620 493 Inventory 61 18 65 Other assets ( 46 ) 44 37 Accounts payable, advance deposits and accrued liabilities 42 ( 146 ) 17 Deferred revenue 88 59 10 Payroll and benefit liabilities 35 ( 29 ) ( 25 ) Deferred compensation liability 22 17 18 Other liabilities 27 — 23 Deconsolidation of certain Consolidated Property Owners' Associations ( 168 ) — — Purchase of vacation ownership units for future transfer to inventory ( 98 ) ( 61 ) ( 20 ) Other, net — — ( 21 ) Net cash, cash equivalents, and restricted cash provided by operating activities 343 299 382 INVESTING ACTIVITIES Acquisition of a business, net of cash and restricted cash acquired ( 157 ) — — Proceeds from collection of notes receivable — — 38 Capital expenditures for property and equipment (excluding inventory) ( 47 ) ( 41 ) ( 46 ) Purchase of company owned life insurance ( 14 ) ( 6 ) ( 6 ) Dispositions, net 3 15 51 Other, net 2 — — Net cash, cash equivalents, and restricted cash (used in) provided by investing activities ( 213 ) ( 32 ) 37 Continued See Notes to Consolidated Financial Statements 77 MARRIOTT VACATIONS WORLDWIDE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Fiscal Years 2021, 2020 and 2019 (In millions) 2021 2020 2019 FINANCING ACTIVITIES Borrowings from securitization transactions 957 690 1,026 Repayment of debt related to securitization transactions ( 868 ) ( 960 ) ( 880 ) Proceeds from debt 1,111 1,166 935 Repayments of debt ( 1,339 ) ( 705 ) ( 820 ) Purchase of convertible note hedges ( 100 ) — — Proceeds from issuance of warrants 70 — — Payment of debt issuance costs ( 22 ) ( 14 ) ( 20 ) Finance lease payment ( 5 ) ( 11 ) ( 12 ) Repurchase of common stock ( 78 ) ( 82 ) ( 465 ) Payment of dividends ( 23 ) ( 45 ) ( 81 ) Payment of withholding taxes on vesting of restricted stock units ( 20 ) ( 16 ) ( 15 ) Other, net — — 1 Net cash, cash equivalents, and restricted cash (used in) provided by financing activities ( 317 ) 23 ( 331 ) Effect of changes in exchange rates on cash, cash equivalents, and restricted cash ( 2 ) 1 ( 1 ) Change in cash, cash equivalents, and restricted cash ( 189 ) 291 87 Cash, cash equivalents, and restricted cash, beginning of year 992 701 614 Cash, cash equivalents, and restricted cash, end of year $ 803 $ 992 $ 701 SUPPLEMENTAL DISCLOSURES Dividends payable $ 23 $ — $ 23 Non-cash issuance of treasury stock in connection with Welk Acquisition 248 — — Non-cash transfer from inventory to property and equipment 105 74 — Non-cash transfer from property and equipment to inventory 2 — 71 Non-cash transfer from other assets to property and equipment 22 — — Non-cash issuance of treasury stock for employee stock purchase plan 3 2 2 Interest paid, net of amounts capitalized 184 176 167 Income taxes paid, net of refunds ( 13 ) ( 32 ) 53 See Notes to Consolidated Financial Statements 78 MARRIOTT VACATIONS WORLDWIDE CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Fiscal Years 2021, 2020 and 2019 (In millions) Common Stock Issued Common Stock Treasury Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total MVW Shareholders' Equity Noncontrolling Interests Total Equity 57.6 BALANCE AT YEAR-END 2018 $ 1 $ ( 790 ) $ 3,721 $ 6 $ 523 $ 3,461 $ 5 $ 3,466 — Impact of adoption of ASU 2016-02 — — — — ( 8 ) ( 8 ) — ( 8 ) 57.6 OPENING BALANCE 2019 $ 1 $ ( 790 ) $ 3,721 $ 6 $ 515 $ 3,453 $ 5 $ 3,458 — Net income — — — — 138 138 4 142 — ILG Acquisition purchase accounting adjustment — — — — — — 3 3 — Foreign currency translation adjustments — — — ( 27 ) — ( 27 ) — ( 27 ) — Derivative instrument adjustment — — — ( 15 ) — ( 15 ) — ( 15 ) 0.3 Amounts related to share-based compensation — — 16 — — 16 — 16 — Repurchase of common stock — ( 465 ) — — — ( 465 ) — ( 465 ) — Dividends — — — — ( 84 ) ( 84 ) — ( 84 ) 17.1 Tax restructuring transaction — — — — — — — — — Employee stock plan issuance — 2 1 — — 3 — 3 75.0 BALANCE AT YEAR-END 2019 $ 1 $ ( 1,253 ) $ 3,738 $ ( 36 ) $ 569 $ 3,019 $ 12 $ 3,031 — Net (loss) income — — — — ( 275 ) ( 275 ) 19 ( 256 ) — Foreign currency translation adjustments — — — 6 — 6 — 6 — Derivative instrument adjustment — — — ( 18 ) — ( 18 ) — ( 18 ) 0.3 Amounts related to share-based compensation — — 21 — — 21 — 21 — Repurchase of common stock — ( 82 ) — — — ( 82 ) — ( 82 ) — Dividends — — — — ( 22 ) ( 22 ) — ( 22 ) — Employee stock plan issuance — 1 1 — — 2 — 2 75.3 BALANCE AT YEAR-END 2020 $ 1 $ ( 1,334 ) $ 3,760 $ ( 48 ) $ 272 $ 2,651 $ 31 $ 2,682 — Net income — — — — 49 49 4 53 — Welk Acquisition — 55 193 — — 248 — 248 — Foreign currency translation adjustments — — — 11 — 11 — 11 — Derivative instrument adjustment — — — 21 — 21 — 21 0.2 Amounts related to share-based compensation — 1 29 — — 30 — 30 — 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 — Repurchase of common stock — ( 78 ) — — — ( 78 ) — ( 78 ) — Dividends — — — — ( 46 ) ( 46 ) — ( 46 ) — Employee stock plan issuance — — 3 — — 3 — 3 — Deconsolidation of certain Consolidated Property Owners' Associations — — — — — — ( 25 ) ( 25 ) 75.5 BALANCE AT YEAR-END 2021 $ 1 $ ( 1,356 ) $ 4,072 $ ( 16 ) $ 275 $ 2,976 $ 10 $ 2,986 See Notes to Consolidated Financial Statements 79 MARRIOTT VACATIONS WORLDWIDE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The consolidated financial statements present the results of operations, financial position and cash flows of Marriott Vacations Worldwide Corporation (referred to in this report as (i) “we,” “us,” “Marriott Vacations Worldwide,” “MVW,” or “the Company,” which includes our consolidated subsidiaries except where the context of the reference is to a single corporate entity, or (ii) “MVWC,” which shall refer only to Marriott Vacations Worldwide Corporation, without its consolidated subsidiaries). In order to make this report easier to read, we refer throughout to (i) our Consolidated Financial Statements as our “Financial Statements,” (ii) our Consolidated Statements of Income as our “Income Statements,” (iii) our Consolidated Balance Sheets as our “Balance Sheets,” and (iv) our Consolidated Statements of Cash Flows as our “Cash Flows.” References throughout to numbered “Footnotes” refer to the numbered Notes in these Notes to Consolidated Financial Statements, unless otherwise noted. We also refer to Marriott International, Inc. as “Marriott International” and Marriott International’s Marriott Bonvoy customer loyalty program as “Marriott Bonvoy.” We use certain other terms that are defined within these Financial Statements. The Financial Statements presented herein and discussed below include 100 % 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 or 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 entities have been eliminated in consolidation. Pursuant to a change in control of certain consolidated owners’ associations, we recorded a non-cash loss of $ 1 million in (Losses) gains and other (expense) income, net on our Income Statement for the year ended December 31, 2021, and deconsolidated $ 179 million of assets, inclusive of $ 168 million of restricted cash, and $ 155 million of liabilities, for a decrease in Noncontrolling interests of $ 25 million during 2021. See our Consolidated Statements of Shareholders’ Equity for further information. We continue to act as manager for these 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 continuing COVID-19 pandemic (as defined below), and efforts to mitigate it, has made it more challenging to make these estimates. Accordingly, ultimate results could differ from these estimated amounts, and such differences may be material. We have reclassified certain prior year amounts to conform with our current year presentation. COVID-19 Pandemic and Restructuring Update In early 2020, the World Health Organization declared the coronavirus (COVID-19) outbreak a global pandemic (“COVID-19,” “the COVID-19 pandemic,” “the pandemic,” or “the virus”). The COVID-19 pandemic caused significant disruptions in international and U.S. economies and markets, and has had an unprecedented impact on the travel and hospitality industries, as well as the Company. Our results of operations for fiscal year 2021 and 2020 reflect significantly adverse impacts related to the COVID-19 pandemic. At this time, our businesses continue to recover, and nearly all of our sales centers, resorts, and other properties have reopened, however the COVID-19 pandemic, and any recovery therefrom, continues to evolve and its further potential impacts on our business is the future remain uncertain. We continue to closely monitor and seek to actively manage the ongoing effects of the COVID-19 pandemic on our business and operations, and to adapt our operations. We recorded $ 25 million in Restructuring charges on our Income Statement for the year ended December 31, 2020, related to a workforce reduction plan that was adopted as a result of the COVID-19 pandemic. The balance in our restructuring reserve as of December 31, 2020 was $ 17 million and related solely to employee termination costs. During the year ended December 31, 2021, we recorded a true up of less than $ 1 million in Restructuring charges on our Income Statement, and our restructuring reserve balance was less than $ 1 million as of December 31, 2021. 80 Acquisition of Welk On April 1, 2021 (the “Welk Acquisition Date”), 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 for fiscal year 2021 include Welk’s results of operations for the last three quarters of 2021, and reflect the financial position of our combined company at December 31, 2021. We refer to the business and brands that we acquired in the Welk Acquisition as “Legacy-Welk.” See Footnote 3 “Acquisitions and Dispositions” for more information on the Welk Acquisition. Acquisition of ILG On September 1, 2018 (the “ILG Acquisition Date”), we completed the acquisition of ILG, LLC, formerly known as ILG, Inc. (“ILG”), through a series of transactions (the “ILG Acquisition”), after which ILG became our indirect wholly-owned subsidiary. We refer to our business associated with brands that existed prior to the ILG Acquisition as “Legacy-MVW” and to ILG’s business and brands that we acquired as “Legacy-ILG.” 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition We account for revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, “ Revenue from Contracts with Customers ” (“ASC 606”). Sale of Vacation Ownership Products We market and sell vacation ownership products in our Vacation Ownership segment. Vacation ownership products include deeded vacation ownership products, deeded beneficial interests, rights to use real estate and other interests in trusts that solely hold real estate (collectively “vacation ownership products” or “VOIs”). Vacation ownership products may be sold for cash or we may provide financing. In connection with the sale of vacation ownership products, we provide sales incentives to certain purchasers and, in certain cases, membership in a brand affiliated club. Non-cash incentives typically include Marriott Bonvoy points, Hyatt’s customer loyalty program points (“World of Hyatt” points), or an alternative sales incentive that we refer to as “plus points.” Plus points are redeemable for stays at our resorts or for use in an exclusive selection of travel packages provided by affiliate tour operators (the “Explorer Collection”), generally up to two years from the date of issuance. Typically, sales incentives are only awarded if the sale is closed. Upon execution of a legal sales agreement, we typically receive an upfront deposit from our customer with the remainder of the purchase price for the vacation ownership product to either be collected at closing (“cash contract”) or financed by the customer through our financing programs (“financed contract”). Refer to “ Financing Revenues ” below for further information regarding financing terms. Customer deposits received for contracts are recorded as Advance deposits on our Balance Sheets until the point in time at which control of the vacation ownership product has transferred to the customer. Our assessment of collectability of the transaction price for sales of vacation ownership products is aligned with our credit granting policies for financed contracts. In determining the consideration to which we expect to be entitled for financed contracts, we include estimated variable consideration in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on the customer class and the results of our static pool analyses, which rely on historical payment data by customer class as described in “ Loan Loss Reserves ” below. Variable consideration which has not been included within the transaction price is presented as a reserve on vacation ownership notes receivable. Revisions to estimates of variable consideration from the sale of vacation ownership products impact the reserve on originated vacation ownership notes receivable and can increase or decrease revenue. Revenues were reduced during 2021 by $ 9 million due to changes in our estimates of variable consideration for performance obligations that were satisfied in prior periods. See Footnote 6 “Vacation Ownership Notes Receivable” for information on increases to our vacation ownership notes receivable reserve attributable to the COVID-19 pandemic. In addition, we account for cash incentives provided to customers as a reduction of the transaction price. Refer to “ Arrangements with Multiple Performance Obligations ” below for a description of our methods of allocating transaction price to each performance obligation. 81 We evaluated our business practices, and the underlying risks and rewards associated with vacation ownership products and the respective timing that such risks and rewards are transferred to the customer in determining the point in time at which control of the vacation ownership product is transferred to the customer. Based upon the different terms of the contracts with the customer and business practices, we transfer control of the vacation ownership product at different times for our different businesses. We recognize revenue on the sale of Legacy-MVW and Legacy-Welk vacation ownership products at closing. We recognize revenue on the sale of Legacy-ILG vacation ownership products upon expiration of the rescission period. Revenue for non-cash incentives, such as plus points, is recorded as Deferred revenue on our Balance Sheets at closing and is recognized as rental revenue upon transfer of control to the customer, which typically occurs upon delivery of the incentive, or at the point in time when the incentive is redeemed. For non-cash incentives provided by third parties (i.e. Marriott Bonvoy points, World of Hyatt points or third-party Explorer Collection offerings), we evaluated whether we control the underlying good or service prior to delivery to the customer. We concluded that we are an agent for those non-cash incentives which we do not control prior to delivery and as such record the related revenue net of the related cost upon recognition. Management and Exchange Revenues and Cost Reimbursements Revenues Ancillary Revenues Ancillary revenues consist of goods and services that are sold or provided by us at food and beverage outlets, golf courses and other retail and service outlets located at our resorts. Payments for such goods and services are generally received at the point of sale in the form of cash or credit card charges. For goods and services sold, we evaluate whether we control the underlying goods or services prior to delivery to the customer. For transactions where we do not control the goods or services prior to delivery, the related revenue is recorded net of the related cost upon recognition. We recognize ancillary revenue at the point in time when goods have been provided and/or services have been rendered. Management Fee Revenues and Cost Reimbursements Revenues We provide day-to-day-management services, including housekeeping services, operation of reservation systems, maintenance and certain accounting and administrative services for owners’ associations, condominium owners and hotels. We generate revenue from fees we earn for managing vacation ownership resorts, clubs, owners’ associations, condominiums and hotels. In our Vacation Ownership segment, these fees are earned regardless of usage or occupancy and are typically based on either a percentage of the budgeted costs to operate the resorts or a fixed fee arrangement (“VO management fee revenues”). In our Exchange & Third-Party Management segment, we earn base management fees which are typically either (i) fixed amounts, (ii) amounts based on a percentage of adjusted gross lodging revenue, or (iii) various revenue sharing agreements based on stated formulas (“Base management fee revenues”) and incentive management fees, which are generally a percentage of either operating profits or improvement in operating profits (“Incentive management fees”). In addition, we receive reimbursement of costs incurred on behalf of our customers, which consist of actual expenses with no added margin (“cost reimbursements”). Vacation Ownership segment cost reimbursements revenues exclude amounts that we have paid to the owners’ associations related to maintenance fees for unsold vacation ownership products, as we have concluded that such payments are consideration payable to a customer. Management fees are collected over time or upfront depending upon the specific management contract. Cost reimbursements are received over time and considered variable consideration. We have determined that a significant financing component does not exist as a substantial amount of the consideration promised by the customer is paid when the associated variable consideration is determined. We evaluated the nature of the management services provided and concluded that the management services constitute a series of distinct services to be accounted for as a single performance obligation transferred over time. We use an input method, the number of days that management services are provided, to recognize VO management fee revenues and Base management fee revenues, which is consistent with the pattern of transfer to the customers who receive and consume the benefits as services are provided each day. We recognize Incentive management fees as earned throughout the incentive period based on actual results, which is subject to estimation of the transaction price. Any consideration we receive in advance of services being rendered is recorded as Deferred revenue on our Balance Sheets and is recognized ratably across the service period to which it relates. We recognize variable consideration for Cost reimbursements revenues when the reimbursable costs are incurred. 82 Other Services Revenues Other services revenues includes revenues from membership fees, club dues and additional fees for services we provide to customers. Membership fees and club dues are received in advance of providing access to the exchange services, are recorded as Deferred revenue on our Balance Sheets and are earned regardless of whether exchange services are provided. Generally, Interval International memberships are cancellable and refundable on a pro-rata basis, with the exception of the Interval International network’s Platinum tier which is non-refundable. Transaction-based fees are typically collected at a point in time. We have determined that exchange services constitute a stand-ready obligation for us to provide unlimited access to exchange services over a defined period of time, when and if a customer (or customer of a customer) requests. We have determined that customers benefit from the stand-ready obligation evenly throughout the period in which the customer has access to exchange services and as such, recognize membership fees and club dues on a straight-line basis over the related period of time. Transaction-based fees are recognized as revenue at the point in time at which the relevant goods or services are transferred to the customer. For transaction-based fees, we evaluate whether we control the underlying goods or services prior to delivery to the customer. Transaction-based fees from exchanges and other transactions in our Exchange & Third-Party Management segment are generally recognized when confirmation of the transaction is provided and services have been rendered. For transactions where we do not control the goods or services prior to delivery, the related revenue is recorded net of the related cost upon recognition. Financing Revenues We offer consumer financing as an option to qualifying customers purchasing vacation ownership products, which is collateralized by the underlying vacation ownership products. We recognize interest income on an accrual basis. The contractual terms of the financing agreements require that the contractual level of annual principal payments be sufficient to amortize the loan over a customary period for the vacation ownership product being financed, which is generally ten to fifteen years. Generally, payments commence under the financing contracts 30 to 60 days after closing. 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. We earn interest income from the financing arrangements on the principal balance outstanding over the life of the arrangement and record that interest income in Financing revenues on our Income Statements. See Footnote 6 “Vacation Ownership Notes Receivable” for additional information related to the accounting for our acquired vacation ownership notes receivable. Financing revenues include transaction-based fees we charge to owners and other third parties for services. We recognize fee revenues when services have been rendered. Rental Revenues In our Vacation Ownership segment, we generate revenue from rentals of inventory that we hold for sale as interests in our vacation ownership programs, inventory that we control because our owners have elected alternative usage options permitted under our vacation ownership programs and rentals of owned-hotel properties. In our Exchange & Third-Party Management segment, we offer vacation rental opportunities for managed properties and to members of the Interval International network and certain other membership programs from seasonal oversupply or underutilized space, as well as sourced resort accommodations. We receive payments for rentals primarily through credit card charges. We generally recognize rental revenues when occupancy has occurred, which is consistent with the period in which the customer benefits from such service. For certain rental revenues associated with our Exchange & Third-Party Management segment, revenue is recognized when confirmation of the transaction is provided as we concluded we are an agent for these transactions. We recognize rental revenue from the utilization of plus points issued in connection with the sale of vacation ownership products, as described in “ Sale of Vacation Ownership Products ” above, when occupancy has occurred. We also generate revenues from vacation packages sold to our customers. The packages have an expiration period of six to twenty-four months, and payments for such packages are non-refundable and generally paid by the customer in advance. Payments received in advance are recorded as Advance deposits on our Balance Sheets, until the revenue is recognized, when occupancy has occurred. For rental revenues associated with vacation ownership products which we own and which are registered and held for sale, to the extent that the proceeds are less than costs, revenues are reported net in accordance with ASC Topic 978, “ Real Estate – Time-Sharing Activities .” 83 Arrangements with Multiple Performance Obligations Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price. In cases where the standalone selling price is not readily available, we generally determine the standalone selling prices utilizing the adjusted market approach, using prices from similar contracts, our historical pricing on similar contracts, our internal marketing and selling data and other internal and external inputs we deem to be appropriate. Significant judgment is required in determining the standalone selling price under the adjusted market approach. Receivables, Contract Assets & Contract Liabilities As discussed above, the payment terms and conditions in our customer contracts vary. In some cases, customers prepay for their goods and services; in other cases, after appropriate credit evaluations, payment is due in arrears. When the timing of our delivery of goods and services is different from the timing of the payments made by customers, we recognize either a contract asset (performance precedes contractual due date) or a contract liability (customer payment precedes performance or when we have a right to consideration that is unconditional before the transfer of goods or services to a customer). Receivables are recorded when the right to consideration becomes unconditional. Contract liabilities are recognized as revenue as (or when) we perform under the contract. See Footnote 4 “Revenue and Receivables” for additional information related to our receivables, contract assets and contract liabilities. Costs Incurred to Sell Vacation Ownership Products We charge marketing and sales costs we incur to sell vacation ownership products to expense when incurred. Earnings or Loss Per Share Attributable to Common Shareholders Basic earnings or loss per share attributable to common shareholders is calculated by dividing the earnings or loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings or loss per share attributable to common shareholders is calculated to give effect to all potentially dilutive common shares that were outstanding during the reporting period. The dilutive effect of outstanding equity-based compensation awards is reflected in diluted earnings per share attributable to common shareholders by application of the treasury stock method. Any potentially dilutive equity-based compensation awards are excluded from the calculation for periods when there is a net loss attributable to common shareholders to avoid anti-dilutive effects. Business Combinations We allocate the purchase price of an acquisition to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. We recognize as goodwill the amount by which the purchase price of an acquired entity exceeds the net of the fair values assigned to the assets acquired and liabilities assumed. In determining the fair values of assets acquired and liabilities assumed, we use various recognized valuation methods including the income, cost and market approaches. Further, we make assumptions within certain valuation techniques, including discount rates, royalty rates, and the amount and timing of future cash flows. We record the net assets and results of operations of an acquired entity in our Financial Statements from the acquisition date. We initially perform these valuations based upon preliminary estimates and assumptions by management or independent valuation specialists under our supervision, where appropriate, and make revisions as estimates and assumptions are finalized. We expense acquisition-related costs as we incur them. As part of our accounting for business combinations we are required to determine the useful lives of identifiable intangible assets recognized separately from goodwill. The useful life of an intangible asset is the period over which the asset is expected to contribute directly or indirectly to the future cash flows of the acquired business. An intangible asset with a finite useful life shall be amortized; an intangible asset with an indefinite useful life shall not be amortized. We base the estimate of the useful life of an intangible asset on an analysis of all pertinent factors, in particular, all of the following factors with no one factor being more presumptive than the other: • The expected use of the asset. • The expected useful life of another asset or a group of assets to which the useful life of the intangible asset may relate. • Any legal, regulatory, or contractual provisions that may limit the useful life. • Our own historical experience in renewing or extending similar arrangements, consistent with our intended use of the asset, regardless of whether those arrangements have explicit renewal or extension provisions. • The effects of obsolescence, demand, competition, and other economic factors. • The level of maintenance expenditures required to obtain the expected future cash flows from the asset. 84 If no legal, regulatory, contractual, competitive, economic, or other factors limit the useful life of an intangible asset to the reporting entity, the useful life of the asset shall be considered to be indefinite. The term indefinite does not mean the same as infinite or indeterminate. The useful life of an intangible asset is indefinite if that life extends beyond the foreseeable horizon; that is, there is no foreseeable limit on the period of time over which it is expected to contribute to the cash flows of the acquired business. Although we believe the assumptions and estimates we have made have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired entity and are inherently uncertain. Examples of critical estimates in accounting for acquisitions include but are not limited to future expected cash flows from sales of products and services and related contracts and agreements and discount and long-term growth rates. Unanticipated events and circumstances may occur which could affect the accuracy or validity of our assumptions, estimates or actual results. Variable Interest Entities We consolidate entities under our control, including VIEs where we are deemed to be the primary beneficiary. In accordance with the applicable accounting guidance for the consolidation of VIEs, we analyze our variable interests, including loans, guarantees and equity investments, to determine if an entity in which we have a variable interest is a VIE. Our analysis includes both quantitative and qualitative reviews. We base our quantitative analysis on the forecasted cash flows of the entity, and our qualitative analysis on our review of the design of the entity, its organizational structure including decision-making ability, and relevant financial agreements. We also use our qualitative analyses to determine if we must consolidate a VIE because we are its primary beneficiary. Fair Value Measurements We have several financial instruments that we must measure at fair value on a recurring basis. See Footnote 7 “Financial Instruments” for further information. We also apply the provisions of fair value measurement to various non-recurring measurements for our financial and non-financial assets and liabilities. The applicable accounting standards define fair value as the price that would be received upon selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). We measure fair value of our assets and liabilities using inputs from the following three levels of the fair value hierarchy: • Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date. • Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). • Level 3 includes unobservable inputs that reflect our assumptions about what factors market participants would use in pricing the asset or liability. We develop these inputs based on the best information available, including our own data. Cash and Cash Equivalents We consider all highly liquid investments with an initial purchase maturity of three months or less at the date of purchase to be cash equivalents. Restricted Cash Restricted cash primarily consists of cash restricted for use by consolidated owners’ associations which is designated for resort operations and other specific uses, such as reserves, cash held in a reserve account related to vacation ownership notes receivable securitizations, cash collected for maintenance fees to be remitted to owners’ associations, and deposits received and held in escrow, primarily associated with the sale of vacation ownership products. 85 Accounts Receivable Accounts receivable are stated at amounts due from customers, principally resort developers, members and managed properties, net of a reserve for credit losses. Accounts receivable outstanding longer than the contractual payment terms are considered past due. We determine our credit loss reserve for accounts receivable by considering a number of factors, including previous loss history, our judgment as to the specific customer’s current ability to pay its obligation and the condition of the general economy. We write off accounts receivable when they become uncollectible once we have exhausted all means of collection. Accounts receivable is presented net of a reserve for credit losses of $ 14 million and $ 15 million at December 31, 2021 and December 31, 2020, respectively. Accounts receivable also includes interest receivable on vacation ownership notes receivable. Write-offs of interest receivable are recorded as a reversal of previously recorded interest income. Acquired Vacation Ownership Notes Receivable Reserve for Credit Losses As part of the ILG Acquisition, we acquired existing portfolios of vacation ownership notes receivable. At acquisition, we recorded these vacation ownership notes receivable at fair value. Upon adoption of ASU 2016-13 (as defined below) on January 1, 2020, we account for these acquired vacation ownership notes receivable using the purchased credit deteriorated assets provision of the current expected credit loss model, whereby we established a reserve for credit losses and a corresponding increase in the book value of the acquired vacation ownership notes receivable, resulting in no impact to the recorded balance. The estimates of the reserve for credit losses on the acquired vacation ownership notes receivable are based on default rates that are an output of our static pool analyses. Any changes in the reserve for credit losses are recorded as Financing expenses on our Income Statements. In addition, we established a noncredit discount of $ 2 million, which represented the difference between the amortized cost basis and the par value of our acquired vacation ownership notes receivable at January 1, 2020. The noncredit discount will be amortized to interest expense over the contractual life of the acquired vacation ownership notes receivable and is recorded as Financing expenses on our Income Statements. The vacation ownership notes receivable acquired as part of the Welk Acquisition were recorded at fair value using the purchased credit deteriorated assets provision of the current expected credit loss model, consistent with the principles outlined above. Originated Vacation Ownership Notes Receivable Reserve 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 originated vacation ownership notes receivable. See “Financing Revenues” above for further information. Past Due and Defaulted Although we consider loans to owners to be past due if we do not receive payment within 30 days of the due date, we suspend accrual of interest only on those loans that are over 90 days past due. For Legacy-MVW vacation ownership notes receivable, we consider loans over 150 days past due to be in default and fully reserve such amounts. For Legacy-ILG and Legacy-Welk vacation ownership notes receivable, we consider loans over 120 days past due to be in default and fully reserve such amounts. We apply payments we receive for vacation ownership notes receivable on non-accrual status first to interest, then to principal and any remainder to fees. We resume accruing interest when vacation ownership notes receivable are less than 90 days past due. We do not accept payments for vacation ownership notes receivable during the foreclosure process unless the amount is sufficient to pay all past due principal, interest, fees and penalties owed and fully reinstate the note. We write off vacation ownership notes receivable against the reserve once we receive title to the vacation ownership products through the foreclosure or deed-in-lieu process or, in certain circumstances, when revocation is complete. Inventory Our inventory consists primarily of completed vacation ownership products. We carry our inventory at the lower of (1) cost, including costs of improvements and amenities incurred subsequent to acquisition, capitalized interest and real estate taxes plus other costs incurred during construction, or (2) estimated fair value, less costs to sell, which can result in impairment charges and/or recoveries of previous impairments. We account for vacation ownership inventory and cost of vacation ownership products in accordance with the authoritative guidance for accounting for real estate time-sharing transactions, which defines a specific application of the relative sales value method for reducing vacation ownership inventory and recording cost of sales as described in our policy for revenue recognition for vacation ownership products. Also, pursuant to the guidance for accounting for real estate time-sharing transactions, we do not reduce inventory for cost of vacation ownership products related to variable consideration which has not been included within the transaction price (accordingly, no adjustment is made when inventory is reacquired upon default of the related receivable). These standards provide for changes in estimates within the relative sales value calculations to be accounted for as real estate inventory true-ups, which we refer to as product cost true-up activity, and are recorded in Cost of vacation ownership product expenses on the Income Statements to retrospectively adjust the margin previously recorded subject to those 86 estimates. For 2021, 2020 and 2019, product cost true-up activity relating to vacation ownership products increased carrying values of inventory by $ 10 million, $ 6 million and $ 8 million, respectively. Property and Equipment Property and equipment includes our sales centers, golf courses, information technology, including internally developed capitalized software, and other assets used in the normal course of business, as well as land held for future vacation ownership product development and undeveloped, and partially developed land parcels that are not part of an approved development plan and do not meet the criteria to be classified as held for sale. In addition, fully developed vacation ownership interests are classified as property and equipment until they are registered and available for sale. We record property and equipment at cost, including interest and real estate taxes incurred during active development. We capitalize the cost of improvements that extend the useful life of property and equipment when incurred. We expense all repair and maintenance costs as incurred. We compute depreciation using the straight-line method over the estimated useful lives of the assets ( three to forty years ), and we amortize leasehold improvements over the shorter of the asset life or lease term. We also capitalize certain qualified costs incurred in connection with the development of internal use software. Capitalization of internal use software costs begins when the preliminary project stage is completed, management with the relevant authority authorizes and commits to the funding of the software project, and it is probable that the project will be completed and the software will be used to perform the function intended. Leases We account for leases in accordance with ASC Topic 842, “ Leases ” (“ASC 842”). We determine if an arrangement is or contains a lease at contract inception. Operating leases include lease arrangements for various land, corporate facilities, real estate and equipment. Corporate facilities leases are for office space, including our current corporate headquarters in Orlando, Florida. Other operating leases are primarily for office, off-site sales centers and retail space, as well as various equipment supporting our operations, with varying terms and renewal option periods. Finance leases include lease arrangements for ancillary and operations space. We also have a long-term finance lease for land underlying an operating hotel. In addition, we also lease various equipment supporting our operations and classify these leases as finance leases in accordance with ASC 842. The depreciable life of these assets is limited to the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Right-of-use assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Short-term leases, which have an initial term of a year or less, are not recorded on the balance sheet. For purposes of calculating lease liabilities, lease terms may be deemed to include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Macro-economic conditions are the primary factor used to estimate whether an option to extend a lease term will be exercised or not. Because the rate implicit in our leases is not readily determinable, we use our incremental borrowing rate as the discount rate, which approximates the interest rate at which we could borrow on a collateralized basis with similar terms and payments and in similar economic environments. Right-of-use assets exclude the unamortized portion of lease incentives received. Certain of our lease agreements include variable rental payments that are based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. Additionally, with respect to our real estate leases, we do not separate lease and non-lease components. Impairment of Long-Lived Assets and Other Intangible Assets We assess long-lived assets, including property and equipment, leases, and definite-lived intangible assets, for recoverability when changes in circumstances indicate the carrying value may not be recoverable, for example, when there are material adverse changes in projected revenues or expenses, significant underperformance relative to historical or projected operating results, or significant negative industry or economic trends. We evaluate recoverability of an asset group by comparing its carrying value to the future net undiscounted cash flows that we expect will be generated by the asset group. If the comparison indicates that the carrying value of an asset group is not recoverable, we recognize an impairment loss for the excess of carrying value over the estimated fair value. When we recognize an impairment loss for assets to be held and used, we depreciate the adjusted carrying amount of those assets over their remaining useful life. We assess indefinite-lived intangible assets for potential impairment and continued indefinite use annually, or more frequently if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. We may first assess qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived intangible is less than its carrying amount. If the carrying value of the asset exceeds the fair value, we recognize an impairment loss in the amount of that excess. 87 Goodwill We perform an annual review for the potential impairment of the carrying value of goodwill in the fourth quarter, or more frequently if events or circumstances indicate a possible impairment. For purposes of evaluating goodwill for impairment, we have two reporting units, which are also our reportable operating segments. In evaluating goodwill for impairment, we may assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If we bypass the qualitative assessment, or if we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then we perform a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount. Qualitative factors that we consider include, for example, macroeconomic and industry conditions, overall financial performance, and other relevant entity-specific events. If the qualitative assessment is not conclusive, then a quantitative impairment analysis for goodwill is performed at the reporting unit level. We may also choose to perform this quantitative impairment analysis instead of the qualitative analysis. The quantitative impairment analysis compares the fair value of the reporting unit, determined using the income and/or market approach, to its recorded amount. If the recorded amount exceeds the fair value, then a goodwill impairment charge is recorded for the difference up to the recorded amount of goodwill. We calculate the estimated fair value of a reporting unit using a weighting of the income and market approaches. For the income approach, we use internally developed discounted cash flow models that include the following assumptions, among others: projections of revenues, expenses, and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. For the market approach, we use internal analyses based primarily on market comparables. We base these assumptions on our historical data and experience, third-party appraisals, industry projections, micro and macro general economic condition projections, and our expectations. See Footnote 11 “Goodwill” for additional information on our goodwill. Convertible Senior Notes In accounting for the 1.50 % Convertible Senior Notes due 2022 (the “2022 Convertible Notes”) and the 0.00 % Convertible Senior Notes due 2026 (the “2026 Convertible Notes”), referred to collectively as our “convertible notes,” we bifurcated the liability and equity components. The carrying amount of each liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of each equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the convertible notes. The excess of the principal amount of the liability over its carrying amount is amortized to interest expense over the term of the convertible notes using the effective interest method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the issuance costs related to the convertible notes, we allocated the total amount incurred 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 convertible notes, and issuance costs attributable to the equity component are included along with the equity component in additional paid-in capital within shareholders’ equity. See Footnote 16 “Debt” for more information on our convertible notes and also see Future Adoption of Accounting Standards below for information on the adoption of future accounting standards that will impact the accounting for our convertible notes. Derivative Instruments We record derivatives at fair value. The designation of a derivative instrument as a hedge and its ability to meet the hedge accounting criteria determine how we reflect the change in fair value of the derivative instrument in our Financial Statements. A derivative qualifies for hedge accounting if we expect it to be highly effective in offsetting the underlying hedged exposure and we fulfill the hedge documentation requirements. We may designate a hedge as a cash flow hedge, fair value hedge, or a net investment in non-U.S. operations hedge based on the exposure we are hedging. If a qualifying hedge is deemed effective, we record changes in fair value in other comprehensive income. We assess the effectiveness of our hedging instruments quarterly, recognize current period hedge ineffectiveness immediately in earnings, and discontinue hedge accounting for any hedge that we no longer consider to be highly effective. We recognize changes in fair value for derivatives not designated as hedges or those not qualifying for hedge accounting in current period earnings. We are exposed to market risk from changes in interest rates, currency exchange rates and debt prices. We manage our exposure to these risks by monitoring available financing alternatives, through pricing policies that may take into account currency exchange rates, and by entering into derivative arrangements. As a matter of policy, we only enter into transactions that we believe will be highly effective at offsetting the underlying risk, and we do not use derivatives for trading or speculative purposes. 88 Loss Contingencies We are subject to various legal proceedings and claims in the normal course of business, the outcomes of which are subject to significant uncertainty. We record an accrual for loss 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 the loss. We review these accruals each reporting period and make revisions based on changes in facts and circumstances. Defined Contribution Plan We administer and maintain a defined contribution plan for the benefit of all employees meeting certain eligibility requirements who elect to participate in the plan. Contributions are determined based on a specified percentage of salary deferrals by participating employees. We recognized compensation expense (net of cost reimbursements from owners’ associations) for our participating employees totaling $ 19 million in 2021, $ 12 million in 2020 and $ 19 million in 2019. Deferred Compensation Plan Certain members of our senior management have the opportunity to participate in the Marriott Vacations Worldwide Deferred Compensation Plan (the “Deferred Compensation Plan”), which we maintain and administer. Under both the Deferred Compensation Plan and the Marriott International EDC (as defined below) participating employees are able to defer payment and income taxation of a portion of their salary and bonus. It also provides participants with the opportunity for long-term capital appreciation by crediting their accounts with notional earnings. Prior to the spin-off of MVW from Marriott International (the “Marriott Spin-Off”), certain members of our senior management had the opportunity to participate in the Marriott International, Inc. Executive Deferred Compensation Plan (the “Marriott International EDC”), which Marriott International maintains and administers. Subsequent to the Marriott Spin-Off, we remain liable to reimburse Marriott International for distributions to participants that were employees of Marriott Vacations Worldwide at the time of the Marriott Spin-Off including earnings thereon. To support our ability to meet a portion of our obligations under the Deferred Compensation Plan, we acquired company owned insurance policies (the “COLI policies”) on the lives of certain participants in the Deferred Compensation Plan, the proceeds of which are intended to be aligned with the investment alternatives elected by plan participants and are payable to a rabbi trust with the Company as grantor. For both 2021 and 2020, participants were able to select a rate of return based on market-based investment alternatives for up to 100% of their contributions and existing balances, with one of those options being a fixed rate of return of 3.5 %. We consolidate the liabilities of the 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 December 31, 2021, the value of the assets held in the rabbi trust was $ 76 million, which is included in the Other line within assets on our Balance Sheets. Share-Based Compensation Costs During the second quarter of 2020, our shareholders approved the Marriott Vacations Worldwide Corporation 2020 Equity Incentive Plan (the “MVW Equity Plan”), which supersedes both the Marriott Vacations Worldwide Corporation Stock and Cash Incentive Plan and the Interval Leisure Group, Inc. 2013 Stock and Incentive Plan (collectively, the “Prior Plans”). No new awards will be granted under the Prior Plans and all awards that were granted under the Prior Plans will remain outstanding and continue to be governed by the Prior Plans. The MVW Equity Plan was established in order to compensate our employees and directors by granting them equity awards such as restricted stock units (“RSUs”), stock appreciation rights (“SARs”) and stock options. We follow the provisions of ASC Topic 718, “ Compensation—Stock Compensation, ” which requires that a company measure the expense of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. Generally, share-based awards granted to our employees, other than RSUs with performance vesting conditions, vest ratably over a four-year period. For share-based awards with service-only vesting conditions, we record compensation expense on a straight-line basis over the requisite service period. For RSUs with performance vesting conditions, the number of RSUs earned, if any, is determined following the end of a performance period (typically three years ) based upon the cumulative achievement over that period of specific quantitative operating financial measures and we recognize compensation expense once it is probable that the corresponding performance condition will be achieved. SARs awarded under the MVW Equity Plan are granted at exercise prices or strike prices equal to the market price of our common stock on the date of grant (this price is referred to as the “base value”). SARs generally expire ten years after the date of grant and both vest and become exercisable in cumulative installments of one quarter of the grant at the end of each of 89 the first four years following the date of grant. Upon exercise of SARs, our employees and non-employee directors receive a number of shares of our common stock equal to the number of SARs being exercised, multiplied by the quotient of (a) the market price of the common stock on the date of exercise (this price is referred to as the “final value”) minus the base value, divided by (b) the final value. We recognize the expense associated with these awards on our Income Statements based on the fair value of the awards as of the date that the share-based awards are granted and adjust that expense to the estimated number of awards that we expect will vest or be earned. The fair value of RSUs represents the number of awards granted multiplied by the average of the high and low market price of our common stock on the date the awards are granted reduced by the present value of the dividends expected to be paid on the shares during the vesting period, discounted at a risk-free interest rate. We generally determine the fair value of SARs using the Black-Scholes option valuation model which incorporates assumptions about expected volatility, risk free interest rate, dividend yield and expected term. We will issue shares from authorized shares upon the exercise of SARs or stock options held by our employees and directors. For share-based awards granted to non-employee directors, we recognize compensation expense on the grant date based on the fair value of the awards as of that date. See Footnote 18 “Share-Based Compensation” for more information on the MVW Equity Plan. Non-U.S. Operations The U.S. dollar is the functional currency of our consolidated entities operating in the United States. The functional currency for our consolidated entities operating outside of the United States is generally the currency of the economic environment in which the entity primarily generates and expends cash. For consolidated entities whose functional currency is not the U.S. dollar, we translate their financial statements into U.S. dollars. We translate assets and liabilities at the exchange rate in effect as of the financial statement date and translate Income Statement accounts using the weighted average exchange rate for the period. We include translation adjustments from currency exchange and the effect of exchange rate changes on intercompany transactions of a long-term investment nature as a separate component of equity. We report gains and losses from currency exchange rate changes related to intercompany receivables and payables that are not of a long-term investment nature, as well as gains and losses from non-U.S. currency transactions, in the (Losses) gains and other (expense) income, net line on our Income Statements. Income Taxes We file income tax returns, including with respect to our subsidiaries, in various jurisdictions around the world. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Changes in existing tax laws and rates, their related interpretations, and the uncertainty generated by the current economic environment may affect the amounts of deferred tax liabilities or the valuations of deferred tax assets over time. Our accounting for deferred tax consequences represents management’s best estimate of future events that can be appropriately reflected in the accounting estimates. We record a valuation allowance on deferred taxes if we determine it is more likely than not that we will not fully realize the future benefit of deferred tax assets. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In the event we determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which impacts the provision for income taxes. We file tax returns after the close of our fiscal year end and adjust our estimated tax receivable or liability to the actual tax receivable or due per the filed tax returns. Historically, we have not experienced significant differences between our estimates of provision for income tax and actual amounts incurred, excluding one-time tax method changes approved by the Internal Revenue Service (the “IRS”) after our financial statements were filed. For purposes of Global Intangible Low-Taxed Income, we have elected to use the period cost method and therefore have not recorded deferred taxes for basis differences expected to reverse in future periods. For tax positions we have taken, or expect to take, in a tax return we apply a more likely than not threshold, under which we must conclude a tax position is more likely than not to be sustained, assuming that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information, in order to continue to recognize the benefit. 90 In determining our provision for income taxes, we use judgment, reflecting our estimates and assumptions, in applying the more likely than not threshold. Based on our evaluations of tax positions, we believe that potential tax exposures have been recorded appropriately. Additionally, we recognize accrued interest and penalties related to our unrecognized tax benefits as a component of tax expense. 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 accounting standards update (“ASU”) 2019-12, which amended and simplified 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. As of December 31, 2021, borrowings under our existing Corporate Credit Facility (as defined in Footnote 16 “Debt”) and Warehouse Credit Facility (as defined in Footnote 15 “Securitized Debt”) generally reference LIBOR, as do certain interest rate swaps and collars. The instruments have not yet discontinued the use of LIBOR. To the extent these instruments are amended to reference a different benchmark interest rate, we may elect to utilize the relief available in ASU 2020-04. When we renew or amend our existing debt instruments, we will determine a replacement rate for LIBOR. 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. 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 will adopt ASU 2020-06 on January 1, 2022 using the modified retrospective method. The impacts of the adoption will be recorded as a 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. Commencing in the first quarter of 2022, we will 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. The adoption of ASU 2020-06 on January 1, 2022 will result in an increase in debt of $ 107 million, a decrease in additional paid-in capital of $ 111 million, and a decrease in deferred taxes of $ 27 million, as well as a cumulative effect adjustment to the opening balance of retained earnings of $ 31 million. 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 amends ASC 805 to require entities to apply ASC 606 to recognize and measure contract assets and contract liabilities from contracts with customers in a business combination. ASU 2021-08 is effective for public entities for fiscal years beginning after December 15, 2022, including interim periods therein, with early adoption permitted. ASU 2021-08 shall be applied on a prospective basis to business combinations that occur on or after the adoption date. We expect to early adopt ASU 2021-08 on January 1, 2022 and we anticipate that the adoption of this ASU will not impact our financial statements and disclosure. In the event that we complete business combinations in the future, the application of ASU 2021-08 could result in higher acquired deferred revenue. 91 3. ACQUISITIONS AND DISPOSITIONS Acquisitions Welk Acquisition We completed the Welk Acquisition on April 1, 2021, 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 in the Welk Acquisition at December 31, 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 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 values attributed to Vacation ownership notes receivable, Inventory, Property and equipment, Intangible assets, Deferred taxes and Securitized debt from VIEs are based on 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 have finalized our valuations related to the acquired assets and liabilities of Welk, except for the valuation of certain property and equipment and our evaluation of Welk’s historical tax positions. Accordingly, these 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 current 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 the end of the third quarter of 2021 and as adjusted at December 31, 2021. During the fourth quarter of 2021, we refined our valuation models related to certain acquired assets and liabilities as follows: ($ in millions) April 1, 2021 (as previously reported) Adjustments April 1, 2021 (as adjusted) Vacation ownership notes receivable, net (1) $ 254 $ 1 $ 255 Inventory (2) 136 ( 25 ) 111 Property and equipment 111 ( 28 ) 83 Intangible assets (3) 100 2 102 Other assets 19 — 19 Deferred taxes ( 45 ) 13 ( 32 ) Debt ( 189 ) — ( 189 ) Securitized debt ( 184 ) — ( 184 ) Other liabilities ( 66 ) ( 27 ) ( 93 ) Net assets acquired 136 ( 64 ) 72 Goodwill (4) 269 64 333 $ 405 $ — $ 405 _________________________ (1) Vacation ownership notes receivable, net has 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 the Welk business and the vacation ownership industry as a whole, and has been accounted for as such. We valued the vacation ownership notes receivable using an income approach, which includes the following significant Level 3 assumptions: default rates, prepayment rates, discount rate and fair value of collateral retained upon customer default. 92 ($ in millions) Vacation ownership notes receivable $ 287 Allowance for credit losses ( 32 ) Vacation ownership notes receivable, net $ 255 (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. We valued management contracts using the multi-period excess earnings method, which is a variation of the income approach. This method estimates an intangible asset’s value based on the present value of the incremental after-tax cash flows attributable to the intangible asset. This valuation approach utilizes the following Level 3 inputs: future income growth, future cost estimates and discount rate. (4) Goodwill is calculated as total consideration transferred, net of cash acquired, less identified net assets acquired. 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 the estimates of the fair values of assets and liabilities as of the Welk Acquisition Date set forth above. 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 2021, and $ 19 million included for 2020. ($ in millions, except per share data) 2021 2020 Revenues $ 3,894 $ 3,011 Net income (loss) $ 67 $ ( 272 ) Net income (loss) attributable to common shareholders $ 66 $ ( 291 ) EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS Basic $ 1.56 $ ( 7.04 ) Diluted $ 1.53 $ ( 7.04 ) Welk Results of Operations The following table presents the results of Welk operations included in our Income Statement for 2021. ($ in millions) 2021 Revenue $ 146 Net income $ 17 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 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. 93 During 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 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 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 fourth quarter of 2021, we completed the purchase of the remaining inventory at our Marriott Vacation Club Pulse, San Francisco property and wrote off the outstanding management fee receivables deemed uncollectible of $ 7 million, which was recorded in the Management and exchange expense line on our Income Statement for the year ended December 31, 2021. As part of the purchase, we acquired the remaining 78 completed vacation ownership units, as well as an onsite garage, for $ 59 million. We accounted for the purchase as an asset acquisition with the purchase price allocated to Inventory ($ 41 million) and Property and equipment ($ 18 million). Further, we reclassified $ 10 million of previous deposits associated with the project from Other assets to Inventory. During 2020, we acquired 34 completed vacation ownership units located at our Marriott Vacation Club Pulse, San Francisco property for $ 26 million, of which $ 5 million was a prepayment for future tranches of completed vacation ownership units. We accounted for the transaction as an asset acquisition with the purchase price allocated to Inventory ($ 18 million), Other assets ($ 5 million), and Property and equipment ($ 3 million). During 2019, we acquired 78 completed vacation ownership units and a sales gallery located at our Marriott Vacation Club Pulse, San Francisco property for $ 58 million. We accounted for the transaction as an asset acquisition with the purchase price allocated to Inventory ($ 48 million) and Property and equipment ($ 10 million). Dispositions We made no significant dispositions in 2021. During 2020, we recorded a loss of $ 5 million in the (Losses) gains and other (expense) income, net line on our Income Statement for the year ended December 31, 2020 relating to the redemption of our interest in a joint venture in our Exchange & Third-Party Management segment which was consolidated under the voting interest model. We received nominal cash proceeds and a note receivable which we measured at a fair value of $ 1 million using Level 3 inputs. Additionally, during 2020, we disposed of excess Vacation Ownership segment land parcels in Orlando, Florida and Steamboat Springs, Colorado for combined proceeds of $ 15 million, as part of our strategic decision to reduce holdings in markets where we have excess supply, as discussed further below. We recorded a combined net gain of $ 6 million in the (Losses) gains and other (expense) income, net line on our Income Statement for the year ended December 31, 2020 relating to these transactions. During 2019, we disposed of excess land parcels in Cancun, Mexico and Avon, Colorado for proceeds of $ 62 million, of which $ 8 million is deferred until certain conditions associated with the sale have been met. We recorded a combined net gain of $ 19 million in the (Losses) gains and other (expense) income, net line on our Income Statement for the year ended December 31, 2019. 2019 Strategy Change As a result of the ILG Acquisition, we performed a comprehensive review to evaluate the strategic fit of the land holdings and operating hotels in our Vacation Ownership segment. As a result of the change in our development strategy, in 2019, we recorded a non-cash impairment charge of $ 72 million, of which $ 61 million related to land and land improvements associated with future phases of three existing resorts, $ 9 million related to a land parcel held for future development and $ 2 million related to an ancillary business. We used a combination of the market and income approaches to estimate the fair value of these assets. Under the market approach, a Level 2 input, fair value is measured through an analysis of sales and offerings of comparable property which are adjusted to reflect differences between the asset being valued and the comparable assets, such as location, time and terms of sales, utility and physical characteristics. Under the income approach, a Level 3 input, fair value is measured through a discounted cash flow. Under the income approach, we contemplated alternative uses to comply with the highest and best use provisions of ASC 820. 94 4. REVENUE AND RECEIVABLES Sources of Revenue by Segment The following tables detail the sources of revenue by segment for each of the last three fiscal years. 2021 ($ in millions) Vacation Ownership Exchange & Third-Party Management Corporate and Other Total Sale of vacation ownership products $ 1,153 $ — $ — $ 1,153 Ancillary revenues 188 3 — 191 Management fee revenues 158 32 ( 19 ) 171 Exchange and other services revenues 124 198 171 493 Management and exchange 470 233 152 855 Rental 446 40 — 486 Cost reimbursements 1,202 47 ( 121 ) 1,128 Revenue from contracts with customers 3,271 320 31 3,622 Financing 268 — — 268 Total Revenues $ 3,539 $ 320 $ 31 $ 3,890 2020 ($ in millions) Vacation Ownership Exchange & Third-Party Management Corporate and Other Total Sale of vacation ownership products $ 546 $ — $ — $ 546 Ancillary revenues 89 1 — 90 Management fee revenues 149 17 ( 22 ) 144 Exchange and other services revenues 118 193 210 521 Management and exchange 356 211 188 755 Rental 239 37 — 276 Cost reimbursements 1,124 59 ( 141 ) 1,042 Revenue from contracts with customers 2,265 307 47 2,619 Financing 265 2 — 267 Total Revenues $ 2,530 $ 309 $ 47 $ 2,886 95 2019 ($ in millions) Vacation Ownership Exchange & Third-Party Management Corporate and Other Total Sale of vacation ownership products $ 1,354 $ — $ — $ 1,354 Ancillary revenues 224 4 — 228 Management fee revenues 144 46 ( 13 ) 177 Exchange and other services revenues 120 248 176 544 Management and exchange 488 298 163 949 Rental 512 61 — 573 Cost reimbursements 1,136 91 ( 119 ) 1,108 Revenue from contracts with customers 3,490 450 44 3,984 Financing 271 4 — 275 Total Revenues $ 3,761 $ 454 $ 44 $ 4,259 Timing of Revenue from Contracts with Customers by Segment The following tables detail the timing of revenue from contracts with customers by segment for each of the last three fiscal years. 2021 ($ in millions) Vacation Ownership Exchange & Third-Party Management Corporate and Other Total Services transferred over time $ 1,915 $ 154 $ 31 $ 2,100 Goods or services transferred at a point in time 1,356 166 — 1,522 Revenue from contracts with customers $ 3,271 $ 320 $ 31 $ 3,622 2020 ($ in millions) Vacation Ownership Exchange & Third-Party Management Corporate and Other Total Services transferred over time $ 1,616 $ 156 $ 47 $ 1,819 Goods or services transferred at a point in time 649 151 — 800 Revenue from contracts with customers $ 2,265 $ 307 $ 47 $ 2,619 2019 ($ in millions) Vacation Ownership Exchange & Third-Party Management Corporate and Other Total Services transferred over time $ 1,896 $ 194 $ 44 $ 2,134 Goods or services transferred at a point in time 1,594 256 — 1,850 Revenue from contracts with customers $ 3,490 $ 450 $ 44 $ 3,984 96 Receivables from Contracts with Customers, Contract Assets, & Contract Liabilities The following table shows the composition of our receivables from contracts with customers and contract liabilities. We had no contract assets at either December 31, 2021 or December 31, 2020. ($ in millions) At December 31, 2021 At December 31, 2020 Receivables Accounts receivable $ 172 $ 150 Vacation ownership notes receivable, net 2,045 1,840 $ 2,217 $ 1,990 Contract Liabilities Advance deposits $ 160 $ 147 Deferred revenue 453 488 $ 613 $ 635 Revenue recognized during the year ended December 31, 2021 that was included in our contract liabilities balance at December 31, 2020 was $ 395 million. 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 December 31, 2021, approximately 87 % 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 owners’ associations, resort developers and members, credit card receivables, interest receivables, amounts due from taxing authorities, indemnification assets, and other miscellaneous receivables. The following table shows the composition of our accounts receivable balances: ($ in millions) At December 31, 2021 At December 31, 2020 Receivables from contracts with customers $ 172 $ 150 Interest receivable 14 13 Tax receivable 48 60 Indemnification asset 22 15 Employee tax credit receivable 19 19 Other 4 19 $ 279 $ 276 97 5. INCOME TAXES Income Tax Provision The following table presents the components of our earnings or losses before income taxes for the last three fiscal years: ($ in millions) 2021 2020 2019 United States $ 152 $ ( 255 ) $ 190 Non-U.S. jurisdictions ( 25 ) ( 85 ) 35 $ 127 $ ( 340 ) $ 225 Our (provision for) or benefit from income taxes for the last three years consisted of: ($ in millions) 2021 2020 2019 Current – U.S. Federal $ 8 $ 31 $ ( 12 ) – U.S. State ( 3 ) 1 ( 29 ) – Non-U.S. ( 50 ) 11 ( 36 ) ( 45 ) 43 ( 77 ) Deferred – U.S. Federal ( 36 ) 26 ( 28 ) – U.S. State 3 9 17 – Non-U.S. 4 6 5 ( 29 ) 41 ( 6 ) $ ( 74 ) $ 84 $ ( 83 ) Reconciliation of U.S. Federal Statutory Income Tax Rate to Actual Income Tax Rate The following table reconciles the U.S. statutory income tax rate to our effective income tax rate: 2021 2020 2019 U.S. statutory income tax rate 21.0 % 21.0 % 21.0 % U.S. state income taxes, net of U.S. federal tax benefit 4.3 4.5 4.2 Share-based compensation, net of Section 162(m) limitation 1.9 0.2 0.7 Other permanent differences (1) ( 5.5 ) ( 9.1 ) 5.4 Impact related to the CARES Act of 2020 — 6.0 — Tax rate changes ( 3.8 ) 0.4 ( 0.3 ) Non-U.S. income (loss) (2) 12.9 4.2 2.2 Tax credits ( 0.9 ) 0.2 ( 6.6 ) Unrecognized tax benefits 17.9 5.2 3.1 Change in valuation allowance (3) 10.4 ( 7.5 ) 7.0 Other items 0.2 ( 0.5 ) 0.2 Effective rate 58.4 % 24.6 % 36.9 % _________________________ (1) The 2021 impact is primarily due to the deduction of foreign taxes paid in the U.S. The 2020 impact is primarily attributable to non-deductible goodwill impairment recorded due to the impact of COVID-19. The 2019 impact is primarily due to non-deductible meal and entertainment expenses and new foreign tax provisions, under provisions of the Tax Cuts and Jobs Act of 2017. (2) The 2021 impact is primarily due to increases in permanent differences in foreign jurisdictions. The 2020 and 2019 impact is attributable to the difference between U.S. and foreign income tax rates and other foreign adjustments. (3) The 2021 impact is primarily due to new valuation allowances. The 2020 impact is primarily attributable to the increase of the valuation allowance on certain foreign entities. The 2019 impact is primarily attributable to foreign tax credit carryforwards in the branch and treaty baskets and losses and future deductions in foreign tax credit carryforwards in the branch and treaty baskets. 98 For the years ended December 31, 2021, 2020 and 2019, the provision for income taxes included $ 4 million, $ 4 million, and $ 2 million of excess tax benefits resulting from equity incentive plan activities, respectively. We conduct business in countries that grant “holidays” from income taxes for ten to thirty-year periods. These holidays expire through 2034. Other We are currently completing the purchase price accounting and have established certain non-income tax reserves for the Welk Acquisition, and the reserve will be finalized in 2022. We finalized our purchase price accounting for the ILG Acquisition during 2019 and established a reserve for non-income tax issues related to Legacy-ILG. As of December 31, 2021, the balance of the reserve for non-income tax issues related to our acquisitions was $ 66 million. We expect that we will be indemnified for liabilities of $ 5 million in connection with these non-income tax matters pursuant to a Tax Matters Agreement dated May 11, 2016 by and among Starwood Hotels & Resorts Worldwide, Inc., Vistana Signature Experiences, Inc., and Interval Leisure Group, Inc., and consequently have recorded a corresponding indemnification asset. Deferred Income Taxes The following table presents the significant components of our deferred tax assets and liabilities: ($ in millions) At Year-End 2021 At Year-End 2020 Deferred Tax Assets Inventory $ 69 $ 83 Reserves 75 98 Deferred revenue 20 12 Property and equipment 61 72 Net operating loss and capital loss carryforwards 146 98 Tax credits 29 31 Right-of-use asset 24 2 Other, net 74 113 Deferred tax assets 498 509 Less valuation allowance ( 122 ) ( 106 ) Net deferred tax assets 376 403 Deferred Tax Liabilities Long lived intangible assets ( 231 ) ( 233 ) Deferred sales of vacation ownership interests ( 414 ) ( 362 ) Right-of-use liability ( 24 ) ( 2 ) Other, net ( 9 ) ( 43 ) Deferred tax liabilities ( 678 ) ( 640 ) Total net deferred tax liabilities $ ( 302 ) $ ( 237 ) Valuation allowances are provided when it is considered more likely than not that deferred tax assets will not be realized. In 2021 we established an additional valuation allowance of $ 8 million. We have $ 111 million of foreign net operating loss carryforwards, some of which begin expiring in 2022; however, a significant portion of these have indefinite carryforward periods. We have $ 15 million of federal net operating losses and $ 18 million of state net operating loss carryforwards, of which less than $ 1 million will expire within the next five years. We have U.S. federal foreign tax credit carryforwards of $ 20 million, federal capital loss carryforwards of $ 2 million, and $ 9 million of state tax credit carryforwards. 99 As a result of the Tax Cuts and Jobs Act of 2017, distribution of profits from non-U.S. subsidiaries is not expected to cause a significant incremental U.S. tax impact in the future. However, distributions may be subject to non-U.S. withholding taxes if profits are distributed from certain jurisdictions. Our present intention is to indefinitely reinvest residual historic undistributed accumulated earnings associated with certain foreign subsidiaries. We have not provided for deferred taxes on outside basis differences in our investments in these foreign subsidiaries, and such estimates are not practicable to be determined. Unrecognized Tax Benefits A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest and penalties) is as follows: ($ in millions) 2021 2020 2019 Unrecognized tax benefit at beginning of year $ 14 $ 21 $ 2 Increases related to tax positions taken during a prior period 12 6 18 Increases related to tax positions taken during the current period 1 2 1 Decreases related to settlements with taxing authorities — ( 14 ) — Decreases as a result of a lapse of the applicable statute of limitations ( 1 ) ( 1 ) — Unrecognized tax benefit at end of year $ 26 $ 14 $ 21 The total unrecognized tax benefits related to uncertain income tax positions, which would affect the effective tax rate if recognized, were $ 26 million at December 31, 2021 and $ 14 million at December 31, 2020. The total amount of gross interest and penalties accrued were $ 42 million at December 31, 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 benefit, 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 within the next twelve months as a result of audits or audit settlements. 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 December 31, 2021, we evaluated the income tax provisions of the above mentioned acts and have determined there to be minimal effect on our December 31, 2021 tax rate or the computation of our 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. 100 6. VACATION OWNERSHIP NOTES RECEIVABLE The following table shows the composition of our vacation ownership notes receivable balances, net of reserves. December 31, 2021 December 31, 2020 ($ in millions) Originated Acquired Total Originated Acquired Total Securitized $ 1,308 $ 354 $ 1,662 $ 1,220 $ 273 $ 1,493 Non-securitized Eligible for securitization (1) 96 1 97 126 2 128 Not eligible for securitization (1) 267 19 286 185 34 219 Subtotal 363 20 383 311 36 347 $ 1,671 $ 374 $ 2,045 $ 1,531 $ 309 $ 1,840 _________________________ (1) Refer to Footnote 7 “Financial Instruments” for 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. ($ in millions) 2021 2020 2019 Interest income associated with vacation ownership notes receivable — securitized $ 219 $ 239 $ 232 Interest income associated with vacation ownership notes receivable — non-securitized 40 18 32 Total interest income associated with vacation ownership notes receivable $ 259 $ 257 $ 264 COVID-19 Impact on Vacation Ownership Notes Receivable Reserves In 2020, as a result of higher actual and projected default activity related predominantly to the COVID-19 pandemic, we evaluated our vacation ownership notes receivable reserve initially using the 2008/2009 financial crisis as a reference point. As a result, we increased our vacation ownership notes receivable reserves by $ 52 million in the first quarter of 2020. We monitored actual delinquency and default activity throughout the remainder of 2020. Taking into account higher than previously expected default activity experienced, we increased our vacation ownership notes receivable reserve by an additional $ 17 million in the fourth quarter of 2020. In total, the reserve adjustments made during 2020 were reflected as a $ 59 million reduction to Sale of vacation ownership products, a $ 10 million increase in Financing expenses, and a $ 19 million reduction in Cost of vacation ownership products on our Income Statement for the year ended December 31, 2020. There were no additional adjustments to our vacation ownership notes receivables reserves due to the COVID-19 pandemic during 2021. 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 December 31, 2021. Acquired Vacation Ownership Notes Receivable ($ in millions) Non-Securitized Securitized Total 2022 $ 2 $ 50 $ 52 2023 2 51 53 2024 2 50 52 2025 2 47 49 2026 2 42 44 Thereafter 10 114 124 Balance at December 31, 2021 $ 20 $ 354 $ 374 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 % 101 The following table summarizes the activity related to our acquired vacation ownership notes receivable reserve. Acquired Vacation Ownership Notes Receivable Reserve ($ in millions) Non-Securitized Securitized Total Balance at December 31, 2019, as reported $ — $ — $ — Impact of adoption of ASU 2016-13 29 26 55 Opening Balance at January 1, 2020 29 26 55 Securitizations ( 1 ) 1 — Clean-up call 1 ( 1 ) — Write-offs ( 18 ) — ( 18 ) Recoveries 9 — 9 Defaulted vacation ownership notes receivable repurchase activity (1) 17 ( 17 ) — Increase in vacation ownership notes receivable reserve (2) 2 12 14 Balance at December 31, 2020 39 21 60 Securitizations ( 9 ) 9 — Clean-up call 3 ( 3 ) — Write-offs ( 49 ) — ( 49 ) Recoveries 27 — 27 Defaulted vacation ownership notes receivable repurchase activity (1) 32 ( 32 ) — Initial allowance for credit losses for Legacy-Welk vacation ownership notes receivable 11 21 32 (Decrease) increase in vacation ownership notes receivable reserve ( 7 ) 7 — Balance at December 31, 2021 $ 47 $ 23 $ 70 _________________________ (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. (2) Increase in vacation ownership notes receivable reserve includes $ 10 million ($ 8 million non-securitized and $ 2 million securitized) attributable to the increased reserve as a result of the COVID-19 pandemic. Originated Vacation Ownership Notes Receivable Originated vacation ownership notes receivable represent vacation ownership notes receivable originated by Legacy-ILG 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 December 31, 2021. Originated Vacation Ownership Notes Receivable ($ in millions) Non-Securitized Securitized Total 2022 $ 48 $ 127 $ 175 2023 28 130 158 2024 28 132 160 2025 28 134 162 2026 29 139 168 Thereafter 202 646 848 Balance at December 31, 2021 $ 363 $ 1,308 $ 1,671 Weighted average stated interest rate 12.9 % 12.9 % 12.9 % Range of stated interest rates 0.0 % to 20.9 % 0.0 % to 19.9 % 0.0 % to 20.9 % 102 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, 2018 61 79 140 Increase in vacation ownership notes receivable reserve 94 18 112 Securitizations ( 81 ) 81 — Clean-up call 24 ( 24 ) — Write-offs ( 48 ) — ( 48 ) Defaulted vacation ownership notes receivable repurchase activity (1) 40 ( 40 ) — Balance at December 31, 2019 90 114 204 Increase in vacation ownership notes receivable reserve (2) 87 50 137 Securitizations ( 70 ) 70 — Clean-up call 37 ( 37 ) — Write-offs ( 31 ) — ( 31 ) Defaulted vacation ownership notes receivable repurchase activity (1) 80 ( 80 ) — Balance at December 31, 2020 193 117 310 Increase in vacation ownership notes receivable reserve 78 24 102 Securitizations ( 76 ) 76 — Clean-up call 12 ( 12 ) — Write-offs ( 79 ) — ( 79 ) Defaulted vacation ownership notes receivable repurchase activity (1) 65 ( 65 ) — Balance at December 31, 2021 $ 193 $ 140 $ 333 _________________________ (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. (2) Increase in vacation ownership notes receivable reserve includes $ 59 million ($ 32 million non-securitized and $ 27 million securitized) attributable to the increased reserve as a result of the COVID-19 pandemic. Credit Quality of Vacation Ownership Notes Receivable Legacy-MVW Vacation Ownership Notes Receivable For both Legacy-MVW non-securitized and securitized vacation ownership notes receivable, we estimated average remaining default rate of 6.74 % as of both December 31, 2021 and 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 December 31, 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 December 31, 2021 $ 88 $ 8 $ 96 Investment in vacation ownership notes receivable on non-accrual status at December 31, 2020 $ 100 $ 14 $ 114 103 The following table shows the aging of the recorded investment in principal, before reserves, in Legacy-MVW vacation ownership notes receivable as of December 31, 2021 and December 31, 2020. Legacy-MVW Vacation Ownership Notes Receivable As of December 31, 2021 As of December 31, 2020 ($ in millions) Non-Securitized Securitized Total Non-Securitized Securitized Total 31 – 90 days past due $ 6 $ 20 $ 26 $ 8 $ 25 $ 33 91 – 150 days past due 4 8 12 5 14 19 Greater than 150 days past due 84 — 84 95 — 95 Total past due 94 28 122 108 39 147 Current 180 1,027 1,207 231 1,011 1,242 Total vacation ownership notes receivable $ 274 $ 1,055 $ 1,329 $ 339 $ 1,050 $ 1,389 The following table details the origination year of our Legacy-MVW vacation ownership notes receivable as of December 31, 2021 . Legacy-MVW Vacation Ownership Notes Receivable ($ in millions) Non-Securitized Securitized Total Year of Origination 2021 $ 129 $ 274 $ 403 2020 20 165 185 2019 46 250 296 2018 29 161 190 2017 15 96 111 2016 & Prior 35 109 144 $ 274 $ 1,055 $ 1,329 Legacy-ILG and Legacy-Welk Vacation Ownership Notes Receivable At December 31, 2021 and December 31, 2020, the weighted average FICO score within our consolidated Legacy-ILG and Legacy-Welk vacation ownership notes receivable was 707 and 708 , respectively, based upon the FICO score of the borrower 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 17.33 % as of December 31, 2021 and 14.63 % 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 December 31, 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 December 31, 2021 $ 114 $ 10 $ 124 Investment in vacation ownership notes receivable on non-accrual status at December 31, 2020 $ 109 $ 12 $ 121 104 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 December 31, 2021 and December 31, 2020. Legacy-ILG and Legacy-Welk Vacation Ownership Notes Receivable As of December 31, 2021 As of December 31, 2020 ($ in millions) Non-Securitized Securitized Total Non-Securitized Securitized Total 31 – 90 days past due $ 16 $ 24 $ 40 $ 8 $ 19 $ 27 91 – 120 days past due 4 6 10 2 7 9 Greater than 120 days past due 110 4 114 107 5 112 Total past due 130 34 164 117 31 148 Current 219 735 954 123 550 673 Total vacation ownership notes receivable $ 349 $ 769 $ 1,118 $ 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 December 31, 2021 ($ in millions) 700 + 600 - 699 < 600 No Score Total Westin $ 52 $ 32 $ 3 $ 8 $ 95 Sheraton 54 48 8 23 133 Hyatt 8 6 1 — 15 Welk 115 79 1 2 197 Other 2 — — 2 4 $ 231 $ 165 $ 13 $ 35 $ 444 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 December 31, 2021 . Acquired Vacation Ownership Notes Receivable - Westin ($ in millions) 2021 2020 2019 2018 2017 & Prior Total 700 + $ — $ — $ — $ 14 $ 38 $ 52 600 - 699 — — — 8 24 32 < 600 — — — 2 1 3 No Score — — — 2 6 8 $ — $ — $ — $ 26 $ 69 $ 95 Acquired Vacation Ownership Notes Receivable - Sheraton ($ in millions) 2021 2020 2019 2018 2017 & Prior Total 700 + $ — $ — $ — $ 16 $ 38 $ 54 600 - 699 — — — 12 36 48 < 600 — — — 5 3 8 No Score — — — 7 16 23 $ — $ — $ — $ 40 $ 93 $ 133 105 Acquired Vacation Ownership Notes Receivable - Hyatt and Other ($ in millions) 2021 2020 2019 2018 2017 & Prior Total 700 + $ — $ — $ — $ 2 $ 8 $ 10 600 - 699 — — — 2 4 6 < 600 — — — — 1 1 No Score — — — — 2 2 $ — $ — $ — $ 4 $ 15 $ 19 Acquired Vacation Ownership Notes Receivable - Welk ($ in millions) 2021 2020 2019 2018 2017 & Prior Total 700 + $ 9 $ 24 $ 30 $ 20 $ 32 $ 115 600 - 699 5 15 21 13 25 79 < 600 — 1 — — — 1 No Score — — 1 — 1 2 $ 14 $ 40 $ 52 $ 33 $ 58 $ 197 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 December 31, 2021 ($ in millions) 700 + 600 - 699 < 600 No Score Total Westin $ 143 $ 66 $ 8 $ 34 $ 251 Sheraton 136 94 20 46 296 Hyatt 22 11 — — 33 Welk 65 27 1 1 94 $ 366 $ 198 $ 29 $ 81 $ 674 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 December 31, 2021. Originated Vacation Ownership Notes Receivable - Westin ($ in millions) 2021 2020 2019 2018 2017 & Prior Total 700 + $ 72 $ 22 $ 41 $ 8 $ — $ 143 600 - 699 30 10 22 4 — 66 < 600 3 2 3 — — 8 No Score 20 5 8 1 — 34 $ 125 $ 39 $ 74 $ 13 $ — $ 251 106 Originated Vacation Ownership Notes Receivable - Sheraton ($ in millions) 2021 2020 2019 2018 2017 & Prior Total 700 + $ 65 $ 23 $ 38 $ 10 $ — $ 136 600 - 699 43 16 27 8 — 94 < 600 9 4 6 1 — 20 No Score 12 9 21 4 — 46 $ 129 $ 52 $ 92 $ 23 $ — $ 296 Originated Vacation Ownership Notes Receivable - Hyatt ($ in millions) 2021 2020 2019 2018 2017 & Prior Total 700 + $ 12 $ 3 $ 6 $ 1 $ — $ 22 600 - 699 5 2 3 1 — 11 < 600 — — — — — — No Score — — — — — — $ 17 $ 5 $ 9 $ 2 $ — $ 33 Originated Vacation Ownership Notes Receivable - Welk ($ in millions) 2021 2020 2019 2018 2017 & Prior Total 700 + $ 65 $ — $ — $ — $ — $ 65 600 - 699 $ 27 — — — — 27 < 600 $ 1 — — — — 1 No Score $ 1 — — — — 1 $ 94 $ — $ — $ — $ — $ 94 107 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 December 31, 2021 At December 31, 2020 ($ in millions) Carrying Amount Fair Value Carrying Amount Fair Value Vacation ownership notes receivable $ 2,045 $ 2,102 $ 1,840 $ 1,886 Other assets 76 76 60 60 Total financial assets $ 2,121 $ 2,178 $ 1,900 $ 1,946 Securitized debt, net $ ( 1,856 ) $ ( 1,900 ) $ ( 1,588 ) $ ( 1,653 ) 2025 Notes, net ( 248 ) ( 261 ) ( 494 ) ( 533 ) 2026 Notes, net — — ( 744 ) ( 784 ) 2028 Notes, net ( 346 ) ( 362 ) ( 346 ) ( 359 ) 2029 Notes, net ( 493 ) ( 505 ) — — Term Loan, net ( 776 ) ( 784 ) ( 873 ) ( 864 ) 2022 Convertible notes, net ( 224 ) ( 280 ) ( 215 ) ( 262 ) 2026 Convertible notes, net ( 461 ) ( 682 ) — — Total financial liabilities $ ( 4,404 ) $ ( 4,774 ) $ ( 4,260 ) $ ( 4,455 ) Vacation Ownership Notes Receivable At December 31, 2021 At December 31, 2020 ($ in millions) Carrying Amount Fair Value Carrying Amount Fair Value Vacation ownership notes receivable Securitized $ 1,662 $ 1,712 $ 1,493 $ 1,530 Eligible for securitization 97 104 128 137 Not eligible for securitization 286 286 219 219 Non-securitized 383 390 347 356 $ 2,045 $ 2,102 $ 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 asset-backed securities (“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. 108 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 $ 76 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 16 “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 16 “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 (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. 109 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 period. As of December 31, 2021, a conversion premium existed for our 2022 Convertible Notes, which had a dilutive impact on our diluted earnings per share as of December 31, 2021. No conversion premium for our 2022 Convertible Notes existed as of December 31, 2020 or December 31, 2019, and there was no dilutive impact on our diluted earnings per share as of December 31, 2020 or 2019. No conversion premium existed for our 2026 Convertible Notes as of December 31, 2021, and there was no dilutive impact on our diluted earnings per share as of December 31, 2021. The shares issuable on exercise of the warrants sold in connection with the issuance of the 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 the convertible notes are considered to be anti-dilutive and do not impact our calculation of diluted earnings per share attributable to common shareholders for any periods presented herein. See Footnote 16 “Debt” for further information on our convertible notes. The table below illustrates the reconciliation of the earnings or loss and number of shares used in our calculation of basic and diluted earnings or loss per share attributable to common shareholders. (in millions, except per share amounts) 2021 (1) 2020 2019 (1) Computation of Basic Earnings or Loss Per Share Attributable to Common Shareholders Net income (loss) attributable to common shareholders $ 49 $ ( 275 ) $ 138 Shares for basic earnings (loss) per share 42.5 41.3 43.9 Basic earnings (loss) per share $ 1.15 $ ( 6.65 ) $ 3.13 Computation of Diluted Earnings or Loss Per Share Attributable to Common Shareholders Net income (loss) attributable to common shareholders $ 49 $ ( 275 ) $ 138 Shares for basic earnings (loss) per share 42.5 41.3 43.9 Effect of dilutive shares outstanding (2) Employee SARs 0.2 — 0.3 Restricted stock units 0.5 — 0.3 2022 Convertible Notes 0.1 — — Shares for diluted earnings (loss) per share 43.3 41.3 44.5 Diluted earnings (loss) per share $ 1.13 $ ( 6.65 ) $ 3.09 _________________________ (1) The computations of diluted earnings per share attributable to common shareholders exclude approximately 166,000 and 345,000 shares of common stock, the maximum number of shares issuable as of December 31, 2021 and December 31, 2019, respectively, upon the vesting of certain performance-based awards, because the performance conditions required to be met for the shares subject to such awards to vest were not achieved by the end of the reporting period. 110 (2) For 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. (in millions) 2020 Employee SARs 0.1 Restricted stock units 0.3 0.4 In accordance with the applicable accounting guidance for calculating earnings per share, for the year ended December 31, 2021, we excluded from our calculation of diluted earnings per share 126,804 shares underlying 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 period. For the year ended December 31, 2019, we excluded from our calculation of diluted earnings per share 56,649 shares underlying SARs that may settle in shares of common stock because the exercise price of $ 143.38 of such SARs was greater than the average market price for the period. 9. INVENTORY The following table shows the composition of our inventory balances: ($ in millions) At Year-End 2021 At Year-End 2020 Real estate inventory (1) 710 749 Other 9 10 $ 719 $ 759 _________________________ (1) Represents completed inventory that is available and registered for sale as vacation ownership interests and vacation ownership inventory expected to be acquired pursuant to estimated future foreclosures. We value vacation ownership interests at the lower of cost or fair market value less costs to sell, in accordance with applicable accounting guidance, and we record operating supplies at the lower of cost (using the first-in, first-out method) or net realizable value. In addition to the above, at December 31, 2021 and December 31, 2020, we had $ 460 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 available and legally registered for sale as vacation ownership products. We also have $ 14 million and $ 43 million of deposits on future purchases of inventory at December 31, 2021 and December 31, 2020, respectively, which are included in the Other assets line on our Balance Sheets. 10. PROPERTY AND EQUIPMENT The following table details the composition of our property and equipment balances: ($ in millions) At Year-End 2021 At Year-End 2020 Land and land improvements $ 441 $ 285 Buildings and leasehold improvements 697 482 Furniture, fixtures and other equipment 136 95 Information technology 413 322 Construction in progress 37 68 1,724 1,252 Accumulated depreciation ( 588 ) ( 461 ) $ 1,136 $ 791 111 11. GOODWILL The following table details the carrying amount of our goodwill at December 31, 2021 and December 31, 2020, and reflects goodwill attributed to the ILG Acquisition and the Welk Acquisition. ($ in millions) Vacation Ownership Segment Exchange & Third-Party Management Segment Total Consolidated Balance at December 31, 2019 $ 2,445 $ 447 $ 2,892 Impairment — ( 73 ) ( 73 ) Foreign exchange adjustments — ( 2 ) ( 2 ) Balance at December 31, 2020 2,445 372 2,817 Welk Acquisition 299 — 299 Measurement period adjustments 34 — 34 Balance at December, 2021 $ 2,778 $ 372 $ 3,150 2021 During the 2021 fourth quarter, we conducted our annual goodwill impairment test, which was a qualitative evaluation, and no impairment charges were recorded. The estimated fair values of all of our reporting units significantly exceeded their carrying values at the date of their most recent estimated fair value determination. 2020 During 2020, we concluded that it was more likely than not that the fair value of both of our reporting units was below their respective carrying amounts. The factors that led to this conclusion at that time were related to the COVID-19 pandemic and included: (i) the substantial decline in our stock price and market capitalization; (ii) the temporary closure of substantially all of our Vacation Ownership reporting unit sales centers; (iii) the government stay-at-home orders in place in many of the jurisdictions in which we operate; (iv) our planned furloughs and reduced work schedule arrangements; (v) the impact of travel restrictions on the hospitality industry; and (vi) the macroeconomic fallout from the COVID-19 pandemic. We utilized a combination of the income and market approaches to estimate the fair value of our reporting units (Level 3). We concluded that there was no impairment of the Vacation Ownership reporting unit as declines in expected future operating results were not substantial enough to cause the fair value of the reporting unit to be below its carrying amount. We recognized a non-cash impairment charge of $ 73 million in the Impairment line on our Income Statement during 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. 12. INTANGIBLE ASSETS The following table details the composition of our intangible asset balances: ($ in millions) 2021 2020 Definite-lived intangible assets Member relationships $ 671 $ 671 Management contracts 452 351 1,123 1,022 Accumulated amortization ( 194 ) ( 134 ) 929 888 Indefinite-lived intangible assets Trade names 64 64 $ 993 $ 952 Definite-Lived Intangible Assets Definite-lived intangible assets, all of which were acquired as part of the ILG and Welk Acquisitions, are amortized on a straight-line basis over their estimated useful lives, ranging from 15 to 25 years. We recorded amortization expense of $ 61 million in 2021, $ 57 million in 2020, and $ 59 million in 2019 in the Depreciation and amortization line of our Income Statements. For these assets, we estimate that our aggregate amortization expense will be $ 62 million for each of the next five fiscal years. 112 Indefinite-Lived Intangible Assets The following table summarizes the activity related to our indefinite-lived intangible assets, all of which are related to the Exchange & Third-Party Management segment. ($ in millions) Trade Names Balance at December 31, 2019 $ 82 Impairment ( 18 ) Balance at December 31, 2020 64 Impairment — Balance at December 31, 2021 $ 64 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. 13. CONTINGENCIES AND COMMITMENTS Commitments and Letters of Credit As of December 31, 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 $ 99 million, of which we expect $ 52 million, $ 28 million, $ 11 million, $ 6 million, and $ 2 million will be paid in 2022, 2023, 2024, 2025, and 2026 and thereafter, respectively. • We have a commitment to acquire real estate for use in our Vacation Ownership segment via our involvement with a VIE. Refer to Footnote 19 “Variable Interest Entities” for additional information and our activities relating to the VIE involved in this transaction. • 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 with respect to these units, when specific construction milestones associated with the co-located hotel are completed, as follows: $ 11 million in 2022, $ 7 million in 2023, and $ 4 million in 2024. • We have commitments to acquire inventory from our managed owners’ associations in 2022 for $ 66 million. Surety bonds issued as of December 31, 2021 totaled $ 118 million, the majority of which were requested by federal, state or local governments in connection with our operations. As of December 31, 2021, we had $ 2 million of letters of credit outstanding under our Revolving Corporate Credit Facility (as defined in Footnote 16 “Debt”). In addition, as of December 31, 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. 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 or guaranteed amounts of the rental revenue generated under our management. In these cases, the operating expenses for the rental operations are paid from the revenue generated by the rentals, the owners are then paid their contractual percentages or guaranteed amounts, and our vacation rental business either retains the balance (if any) as its fee or makes up the deficit. At December 31, 2021, our maximum exposure under fixed dollar guarantees was $ 10 million, of which $ 3 million, $ 2 million, $ 2 million, $ 1 million, $ 1 million, and $ 1 million relate to 2022, 2023, 2024, 2025, 2026, and thereafter, respectively. 113 We have a commitment to an owners’ association that we manage to pay for any shortfall between the actual expenses incurred by the owners’ association and the income received by the owners’ association. The agreement will terminate on the earlier of: 1) sale of 80 % of the total ownership interests in the owners’ association; or 2) upon our written notification of termination. At December 31, 2021, our expected commitment for 2022 is $ 17 million, which will ultimately be recorded as a component of rental expense on our income statement. 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. The plaintiffs appealed the ruling and in February 2022 dismissed their appeal with prejudice pursuant to a settlement for a non-material amount. 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 appealed the ruling, and in December 2021, the U.S. Court of Appeals for the Eleventh Circuit affirmed the District Court’s judgment in favor of the Company. In February 2022, the plaintiffs agreed to forego further appeal pursuant to a settlement for a non-material amount. 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 February 2022, the Court granted defendants’ motion to dismiss and granted the plaintiff leave to file an amended complaint within 30 days. 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 plaintiff appealed the ruling and in November 2021 agreed to dismiss its appeal with prejudice pursuant to a settlement for a non-material amount. We believe we have meritorious defenses to the claims in each of the above pending 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 114 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. 14. LEASES The following table presents the carrying values of our leases and the classification on our Balance Sheet. ($ in millions) Balance Sheet Classification At December 31, 2021 At December 31, 2020 Operating lease assets Other assets $ 96 $ 131 Finance lease assets Property and equipment 89 8 $ 185 $ 139 Operating lease liabilities Accrued liabilities $ 108 $ 138 Finance lease liabilities Debt 83 8 $ 191 $ 146 The following table presents the lease costs and the classification on our Income Statements for the years ended December 31, 2021 and December 31, 2020. ($ in millions) Income Statement Classification 2021 2020 Operating lease cost Marketing and sales expense General and administrative expense $ 35 $ 36 Finance lease cost Amortization of right-of-use assets Depreciation and amortization 5 5 Interest on lease liabilities Financing expense 1 1 Variable lease cost Marketing and sales expense 2 2 $ 43 $ 44 The following table presents the maturity of our operating and financing lease liabilities as of December 31, 2021. ($ in millions) Operating Leases Finance Leases Total 2022 $ 25 $ 7 $ 32 2023 23 5 28 2024 20 4 24 2025 18 4 22 2026 16 4 20 Thereafter 25 259 284 Total lease payments 127 283 410 Less: Imputed interest ( 19 ) ( 200 ) ( 219 ) $ 108 $ 83 $ 191 115 Lease Term and Discount Rate The following table presents additional information about our lease obligations. At December 31, 2021 At December 31, 2020 Weighted-average remaining lease term Operating leases 6.4 years 19.1 years Finance leases 53.7 years 3.0 years Weighted-average discount rate Operating leases 5.8 % 5.8 % Finance leases 5.3 % 3.9 % Other Information The following table presents supplemental cash flow information for 2021 and 2020. ($ in millions) 2021 2020 Cash paid for amounts included in measurement of lease liabilities Operating cash flows for finance leases $ 1 $ 1 Operating cash flows for operating leases $ 34 $ 41 Financing cash flows for finance leases $ 5 $ 11 Right-of-use assets obtained in exchange for lease obligations Operating leases $ 7 $ 27 Finance leases (1) $ 86 $ 7 _________________________ (1) Includes the reclassification of certain lease components from operating lease to finance lease classification, attributable to the amendment of an existing lease. Leases That Have Not Yet Commenced During the first quarter of 2020, we entered into a finance lease arrangement for our new global headquarters being constructed in Orlando, Florida. The initial lease term is approximately 16 years with total lease payments of $ 137 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. 15. SECURITIZED DEBT The following table provides detail on our securitized debt, net of unamortized debt discount and issuance costs. ($ in millions) At December 31, 2021 At December 31, 2020 Vacation ownership notes receivable securitizations, gross (1) $ 1,877 $ 1,604 Unamortized debt discount and issuance costs ( 21 ) ( 16 ) $ 1,856 $ 1,588 _________________________ (1) Interest rates as of December 31, 2021 range from 1.5 % to 4.4 %, with a weighted average interest rate of 2.3 % All of our securitized debt is non-recourse to us. See Footnote 19 “Variable Interest Entities” for a discussion of the collateral for the non-recourse debt associated with our securitized debt. 116 The following table shows scheduled future principal payments for our securitized debt as of December 31, 2021. Vacation Ownership Notes Receivable Securitizations ($ in millions) Payments Year 2022 $ 191 2023 196 2024 200 2025 199 2026 199 Thereafter 892 $ 1,877 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 2021, and as of December 31, 2021, no securitized vacation ownership notes receivable pools were out of compliance with their respective established parameters. As of December 31, 2021, we had 14 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 %, the Class B Notes have an interest rate of 1.44 %, the Class C Notes have an interest rate of 1.94 %, and the Class D Notes have an interest rate of 3.17 %, for an overall weighted average interest rate of 1.52 %. 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. During the fourth quarter of 2021, we completed the securitization of a pool of $ 434 million of vacation ownership notes receivable. Approximately $ 376 million of the vacation ownership notes receivable were purchased by the MVW 2021-2 LLC (the “2021-2 LLC”) during the fourth quarter of 2021, and as of December 31, 2021, the 2021-2 LLC held $ 57 million of the proceeds, which was released as the remaining vacation ownership notes receivable were purchased subsequent to December 31, 2021. In connection with the securitization during the fourth quarter of 2021, investors purchased in a private placement $ 425 million in vacation ownership loan backed notes from the 2021-2 LLC. Three classes of vacation ownership loan backed notes were issued by the 2021-2 LLC: $ 265 million of Class A Notes, $ 95 million of Class B Notes, and $ 65 million of Class C Notes. The Class A Notes have an interest rate of 1.43 %, the Class B Notes have an interest rate of 1.83 %, and the Class C Notes have an interest rate of 2.23 %, for an overall weighted average interest rate of 1.64 %. Of the $ 425 million in proceeds from the transaction, approximately $ 107 million was used to repay all outstanding amounts previously drawn under our Warehouse Credit Facility (as defined below), approximately $ 8 million was used to pay transaction expenses and fund required reserves, and the remaining $ 204 million will be used for general corporate purposes. Subsequent to end of 2021, the 2021-2 LLC purchased the remaining $ 58 million of vacation ownership notes receivable and $ 57 million was released from restricted cash. 117 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. The Warehouse Credit Facility terminates on April 21, 2023, and if not renewed prior to termination, any amounts outstanding thereunder would become due and payable 13 months after termination, at which time all principal and interest collected with respect to the vacation ownership notes receivable held in the Warehouse Credit Facility would be redirected to the lenders to pay down the outstanding debt under the facility. The advance rate for vacation ownership notes receivable securitized using the Warehouse Credit Facility varies based on the characteristics of the securitized vacation ownership notes receivable. We also pay unused facility and other fees under the Warehouse Credit Facility. We generally expect to securitize our vacation ownership notes receivable, including any vacation ownership notes receivable held in the Warehouse Credit Facility, in the ABS market at least once per year. During the fourth quarter of 2021, we securitized vacation ownership notes receivable under our Warehouse Credit Facility. The carrying amount of the vacation ownership notes receivable securitized was $ 126 million. The average advance rate was 85 %, which resulted in gross proceeds of $ 107 million. Net proceeds were $ 106 million due to the funding of reserve accounts of $ 1 million. As of December 31, 2021, there were no cash borrowings outstanding under our Warehouse Credit Facility, as all outstanding amounts were repaid in connection with the fourth quarter of 2021 vacation ownership notes receivable securitization transaction as discussed above. 118 16. DEBT The following table provides detail on our debt balances, net of unamortized debt discount and issuance costs: ($ in millions) At December 31, 2021 At December 31, 2020 Senior Secured Notes 2025 Notes $ 250 $ 500 Unamortized debt discount and issuance costs ( 2 ) ( 6 ) 248 494 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 ( 6 ) ( 15 ) 224 215 2026 Convertible Notes 575 — Unamortized debt discount and issuance costs ( 114 ) — 461 — Finance Leases 83 8 $ 2,631 $ 2,680 The following table shows scheduled future principal payments for our debt, excluding finance leases, as of December 31, 2021. ($ in millions) 2025 Notes 2028 Notes 2029 Notes Term Loan 2022 Convertible Notes 2026 Convertible Notes Total Payments Year 2022 $ — $ — $ — $ — $ 230 $ — $ 230 2023 — — — — — — — 2024 — — — — — — — 2025 250 — — 784 — — 1,034 2026 — — — — — 575 575 Thereafter — 350 500 — — — 850 $ 250 $ 350 $ 500 $ 784 $ 230 $ 575 $ 2,689 119 Senior Notes Our Senior Notes, as further discussed below, include the following: • $ 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”). 2025 Notes The 2025 Notes are pari passu with, and secured by the same collateral as, our Corporate Credit Facility. We pay interest on the 2025 Notes on May 15 and November 15 of each year. We received net proceeds of approximately $ 493 million from the offering of the 2025 Notes, after deducting offering expenses and the underwriting discount, which were used to repay all amounts outstanding at that time on the Revolving Corporate Credit Facility. We may redeem some or all of the remaining 2025 Notes prior to maturity under the terms provided in the indenture. During 2021, we redeemed, prior to maturity, $ 250 million aggregate principal amount of the 2025 Notes pursuant to the terms of the indenture governing the 2025 Notes. In connection with this redemption, we incurred charges of $ 19 million, inclusive of a redemption premium and the write-off of unamortized debt issuance costs, which was recorded in (Losses) gains and other (expense) income, net line on our Income Statement for the year ended December 31, 2021. 2028 Notes We issued the 2028 Notes under an indenture dated October 1, 2019 with The Bank of New York Mellon Trust, as trustee. We received net proceeds of $ 346 million from the offering, after deducting the underwriting discount and estimated expenses. The net proceeds from the 2028 Notes were used (i) to redeem all of the outstanding 5.625 % Senior Unsecured Notes due 2023 assumed in connection with the ILG Acquisition (the “IAC Notes”), (ii) to redeem all of the outstanding 5.625 % Senior Unsecured Notes due 2023 offered in exchange for the IAC Notes during the third quarter of 2018 (the “Exchange Notes”), (iii) to repay a portion of the then outstanding borrowings under our Revolving Corporate Credit Facility, (iv) to pay transaction expenses and fees in connection with each of the foregoing and (v) for general corporate purposes. We pay interest on the 2028 Notes on March 15 and September 15 of each year. We may redeem some or all of the 2028 Notes prior to maturity under the terms provided in the indenture. 2029 Notes We issued the 2029 Notes 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 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. 2026 Notes As noted above, in July 2021, we redeemed, prior to maturity, $ 500 million aggregate principal amount of the 2026 Notes pursuant to the terms of the indenture governing the 2026 Notes . Additionally, in September 2021, we 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 these redemptions, we incurred charges of $ 36 million, inclusive of a redemption premium and the write-off of unamortized debt issuance costs, which was recorded in (Losses) gains and other (expense) income, net line on our Income Statement for the year ended December 31, 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. 120 The Term Loan bears interest at LIBOR plus 1.75 %. Borrowings under the Revolving Corporate Credit Facility generally bear interest at a floating rate plus an applicable margin that varies from 0.50 % to 2.75 % 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. Any amounts borrowed under that facility, as well as obligations with respect to letters of credit issued pursuant to that facility, are secured by a perfected first priority security interest in substantially all of the assets of the borrower under, and guarantors of, that facility (which include Marriott Vacations Worldwide and each of our direct and indirect, existing and future, domestic subsidiaries, excluding certain bankruptcy remote special purpose subsidiaries), in each case including inventory, subject to certain exceptions. 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 % 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 % 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 % and a floor strike rate of 1.8810 % 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 December 31, 2021 and December 31, 2020. We characterize payments we make in connection with these derivative instruments as interest expense and a reclassification of accumulated other comprehensive income for presentation purposes. The following table reflects the activity in accumulated other comprehensive loss related to our derivative instruments during 2021, 2020 and 2019. There were no reclassifications to the Income Statement for any of the periods below. ($ in millions) 2021 2020 2019 Derivative Instrument Adjustment, Beginning of Year $ ( 39 ) $ ( 21 ) $ ( 6 ) Other comprehensive gain (loss) before reclassifications 21 ( 18 ) ( 15 ) Derivative Instrument Adjustment, End of Year $ ( 18 ) $ ( 39 ) $ ( 21 ) Convertible Notes 2022 Convertible Notes During 2017, we issued $ 230 million of 2022 Convertible Notes that bear interest at a rate of 1.50 %, 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. There are no financial or operating covenants related to the 2022 Convertible Notes. The conversion rate is subject to adjustment for certain events as described in the indenture governing the notes, and was subject to adjustment as of December 31, 2021 to 6.8282 shares of common stock per $ 1,000 principal amount of 2022 Convertible Notes (equivalent to a conversion price of approximately $ 146.45 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 December 31, 2021, the effective interest rate was 4.73 % and the remaining discount amortization period was less than one year . Holders may convert their 2022 Convertible Notes prior to June 15, 2022 only under certain circumstances. We may not redeem the 2022 Convertible Notes prior to their maturity date. 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 2022 Convertible Notes, at a repurchase price equal to 100 % of the principal amount of the 2022 Convertible Notes to be repurchased, plus accrued and unpaid interest 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 2022 Convertible Notes may increase. 121 The following table shows the net carrying value of the 2022 Convertible Notes. ($ in millions) At December 31, 2021 At December 31, 2020 Liability component Principal amount $ 230 $ 230 Unamortized debt discount ( 5 ) ( 13 ) Unamortized debt issuance costs ( 1 ) ( 2 ) Net carrying amount of the liability component $ 224 $ 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. ($ in millions) 2021 2020 2019 Contractual interest expense $ 3 $ 3 $ 3 Amortization of debt discount 8 7 6 Amortization of debt issuance costs 1 1 2 $ 12 $ 11 $ 11 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 December 31, 2021, the strike prices of the 2022 Convertible Note Hedges and the 2022 Warrants were subject to adjustment to approximately $ 148.55 and $ 177.12 , respectively, and no 2022 Convertible Note Hedges or 2022 Warrants have been exercised. 2026 Convertible Notes During 2021, we issued $ 575 million aggregate principal amount of 2026 Convertible Notes that bear interest at a rate of 0.00 %. 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 do not bear regular interest and 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, and was subject to adjustment as of December 31, 2021 to 5.8884 shares of common stock per $1,000 principal amount of 2026 Convertible Notes (equivalent to a conversion price of $ 169.83 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 % of the conversion price on each applicable trading day; 122 • 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 % 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 % 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 are 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. The guarantees will be the Guarantors’ general senior unsecured obligations and 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 are 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 are 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 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% 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. 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 December 31, 2021, the effective interest rate was 0.00 % and the remaining debt discount amortization period was 4 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 December 31, 2021 At December 31, 2020 Liability component Principal amount $ 575 $ — Unamortized debt discount ( 104 ) — Unamortized debt issuance costs ( 10 ) — Net carrying amount of the liability component $ 461 $ — Carrying amount of equity component, net of issuance costs $ 117 $ — 123 The following table shows interest expense information related to the 2026 Convertible Notes. ($ in millions) 2021 2020 2019 Amortization of debt discount $ 22 $ — $ — Amortization of debt issuance costs 2 — — $ 24 $ — $ — 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. 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 December 31, 2021, the strike prices of the 2026 Convertible Note Hedges and the 2026 Warrants were subject to adjustment to approximately $ 169.83 and $ 212.28 , respectively, and no 2026 Convertible Note Hedges or 2026 Warrants have been exercised. Finance Leases See Footnote 14 “Leases” for information on our finance leases. 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. 124 17. SHAREHOLDERS’ EQUITY Marriott Vacations Worldwide has 100,000,000 authorized shares of common stock, par value of $ 0.01 per share. At December 31, 2021, there were 75,519,049 shares of Marriott Vacations Worldwide common stock issued, of which 42,283,378 shares were outstanding and 33,235,671 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 December 31, 2021 or December 31, 2020. Share Repurchase Program 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 year ended December 31, 2021 492,510 78 $ 157.77 As of December 31, 2021 17,681,395 $ 1,418 $ 80.17 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, contractual restrictions, 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 of more plans pursuant to the provisions of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. As of December 31, 2021, $ 172 million remained available for repurchase under the authorization approved by the Board of Directors. The authorization for the share repurchase program may be suspended, terminated, increased or decreased by our Board of Directors at any time without prior notice. Subsequent to the end of 2021, our Board of Directors authorized the repurchase of up to an additional $ 300 million of our common stock, as well as the extension of the duration of our existing share repurchase program to March 31, 2023. Dividends We declared cash dividends to holders of common stock during the year ended December 31, 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 December 9, 2021 December 23, 2021 January 6, 2022 $ 0.54 Subsequent to the end of 2021, on February 18, 2022, our Board of Directors declared a quarterly dividend of $ 0.62 per share to be paid on March 17, 2022 to shareholders of record as of March 3, 2022. Noncontrolling Interests Owners’ Associations We consolidate certain owners’ associations. Noncontrolling interests represent the portion of the owners’ associations related to third-party vacation ownership interest owners. Noncontrolling interests of $ 10 million and $ 31 million, as of December 31, 2021 and December 31, 2020, respectively, are included on our Balance Sheets as a component of equity. 125 18. SHARE-BASED COMPENSATION We maintain the MVW Equity Plan for the benefit of our officers, directors and employees. Under the MVW Equity Plan, we are authorized to award: (1) RSUs of our common stock, (2) SARs relating to our common stock, and (3) stock options to purchase our common stock. A total of 1.8 million shares are authorized for issuance pursuant to grants under the MVW Equity Plan. As of December 31, 2021, approximately 1.4 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: ($ in millions) 2021 2020 2019 Service-based RSUs $ 34 $ 22 $ 17 Performance-based RSUs 9 9 7 ILG Acquisition Converted RSUs — 2 10 43 33 34 SARs 8 4 3 $ 51 $ 37 $ 37 The following table details our deferred compensation costs related to unvested awards: ($ in millions) At Year-End 2021 (1) At Year-End 2020 Service-based RSUs $ 33 $ 27 Performance-based RSUs — 6 33 33 SARs 2 1 $ 35 $ 34 _________________________ (1) As of December 31, 2021, the weighted average remaining term for RSU grants outstanding at year-end 2021 was one to two years and we expect that deferred compensation expense will be recognized over a weighted average period of one to three years . Restricted Stock Units We have issued RSUs that vest over time, which we refer to as service-based RSUs, and RSUs that vest based on performance with respect to established criteria, which we refer to as performance-based RSUs. The following table shows the changes in our outstanding RSUs and the associated weighted average grant-date fair values: 2021 Service-based Performance-based Total Number of RSUs Weighted Average Grant-Date Fair Value Per RSU Number of RSUs Weighted Average Grant-Date Fair Value Per RSU Number of RSUs Weighted Average Grant-Date Fair Value Per RSU Outstanding at year-end 2020 783,489 $ 88.98 550,171 $ 99.56 1,333,660 $ 93.34 Granted 260,077 $ 161.42 — $ — 260,077 $ 161.42 Distributed ( 264,735 ) $ 97.57 ( 35,135 ) $ 138.68 ( 299,870 ) $ 102.39 Forfeited ( 13,751 ) $ 115.94 ( 39,915 ) $ 133.95 ( 53,666 ) $ 129.33 Outstanding at year-end 2021 765,080 $ 110.14 475,121 $ 93.77 1,240,201 $ 103.87 The weighted average grant-date fair value per RSU granted in 2020 and 2019 was $ 95.92 and $ 95.66 , respectively. The fair value of the RSUs which vested in 2021, 2020, and 2019 was $ 46 million, $ 30 million, and $ 34 million, respectively, and included $ 3 million, $ 6 million, and $ 15 million, respectively, related to RSUs converted from ILG equity-based RSUs to MVW equity-based RSUs in the ILG Acquisition. 126 Stock Appreciation Rights The following table shows the changes in our outstanding SARs and the associated weighted average exercise prices: 2021 Number of SARs Weighted Average Exercise Price Per SAR Outstanding at year-end 2020 622,102 $ 84.58 Granted 127,857 $ 173.88 Exercised ( 122,031 ) $ 57.78 Forfeited or expired ( 1,053 ) $ 173.88 Outstanding at year-end 2021 (1)(2) 626,875 $ 107.86 _________________________ (1) As of December 31, 2021, outstanding SARs had a total intrinsic value of $ 39 million and a weighted average remaining term of 6 years. (2) As of December 31, 2021, 356,698 SARs with a weighted average exercise price of $ 86.61 , an aggregate intrinsic value of $ 29 million and a weighted average remaining contractual term of 5 years were exercisable. The weighted average grant-date fair value per SAR granted in 2021, 2020, and 2019 was $ 70.66 , $ 29.63 , and $ 28.89 , respectively. The intrinsic value of SARs which vested in 2021, 2020, and 2019, was $ 5 million, $ 4 million, and $ 4 million, respectively. The aggregate intrinsic value of SARs which were exercised in 2021, 2020, and 2019 was $ 14 million, $ 19 million, and $ 11 million, respectively. 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. The following table outlines the assumptions used to estimate the fair value of grants in 2021, 2020, and 2019: 2021 2020 2019 Expected volatility 48.35 % 38.81 % 31.10 % Dividend yield 1.48 % 2.13 % 1.76 % Risk-free rate 0.97 % 0.96 % 2.59 % Expected term (in years) 6.25 6.25 6.25 Employee Stock Purchase Plan During 2015, the Board of Directors adopted, and our shareholders subsequently approved, the Marriott Vacations Worldwide Corporation Employee Stock Purchase Plan (the “ESPP”), which became effective during 2015. A total of 500,000 shares of common stock may be purchased under the ESPP. The ESPP allows eligible employees to purchase shares of our common stock at a price per share not less than 95 % of the fair market value per share of common stock on the purchase date, up to a maximum threshold established by the plan administrator for the offering period. 127 19. 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 December 31, 2021: ($ in millions) Vacation Ownership Notes Receivable Securitizations Warehouse Credit Facility Total Consolidated Assets Vacation ownership notes receivable, net of reserves $ 1,662 $ — $ 1,662 Interest receivable 12 — 12 Restricted cash 139 — 139 Total $ 1,813 $ — $ 1,813 Consolidated Liabilities Interest payable $ 2 $ — $ 2 Securitized debt 1,877 — 1,877 Total $ 1,879 $ — $ 1,879 The following table shows the interest income and expense recognized as a result of our involvement with these VIEs during 2021: ($ in millions) Vacation Ownership Notes Receivable Securitizations Warehouse Credit Facility Total Interest income $ 217 $ 2 $ 219 Interest expense to investors $ 43 $ 2 $ 45 Debt issuance cost amortization $ 7 $ 1 $ 8 Administrative expenses $ 3 $ — $ 3 128 The following table shows cash flows between us and the vacation ownership notes receivable securitization VIEs: ($ in millions) 2021 2020 Cash Inflows Net proceeds from vacation ownership notes receivable securitizations $ 841 $ 371 Principal receipts 585 487 Interest receipts 228 218 Reserve release 159 16 Total 1,813 1,092 Cash Outflows Principal to investors ( 590 ) ( 509 ) Voluntary repurchases of defaulted vacation ownership notes receivable ( 99 ) ( 95 ) Voluntary clean-up call ( 72 ) ( 18 ) Interest to investors ( 43 ) ( 49 ) Funding of restricted cash ( 217 ) ( 20 ) Total ( 1,021 ) ( 691 ) Net Cash Flows $ 792 $ 401 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. We made voluntary repurchases of defaulted vacation ownership notes receivable, net of substitutions, of $ 99 million during 2021, $ 95 million during 2020 and $ 54 million during 2019. We also made voluntary repurchases of $ 200 million, $ 383 million and $ 356 million of other non-defaulted vacation ownership notes receivable during 2021, 2020 and 2019, respectively, to retire previous vacation ownership notes receivable securitizations. Our maximum exposure to potential loss relating to the special purpose entities that purchase, sell, and own these vacation ownership notes receivable is the overcollateralization amount (the difference between the loan collateral balance and the balance on the outstanding vacation ownership notes receivable), plus cash reserves and any residual interest in future cash flows from collateral. The following table shows cash flows between us and the Warehouse Credit Facility VIE: ($ in millions) 2021 2020 Cash Inflows Proceeds from vacation ownership notes receivable securitizations $ 107 $ 315 Principal receipts 2 34 Interest receipts 2 17 Reserve release 1 2 Total 112 368 Cash Outflows Principal to investors — ( 33 ) Voluntary repurchases of defaulted vacation ownership notes receivable — ( 3 ) Repayment of Warehouse Credit Facility ( 107 ) ( 300 ) Interest to investors ( 2 ) ( 4 ) Funding of restricted cash ( 1 ) ( 2 ) Total ( 110 ) ( 342 ) Net Cash Flows $ 2 $ 26 Other Variable Interest Entities We have a commitment to purchase a property located in Waikiki, Hawaii, which we assigned to a third party during 2020. If we are unable to negotiate a capital efficient inventory arrangement, we are committed to purchase the property, in its then current form, for $ 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 December 31, 2021, our Balance Sheet reflected $ 1 million in Accounts Receivable, including a note receivable of less than $ 1 million, related to this VIE. We believe that our maximum exposure to loss as a result of our involvement with this VIE is approximately $ 1 million as of December 31, 2021. 129 20. 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 some of the world’s most iconic brands licensed under exclusive, long-term relationships. We are the exclusive worldwide developer, marketer, seller, and manager of vacation ownership and related products under the Marriott Vacation Club, Grand Residences by Marriott, Sheraton Vacation Club, Westin Vacation Club, and Hyatt Residence Club brands, as well as under Marriott Vacation Club Pulse, an extension to the Marriott Vacation Club brand. We are also the exclusive worldwide developer, marketer, and seller of vacation ownership and related products under The Ritz-Carlton Destination Club brand, we have the non-exclusive right to develop, market, and sell whole ownership residential products under The Ritz-Carlton Residences brand and have a license to use the St. Regis brand for specified fractional ownership resorts. In addition, as part of the Welk Acquisition, we acquired the short-term license to use the Welk brand in connection with the continued operations of the Welk business. We intend to rebrand all Welk resorts as Hyatt-branded resorts once all necessary approvals have been obtained. 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 provision of management services to other 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, owners’ 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 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 consolidated owners’ associations, as our CODM does not use this information to make operating segment resource allocations. Prior year segment information has been reclassified to conform to the current reportable segment presentation. Our CODM uses Adjusted EBITDA to evaluate the profitability of our operating segments, and the components of net income or loss 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 ($ in millions) 2021 2020 2019 Vacation Ownership $ 3,539 $ 2,530 $ 3,761 Exchange & Third-Party Management 320 309 454 Total segment revenues 3,859 2,839 4,215 Corporate and other 31 47 44 $ 3,890 $ 2,886 $ 4,259 130 Adjusted EBITDA and Reconciliation to Net Income or Loss Attributable to Common Shareholders ($ in millions) 2021 2020 2019 Adjusted EBITDA Vacation Ownership $ 699 $ 229 $ 794 Adjusted EBITDA Exchange & Third-Party Management 144 119 183 Reconciling items: Corporate and other ( 186 ) ( 113 ) ( 219 ) Interest expense ( 164 ) ( 150 ) ( 132 ) Tax (provision) benefit ( 74 ) 84 ( 83 ) Depreciation and amortization ( 146 ) ( 123 ) ( 141 ) Share-based compensation expense ( 51 ) ( 37 ) ( 37 ) Certain items ( 173 ) ( 284 ) ( 227 ) Net income (loss) attributable to common shareholders $ 49 $ ( 275 ) $ 138 Depreciation and Amortization ($ in millions) 2021 2020 2019 Vacation Ownership $ 89 $ 79 $ 68 Exchange & Third-Party Management 48 32 47 Total segment depreciation 137 111 115 Corporate and other 9 12 26 $ 146 $ 123 $ 141 Assets ($ in millions) At December 31, 2021 At December 31, 2020 Vacation Ownership $ 7,897 $ 6,859 Exchange & Third-Party Management 911 951 Total segment assets 8,808 7,810 Corporate and other 805 1,088 $ 9,613 $ 8,898 Capital Expenditures (including inventory) ($ in millions) 2021 2020 2019 Vacation Ownership $ 296 $ 191 $ 266 Exchange & Third-Party Management 3 7 14 Total segment capital expenditures 299 198 280 Corporate and other ( 2 ) 4 13 $ 297 $ 202 $ 293 Geographic Information We conduct business globally, and our operations outside the United States represented approximately 10 %, 10 %, and 11 % of our revenues, excluding cost reimbursements, for 2021, 2020, and 2019, respectively. Revenues (excluding cost reimbursements) ($ in millions) 2021 2020 2019 United States $ 2,499 $ 1,664 $ 2,810 All other countries 263 180 341 $ 2,762 $ 1,844 $ 3,151 131 Fixed Assets ($ in millions) At December 31, 2021 At December 31, 2020 United States $ 988 $ 640 All other countries 148 151 $ 1,136 $ 791 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.