MARRIOTT VACATIONS WORLDWIDE Corp 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements We make forward-looking statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Quarterly Report on Form 10-Q, based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include, among other things, the information concerning: our possible or assumed future results of operations; business strategies, such as our plans to continue to increase our focus on sales of vacation ownership products to first-time buyers and our expectations regarding resulting increases in financing propensity; financing plans; competitive position; potential growth opportunities; potential operating performance improvements, including the expectations that contract sales, resort management, and rental occupancies will continue to remain strong and/or improve throughout 2022 and that interest income will increase in 2022; our expectations regarding availability of inventory for Getaways; the effects of competition; and the ongoing effect of the COVID-19 pandemic and actions we or others may take in response to the COVID-19 pandemic. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “continue,” “may,” “might,” “should,” “could” or the negative of these terms or similar expressions. Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. We caution you that these statements are not guarantees of future performance and are subject to numerous and evolving risks and uncertainties that we may not be able to predict or assess, such as: the continuing effects of the COVID-19 pandemic, including variations in demand for vacation ownership and exchange products and services, volatility in the international and national economy and credit markets, worker absenteeism, quarantines or other government-imposed travel or health-related restrictions; the length and severity of the COVID-19 pandemic, including its short and longer-term impact on the demand for travel and on consumer confidence; the impact of the availability and distribution of effective vaccines on the demand for travel and consumer confidence; the effectiveness of available vaccines against variants of the virus; the pace of recovery following the COVID-19 pandemic or as effective treatments or vaccines become widely available; competitive conditions; the availability of capital to finance growth; the effects of steps we have taken and may continue to take to reduce operating costs and/or enhance health and cleanliness protocols at our resorts due to the COVID-19 pandemic; political or social strife, and other matters referred to under the heading “Risk Factors” contained herein and also in our most recent Annual Report on Form 10-K, and which may be discussed in our future filings with the U.S. Securities and Exchange Commission (the “SEC”). You should not put undue reliance on any forward-looking statements in this Report. We do not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. We do not have any intention or obligation to update forward-looking statements after the date of this Quarterly Report on Form 10-Q, except as required by law. There may be other risks and uncertainties that we cannot predict at this time or that we currently do not expect will have a material adverse effect on our financial position, results of operations or cash flows. Any such risks could cause our results to differ materially from those we express in forward-looking statements. Our Financial Statements (as defined below), which we discuss below, reflect our historical financial condition, results of operations and cash flows. However, the financial information discussed below and included in this Quarterly Report on Form 10-Q may not necessarily reflect what our financial condition, results of operations or cash flows may be in the future. In order to make this report easier to read, we refer to (i) our Interim Consolidated Financial Statements as our “Financial Statements,” (ii) our Interim Consolidated Statements of Income as our “Income Statements,” (iii) our Interim Consolidated Balance Sheets as our “Balance Sheets” and (iv) our Interim Consolidated Statements of Cash Flows as our “Cash Flows.” In addition, references throughout to numbered “Footnotes” refer to the numbered Notes to our Financial Statements that we include in the Financial Statements of this Quarterly Report on Form 10-Q. Business Overview We are a leading global vacation company that offers vacation ownership, exchange, rental, and resort and property management, along with related businesses, products and services. Our business operates in two reportable segments: Vacation Ownership and Exchange & Third-Party Management. Our Vacation Ownership segment includes 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 37 Table of Contents to develop, market and sell whole ownership residential products under The Ritz-Carlton Residences brand and we have a license to use the St. Regis brand for specified fractional ownership resorts. Our Vacation Ownership segment generates most of its revenues from four primary sources: selling vacation ownership products; managing vacation ownership resorts, clubs and owners’ associations; financing consumer purchases of vacation ownership products; and renting vacation ownership inventory. Our Exchange & Third-Party Management segment includes exchange networks and membership programs, as well as provision of management services to other resorts and lodging properties. As of the end of the first quarter of 2022, we provided these services through a variety of brands including Interval International, VRI, TPI, and Aqua-Aston. Exchange & Third-Party Management revenue generally is fee-based and derived from membership, exchange and rental transactions, property and association management, and other related products and services. Subsequent to the end of the first quarter of 2022, we disposed of the VRI and TPI businesses. See Footnote 18 “Subsequent Event” to our Financial Statements for further information regarding this disposition. Corporate and other represents that portion of our results that are not allocable to our segments, including those relating to consolidated property owners’ associations (“Consolidated Property Owners’ Associations”). Acquisition of Welk On April 1, 2021, we completed the Welk Acquisition, after which Welk became our indirect wholly-owned subsidiary. We refer to Welk’s business and brands that we acquired as “Legacy-Welk.” In April 2022, we introduced the Hyatt Vacation Club and rebranded Welk’s vacation ownership program as the Hyatt Vacation Club Platinum Program, enabling Legacy-Welk sales centers to sell a Hyatt-branded vacation ownership product. Most Legacy-Welk resorts are now available for rental stays through Hyatt.com. COVID-19 Pandemic The COVID-19 pandemic has 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 our Company. We discuss the impacts of the COVID-19 pandemic and its potential future implications throughout this report; however, the COVID-19 pandemic, and any recovery therefrom, continues to evolve and further potential impacts on our business in the future remain uncertain. Significant Accounting Policies Used in Describing Results of Operations Sale of Vacation Ownership Products We recognize revenues from the sale of vacation ownership products (“VOIs”) when control of the vacation ownership product is transferred to the customer and the transaction price is deemed collectible. Based upon the different terms of the contracts with the customer and business practices, control of the vacation ownership product is transferred to the customer at closing for Marriott-branded and Legacy-Welk transactions and upon expiration of the statutory rescission period for Sheraton-,Westin-, and Hyatt-branded transactions. Sales of vacation ownership products may be made for cash or we may provide financing. In addition, we recognize settlement fees associated with the transfer of vacation ownership products and commission revenues from sales of vacation ownership products on behalf of third parties, which we refer to as “resales revenue.” We also provide sales incentives to certain purchasers. These sales incentives typically include Marriott Bonvoy points, World of Hyatt points or an alternative sales incentive that we refer to as “plus points.” These plus points are redeemable for stays at our resorts or for use in other third-party offerings, generally up to two years from the date of issuance. Typically, sales incentives are only awarded if the sale is closed. Finally, as more fully described in “ Financing ” below, we record the difference between the vacation ownership note receivable and the consideration to which we expect to be entitled (also known as a vacation ownership notes receivable reserve or a sales reserve) as a reduction of revenues from the sale of vacation ownership products at the time we recognize revenues from a sale. We report, on a supplemental basis, contract sales for our Vacation Ownership segment. Contract sales consist of the total amount of vacation ownership product sales under contract signed during the period where we have generally received a down payment of at least 10% of the contract price, reduced by actual rescissions during the period, inclusive of contracts associated with sales of vacation ownership products on behalf of third-parties, which we refer to as “resales contract sales.” In circumstances where a customer applies any or all of their existing ownership interests as part of the purchase price for additional interests, we include only the incremental value purchased as contract sales. Contract sales differ from revenues from the sale of vacation ownership products that we report on our income statements due to the requirements for revenue 38 Table of Contents recognition described above. We consider contract sales to be an important operating measure because it reflects the pace of sales in our business. Cost of vacation ownership products includes costs to develop and construct our projects (also known as real estate inventory costs), other non-capitalizable costs associated with the overall project development process and settlement expenses associated with the closing process. For each project, we expense real estate inventory costs in the same proportion as the revenue recognized. Consistent with the applicable accounting guidance, to the extent there is a change in the estimated sales revenues or inventory costs for the project in a period, a non-cash adjustment is recorded on our income statements to true-up costs in that period to those that would have been recorded historically if the revised estimates had been used. These true-ups, which we refer to as product cost true-up activity, can have a positive or negative impact on our income statements. We refer to revenues from the sale of vacation ownership products less the cost of vacation ownership products and marketing and sales costs as Development profit. Development profit margin is calculated by dividing Development profit by revenues from the Sale of vacation ownership products. Management and Exchange Our management and exchange revenues include revenues generated from fees we earn for managing each of our vacation ownership resorts, providing property management, owners’ association management and related services to third-party vacation ownership resorts and fees we earn for providing rental services and related hotel, condominium resort, and owners’ association management services to vacation property owners. In addition, we earn revenue from ancillary offerings, including food and beverage outlets, golf courses and other retail and service outlets located at our Vacation Ownership resorts. We also receive annual membership fees, club dues and certain transaction-based fees from members, owners and other third parties. Management and exchange expenses include costs to operate the food and beverage outlets and other ancillary operations and to provide overall customer support services, including reservations, and certain transaction-based expenses relating to external exchange service providers. In our Vacation Ownership segment and Consolidated Property Owners’ Associations, we refer to these activities as “Resort Management and Other Services.” Financing We offer financing to qualified customers for the purchase of most types of our vacation ownership products. The average FICO score of customers who were U.S. citizens or residents who financed a vacation ownership purchase was as follows: Three Months Ended March 31, 2022 March 31, 2021 Average FICO score 736 732 The typical financing agreement provides for monthly payments of principal and interest with the principal balance of the loan fully amortizing over the term of the related vacation ownership note receivable, which is generally ten to fifteen years. Included within our vacation ownership notes receivable are originated vacation ownership notes receivable and vacation ownership notes receivable acquired in connection with the ILG Acquisition and the Welk Acquisition. The interest income earned from our vacation ownership financing arrangements is earned on an accrual basis on the principal balance outstanding over the contractual life of the arrangement and is recorded as Financing revenues on our Income Statements. Financing revenues also include fees earned from servicing the existing vacation ownership notes receivable portfolio. The amount of interest income earned in a period depends on the amount of outstanding vacation ownership notes receivable, which is impacted positively by the origination of new vacation ownership notes receivable and negatively by principal collections. We calculate financing propensity as contract sales volume of financed contracts originated in the period divided by contract sales volume of all contracts originated in the period. We do not include resales contract sales in the financing propensity calculation. Financing propensity was 50% in the first quarter of 2022 and 46% in the first quarter of 2021; the higher financing propensity in the first quarter of 2022 is due to a higher percentage of sales during this period to first-time buyers, who tend to have a higher financing propensity. We expect to continue offering financing incentive programs in 2022. We also plan to shift back to the increased focus we placed pre-pandemic on sales to first-time buyers, who are more likely to finance their purchases, which should further increase propensity and increase interest income as new originations of vacation ownership notes receivable outpace the decline in principal of existing vacation ownership notes receivable. 39 Table of Contents Acquired vacation ownership notes receivable are accounted for using the purchased credit deteriorated assets provision of the current expected credit loss model. 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 and estimated value of collateral securing the acquired vacation ownership notes receivable. See Footnote 6 “Vacation Ownership Notes Receivable” to our Financial Statements for further information regarding the accounting for acquired vacation ownership notes receivable. In the event of a default, we generally have the right to foreclose on or revoke the underlying VOI. We return VOIs that we reacquire through foreclosure or revocation back to inventory. As discussed above, for originated vacation ownership notes receivable, we record a reserve at the time of sale and classify the reserve as a reduction to revenues from the sale of vacation ownership products on our Income Statements. 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 revenues. In contrast, for acquired vacation ownership notes receivable, we record changes to the reserve, net of collateral value, as an adjustment to Financing expenses on our Income Statements. Historical default rates, which represent defaults as a percentage of each year’s beginning gross vacation ownership notes receivable balance, were as follows: Three Months Ended March 31, 2022 March 31, 2021 Historical default rates 1.1% 1.3% The decrease in default rates in 2022 reflects the return of the performance of our notes receivable portfolio to pre-pandemic levels. Financing expenses include consumer financing interest expense, which represents interest expense associated with the securitization of our vacation ownership notes receivable, costs to support the financing, servicing and securitization processes and changes in expected credit losses related to acquired vacation ownership notes receivable. We distinguish consumer financing interest expense from all other interest expense because the debt associated with the consumer financing interest expense is secured by vacation ownership notes receivable that have been sold to bankruptcy remote special purpose entities and is generally non-recourse to us. Rental In our Vacation Ownership segment, we operate a rental business to provide owner flexibility and to help mitigate carrying costs associated with our inventory. We generate revenue from rentals of inventory that we hold for sale as interests in our vacation ownership programs, inventory that we control because our owners have elected alternative usage options permitted under our vacation ownership programs and rentals of owned-hotel properties. We also recognize rental revenue from the utilization of plus points under our points-based products when the points are redeemed for rental stays at one of our resorts or in other third-party offerings, or upon expiration of the points. We obtain rental inventory from unsold inventory and inventory we control because owners have elected alternative usage options offered through our vacation ownership programs. For rental revenues associated with vacation ownership products which we own and which are registered and held for sale, to the extent that the revenues from rental are less than costs, revenues are reported net in accordance with ASC Topic 978, “ Real Estate - Time-Sharing Activities ” (“ASC 978”). The rental activity associated with discounted vacation packages requiring a tour (“preview stays”) is not included in transient rental metrics, and because the majority of these preview stays are sourced directly or indirectly from unsold inventory, the associated revenues and expenses are reported net in Marketing and sales expense. In our Exchange & Third-Party Management segment, we offer vacation rental opportunities at managed properties. We also offer vacation rental opportunities known as Getaways to members of the Interval International network and certain other membership programs. Getaways allow us to monetize excess availability of resort accommodations within the applicable exchange network, as well as provide additional vacation opportunities to members. Resort accommodations typically become available as Getaways as a result of seasonal oversupply or underutilized space in the applicable exchange program. We also source resort accommodations specifically for the Getaways program. 40 Table of Contents Rental expenses include: • Maintenance and other fees on unsold inventory; • Costs to provide alternative usage options, including Marriott Bonvoy points, World of Hyatt points and offerings available as part of third-party offerings, for owners who elect to exchange their inventory; • Marketing costs and direct operating and related expenses in connection with the rental business (such as housekeeping, labor costs, credit card expenses and reservation services); and • Costs to secure resort accommodations for use in Getaways. Rental metrics, including the average daily transient rate or the number of transient keys rented, may not be comparable between periods given fluctuation in available occupancy by location, unit size (such as two bedroom, one bedroom or studio unit), owner use and exchange behavior. In addition, rental metrics may not correlate with rental revenues due to the requirement to report certain rental revenues net of rental expenses in accordance with ASC 978 (as discussed above). Further, as our ability to rent certain luxury and other inventory is often limited on a site-by-site basis, rental operations may not generate adequate rental revenues to cover associated costs. Our Vacation Ownership segment units are either “full villas” or “lock-off” villas. Lock-off villas are units that can be separated into a master unit and a guest room. Full villas are “non-lock-off” villas because they cannot be separated. A “key” is the lowest increment for reporting occupancy statistics based upon the mix of non-lock-off and lock-off villas. Lock-off villas represent two keys and non-lock-off villas represent one key. The “transient keys” metric represents the blended mix of inventory available for rent and includes all of the combined inventory configurations available in our resort system. Cost Reimbursements Cost reimbursements include direct and indirect costs that are reimbursed to us by customers under management contracts. All costs reimbursed to us by customers, with the exception of taxes assessed by a governmental authority, are reported on a gross basis. We recognize cost reimbursements when we incur the related reimbursable costs. Cost reimbursements consist of actual expenses with no added margin. Interest Expense Interest expense consists of all interest expense other than consumer financing interest expense, which is included within Financing expense. Transaction and Integration Costs Transaction and integration costs represent costs related to the ILG and Welk Acquisitions, primarily for financial advisory, legal, and other professional service fees, as well as certain tax related accruals. Transaction and integration costs also include charges for employee retention, severance and other termination related benefits, fees paid to change-management consultants and technology-related costs related to the integration of ILG and Welk. Other Items We measure operating performance using the following key metrics: • Contract sales from the sale of vacation ownership products; • Total contract sales include contract sales from the sale of vacation ownership products including joint ventures, and • Consolidated contract sales exclude contract sales from the sale of vacation ownership products for non-consolidated joint ventures; • Development profit margin; • Volume per guest (“VPG”), which we calculate by dividing consolidated vacation ownership contract sales, excluding fractional sales, telesales, resales, joint venture sales and other sales that are not attributed to a tour at a sales location, by the number of tours at sales locations in a given period. We believe that this operating metric is valuable in evaluating the effectiveness of the sales process as it combines the impact of average contract price with the number of touring guests who make a purchase; • Total active members, which is the number of Interval International network active members at the end of the applicable period; and • Average revenue per member, which we calculate by dividing membership fee revenue, transaction revenue and other member revenue for the Interval International network by the monthly weighted average number of Interval International network active members during the applicable period. NM = Not meaningful. 41 Table of Contents Consolidated Results Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 REVENUES Sale of vacation ownership products $ 310 $ 163 Management and exchange 222 193 Rental 133 89 Financing 71 59 Cost reimbursements 316 255 TOTAL REVENUES 1,052 759 EXPENSES Cost of vacation ownership products 60 40 Marketing and sales 182 109 Management and exchange 127 117 Rental 81 82 Financing 21 21 General and administrative 61 46 Depreciation and amortization 33 41 Litigation charges 3 3 Royalty fee 27 25 Cost reimbursements 316 255 TOTAL EXPENSES 911 739 Gains and other income, net 4 6 Interest expense (27) (43) Transaction and integration costs (28) (19) INCOME (LOSS) BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS 90 (36) (Provision for) benefit from income taxes (32) 11 NET INCOME (LOSS) 58 (25) Net income attributable to noncontrolling interests — (3) NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 58 $ (28) Operating Statistics 2022 First Quarter Three Months Ended (Contract sales $ in millions) March 31, 2022 March 31, 2021 Change % Change Vacation Ownership Total contract sales $ 403 $ 232 $ 171 74% Consolidated contract sales $ 394 $ 226 $ 168 75% Joint venture contract sales $ 9 $ 6 $ 3 45% VPG $ 4,706 $ 4,644 $ 62 1% Exchange & Third-Party Management Total active members at end of period (000's) (1) 1,606 1,479 127 9% Average revenue per member (1) $ 44.33 $ 47.13 $ (2.80) (6%) _______________ (1) Only includes members of the Interval International exchange network. 42 Table of Contents Revenues 2022 First Quarter Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Change % Change Vacation Ownership $ 956 $ 661 $ 295 45% Exchange & Third-Party Management 84 86 (2) (1%) Total Segment Revenues 1,040 747 293 39% Consolidated Property Owners’ Associations 12 12 — (6%) Total Revenues $ 1,052 $ 759 $ 293 39% Earnings Before Interest Expense, Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA EBITDA, a financial measure that is not prescribed by GAAP, is defined as earnings, or net income or loss attributable to common shareholders, before interest expense (excluding consumer financing interest expense associated with term loan securitization transactions), income taxes, depreciation and amortization. Adjusted EBITDA reflects additional adjustments for certain items described below, and excludes share-based compensation expense to address considerable variability among companies in recording compensation expense because companies use share-based payment awards differently, both in the type and quantity of awards granted. For purposes of our EBITDA and Adjusted EBITDA calculations, we do not adjust for consumer financing interest expense associated with term loan securitization transactions because we consider it to be an operating expense of our business. We consider Adjusted EBITDA to be an indicator of operating performance, which we use to measure our ability to service debt, fund capital expenditures and expand our business. We also use Adjusted EBITDA, as do analysts, lenders, investors and others, because this measure excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company’s capital structure, debt levels and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provision for income taxes can vary considerably among companies. EBITDA and Adjusted EBITDA also exclude depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies. We believe Adjusted EBITDA is useful as an indicator of operating performance because it allows for period-over-period comparisons of our on-going core operations before the impact of the excluded items. Adjusted EBITDA also facilitates comparison by us, analysts, investors, and others, of results from our on-going core operations before the impact of these items with results from other vacation companies. EBITDA and Adjusted EBITDA have limitations and should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. In addition, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do or may not calculate them at all, limiting their usefulness as comparative measures. The table below shows our EBITDA and Adjusted EBITDA calculation and reconciles these measures with Net income (loss) attributable to common shareholders, which is the most directly comparable GAAP financial measure. 2022 First Quarter Three Months Ended Change ($ in millions) March 31, 2022 March 31, 2021 % Change Net income (loss) attributable to common shareholders $ 58 $ (28) $ 86 NM Interest expense 27 43 (16) (37%) Provision for (benefit from) income taxes 32 (11) 43 NM Depreciation and amortization 33 41 (8) (21%) EBITDA 150 45 105 NM Share-based compensation expense 8 8 — —% Certain items 30 16 14 97% Adjusted EBITDA $ 188 $ 69 $ 119 NM 43 Table of Contents Certain items for the first quarter of 2022 consisted of $28 million of transaction and integration costs (including $25 million of ILG Acquisition and integration related costs and $3 million of Welk Acquisition and integration related costs), $3 million of purchase accounting adjustments, and $3 million of litigation charges, partially offset by $4 million of gains and other income, net (including $3 million of business interruption insurance proceeds received during the quarter and $1 million of foreign currency translation gains). Certain items for the first quarter of 2021 consisted of $19 million of transaction costs (including $17 million of ILG Acquisition and integration related costs and $2 million of Welk Acquisition and integration related costs) and $3 million of litigation charges, partially offset by $4 million of foreign currency translation gains, and $2 million of miscellaneous gains and other income. Segment Adjusted EBITDA 2022 First Quarter Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Change % Change Vacation Ownership $ 199 $ 68 $ 131 NM Exchange & Third-Party Management 43 41 2 4% Segment adjusted EBITDA 242 109 133 NM General and administrative (54) (40) (14) (35%) Consolidated property owners’ associations — — — NM Adjusted EBITDA $ 188 $ 69 $ 119 NM Vacation Ownership 2022 First Quarter Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Change % Change Segment adjusted EBITDA $ 199 $ 68 $ 131 NM Depreciation and amortization (22) (19) (3) (14%) Share-based compensation expense (1) (1) — (22%) Certain items (3) (4) 1 17% Segment financial results $ 173 $ 44 $ 129 NM Certain items in the Vacation Ownership segment for the first quarter of 2022 consisted of $3 million of litigation charges and $3 million of purchase accounting adjustments, offset by $3 million of gains and other income, net related to business interruption insurance proceeds received during the quarter. Certain items in the Vacation Ownership segment for the first quarter of 2021 consisted of $3 million of litigation charges and $1 million of restructuring costs. Exchange & Third-Party Management 2022 First Quarter Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Change % Change Segment adjusted EBITDA $ 43 $ 41 $ 2 4% Depreciation and amortization (9) (20) 11 56% Share-based compensation expense (1) — (1) (40%) Certain items — — — NM Segment financial results $ 33 $ 21 $ 12 59% 44 Table of Contents Business Segments Our business is grouped into two reportable business segments: Vacation Ownership and Exchange & Third-Party Management. See Footnote 17 “Business Segments” to our Financial Statements for further information on our segments. Vacation Ownership Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 REVENUES Sale of vacation ownership products $ 310 $ 163 Resort management and other services 126 94 Rental 122 77 Financing 71 59 Cost reimbursements 327 268 TOTAL REVENUES 956 661 EXPENSES Cost of vacation ownership products 60 40 Marketing and sales 182 109 Resort management and other services 54 35 Rental 90 96 Financing 21 21 Depreciation and amortization 22 19 Litigation charges 3 3 Restructuring — 1 Royalty fee 27 25 Cost reimbursements 327 268 TOTAL EXPENSES 786 617 Gains and other income, net 3 — SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 173 $ 44 Contract Sales 2022 First Quarter Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Change % Change Total consolidated contract sales $ 394 $ 226 $ 168 75% Joint venture contract sales 9 6 3 45% Total contract sales $ 403 $ 232 $ 171 74% 45 Table of Contents Sale of Vacation Ownership Products 2022 First Quarter Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Change % Change Total contract sales $ 403 $ 232 $ 171 74% Less: resales contract sales (9) (5) (4) Less: joint venture contract sales (9) (6) (3) Consolidated contract sales, net of resales 385 221 164 74% Plus: Settlement revenue 7 5 2 Resales revenue 4 2 2 Revenue recognition adjustments: Reportability (33) (36) 3 Sales reserve (29) (14) (15) Other (1) (24) (15) (9) Sale of vacation ownership products $ 310 $ 163 $ 147 90% _______________ (1) Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue and other adjustments to Sale of vacation ownership products revenue. The higher contract sales performance reflects the continued ramp-up of the business subsequent to the initial impact of the COVID-19 pandemic, as well as $24 million in contract sales relating to the Welk Acquisition, which we acquired in the second quarter of 2021. Higher settlement revenue, sales incentives issued, and sales reserve activity were driven primarily by the higher contract sales volumes as well as the Welk Acquisition. Development Profit 2022 First Quarter Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Change % Change Sale of vacation ownership products $ 310 $ 163 $ 147 90% Cost of vacation ownership products (60) (40) (20) (52%) Marketing and sales (182) (109) (73) (66%) Development profit $ 68 $ 14 $ 54 NM The increase in Development profit reflects $51 million as a result of higher contract sales volumes, in part from continued strong VPGs, and lower marketing and sales spending as a percentage of revenue and $9 million of favorable product cost, due to the sale of lower cost inventory as well as favorable product cost true-up activity, partially offset by $5 million of higher sales reserve activity due to higher contract sales volumes and $1 million of unfavorable revenue reportability. 46 Table of Contents Resort Management and Other Services Revenues, Expenses and Profit 2022 First Quarter Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Change % Change Management fee revenues $ 42 $ 38 $ 4 12% Ancillary revenues 54 28 26 93% Other management and exchange revenues 30 28 2 7% Resort management and other services revenues 126 94 32 34% Resort management and other services expenses (54) (35) (19) (54%) Resort management and other services profit $ 72 $ 59 $ 13 22% Resort management and other services profit margin 57.5% 63.0% (5.5 pts) Resort management and other services revenues reflects higher ancillary revenues, including revenues from food and beverage and golf offerings, as a result of the continued ramp-up of the business subsequent to the initial impact of the COVID-19 pandemic, higher management fees, and $6 million of revenues from the Welk Acquisition. Resort occupancies continued to increase since the initial impact of the pandemic as travel and tourism trends continue to recover. We expect this trend in business improvement to continue throughout 2022. The increase in resort management and other services profit reflects the higher ancillary expenses as a result of the higher ancillary revenues mentioned above. Rental Revenues, Expenses and Profit 2022 First Quarter Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Change % Change Rental revenues $ 122 $ 77 $ 45 58% Rental expenses (90) (96) 6 6% Rental profit (loss) $ 32 $ (19) $ 51 NM Rental profit margin 25.8% NM Three Months Ended March 31, 2022 March 31, 2021 Change % Change Transient keys rented (1) 539,559 385,745 153,814 40% Average transient key rate $ 275.49 $ 230.32 $ 45.17 20% Resort occupancy 87.6% 66.7% 20.9 pts _________________________ (1) Transient keys rented exclude those occupied through the use of plus points and preview stays. The improvement in rental profit resulted from an increase in transient keys rented and a higher average transient rate due to the continued ramp-up of the business subsequent to the initial impact of the COVID-19 pandemic as COVID-19-related restrictions continued to ease, as well as from higher plus point revenue. These increases were partially offset by higher inventory carrying costs (due to low sales volumes in 2021 as a result of the COVID-19 pandemic, the acquisition of new inventory in 2021, and higher utilization in 2022 of third-party vacation offerings for owners who elect to exchange the usage of their inventory). As the majority of the governmental restrictions in response to the pandemic that caused rental activity to decline, such as travel restrictions and quarantine requirements, have been lifted, we expect rental occupancies to continue to remain strong throughout the remainder of 2022. However, we do not expect this part of our business to fully recover to pre-pandemic levels in 2022 as a result of reduced rental inventory availability due to higher owner usage as well as higher inventory carry costs. 47 Table of Contents Financing Revenues, Expenses and Profit 2022 First Quarter Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Change % Change Financing revenues 71 59 12 21% Financing expenses (9) (8) (1) (12%) Consumer financing interest expense (12) (13) 1 5% Financing profit $ 50 $ 38 $ 12 31% Financing propensity 50.3% 46.0% Financing revenues increased due primarily to the Welk Acquisition, which contributed $10 million in the first quarter of 2022. Excluding the impact of the Welk Acquisition, financing revenues increased $2 million due mainly to lower plus point financing incentive costs year-over-year. New loan originations are beginning to offset the continued pay-down of the existing vacation ownership notes receivable portfolio, such that interest income is relatively flat compared to the prior year quarter. As contract sales volumes continue to grow, we expect that the growth from new loan originations will more than offset the normal decline in the existing vacation ownership notes receivable portfolio due to loan payment activity, and cause interest income to increase. Financing expenses increased due to the Welk Acquisition and increased foreclosure costs, offset partially by the timing of when lien fee income is recognized. The higher financing propensity reflects a higher mix of sales to first-time buyers, who tend to have a higher financing propensity. As we move through 2022, we expect to continue to increase our focus on sales to first-time buyers, which should further increase financing propensity. Royalty Fee 2022 First Quarter Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Change % Change Royalty fee $ 27 $ 25 $ 2 8% Litigation Charges 2022 First Quarter Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Change % Change Litigation charges $ 3 $ 3 $ — (5%) During the first quarter of 2022 and the first quarter of 2021, the litigation charges related primarily to projects in Europe. Gains and Other Income 2022 First Quarter Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Change % Change Gains and other income, net $ 3 $ — $ 3 NM During the first quarter of 2022, we recorded $3 million of gains and other income, net related to business interruption insurance proceeds received during the quarter. 48 Table of Contents Exchange & Third-Party Management Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 REVENUES Management and exchange $ 64 $ 60 Rental 11 12 Cost reimbursements 9 14 TOTAL REVENUES 84 86 EXPENSES Management and exchange 33 31 Depreciation and amortization 9 20 Cost reimbursements 9 14 TOTAL EXPENSES 51 65 SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 33 $ 21 Rental Revenues, Expenses and Profit 2022 First Quarter Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Change % Change Rental revenues $ 11 $ 12 $ (1) (8%) Rental expenses — — — NM Rental profit $ 11 $ 12 $ (1) (8%) Rental profit margin 100.0% 100.0% — pts Results reflect a 12% decline in Getaways transactions, offset partially by a 15% increase in average fees. The decline in transactions reflects increased owner usage which is putting pressure on the volume of member deposits available as inventory for Getaways as members choose to occupy their accommodations rather than exchange usage through Interval International, offset partially by pricing increases. Management and Exchange Profit 2022 First Quarter Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Change % Change Management and exchange revenue $ 64 $ 60 $ 4 7% Management and exchange expense (33) (31) (2) (6%) Management and exchange profit $ 31 $ 29 $ 2 8% Management and exchange profit margin 48.6% 48.0% 0.6 pts The increase in management and exchange revenue and profit reflects higher management fees at Aqua-Aston managed properties due to the continued ramp-up of the business in Hawaii subsequent to the initial impact of the COVID-19 pandemic. For Interval International, average revenue per member decreased 6% over the prior year comparable period. This decline was due in part to new, recently added affiliations for which we expect any exchange activity to take time to ramp-up as many of the new members have already booked near term travel plans. Depreciation and Amortization 2022 First Quarter Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Change % Change Depreciation and amortization $ 9 $ 20 $ (11) (56%) The decrease in depreciation expense relates to a true-up made in the prior year to accelerate depreciation on a technology asset. 49 Table of Contents Corporate and Other Corporate and Other consists of results that are not allocable to our segments, including company-wide general and administrative costs, corporate interest expense, transaction and integration costs, and income taxes. In addition, Corporate and Other includes the revenues and expenses from the Consolidated Property Owners’ Associations. Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 REVENUES Resort management and other services $ 32 $ 39 Cost reimbursements (20) (27) TOTAL REVENUES 12 12 EXPENSES Resort management and other services 40 51 Rental (9) (14) General and administrative 61 46 Depreciation and amortization 2 2 Restructuring — (1) Cost reimbursements (20) (27) TOTAL EXPENSES 74 57 Gains and other income, net 1 6 Interest expense (27) (43) Transaction and integration costs (28) (19) FINANCIAL RESULTS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS (116) (101) (Provision for) benefit from income taxes (32) 11 Net income attributable to noncontrolling interests — (3) FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (148) $ (93) Consolidated Property Owners’ Associations The following table illustrates the impact of certain Consolidated Property Owners’ Associations under the relevant accounting guidance, which represents the portion related to third-party VOI owners. Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 REVENUES Resort management and other services $ 32 $ 39 Cost reimbursements (20) (27) TOTAL REVENUES 12 12 EXPENSES Resort management and other services 40 51 Rental (9) (14) Cost reimbursements (20) (27) TOTAL EXPENSES 11 10 Gains and other income, net — 2 FINANCIAL RESULTS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS 1 4 Net income attributable to noncontrolling interests — (3) FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 1 $ 1 50 Table of Contents General and Administrative 2022 First Quarter Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Change % Change General and administrative $ 61 $ 46 $ 15 33% For the first quarter of 2022, General and administrative expenses increased due primarily to $11 million of higher salary costs due to reduced work week programs in the prior year, $3 million related to higher bonus expense, and a $2 million decrease in credits related to incentives under the CARES Act, partially offset by $1 million in lower overall spending. Restructuring 2022 First Quarter Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Change % Change Restructuring $ — $ (1) $ 1 (100%) No restructuring costs were recorded for the first quarter of 2022. During the first quarter of 2021, we reversed an accrual for $1 million associated with a restructuring plan that we adopted as a result of the COVID-19 pandemic. Gains / Losses and Other Income / Expense 2022 First Quarter Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Change % Change Gains and other income, net $ 1 $ 6 $ (5) (74%) We recorded $1 million and $6 million of foreign currency translation gains in the first quarter of 2022 and the first quarter of 2021, respectively. Interest Expense 2022 First Quarter Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Change % Change Interest expense $ (27) $ (43) $ 16 37% Interest expense decreased $16 million, including $13 million due to the early redemption of the 2026 Notes in 2021, $6 million due to the adoption of new accounting guidance related to our convertible debt (see Footnote 2 “Significant Accounting Policies and Recent Accounting Standards”), and $4 million due to the early redemption of a portion of the 2025 Notes, partially offset by $6 million due to the issuance of the 2029 Notes in 2021 and $1 million of higher interest related to a leased asset. Transaction and Integration Costs 2022 First Quarter Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Change % Change Transaction and integration costs $ (28) $ (19) $ (9) (49%) In the first quarter of 2022, Transaction and integration costs included $25 million of ILG Acquisition and integration related costs, and $3 million of Welk Acquisition and integration related costs. In the first quarter of 2021, Transaction and integration costs included $17 million of ILG Acquisition and integration related costs, and $2 million of Welk Acquisition and integration related costs. 51 Table of Contents Income Tax 2022 First Quarter Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Change % Change (Provision for) benefit from income taxes $ (32) $ 11 $ (43) NM The change in the (Provision for) benefit from income taxes is predominately attributable to an increase in pre-tax income and an increase in the reserve for unrecognized tax benefits for the three months ended March 31, 2022. Liquidity and Capital Resources Typically, our capital needs are supported by cash on hand ($0.4 billion at the end of the first quarter of 2022), cash generated from operations, our ability to raise capital through securitizations in the asset-backed securities market, our ability to issue new, and refinance existing, debt and, to the extent necessary, our ability to access funds under the Warehouse Credit Facility and the Revolving Corporate Credit Facility. We believe these sources of capital will be adequate to meet our short-term and long-term liquidity requirements, finance our long-term growth plans, satisfy debt service requirements, fulfill other cash requirements, and return capital to shareholders. During the first quarter of 2022, we entered into an amendment to the Revolving Corporate Credit Facility (the “Amendment”), which increased the borrowing capacity of the existing revolving credit facility from $600 million to $750 million and extended the maturity date from August 31, 2023 to March 31, 2027. At March 31, 2022, we had $4.6 billion of total gross debt outstanding, which included $1.8 billion of non-recourse debt associated with vacation ownership notes receivable securitizations, $1.1 billion of senior notes, $0.8 billion of convertible notes, $0.8 billion of debt under our Corporate Credit Facility, $84 million related to finance lease obligations, and $11 million related to a non-interest bearing note payable. At March 31, 2022, we had $684 million of completed real estate inventory on hand. In addition, we had $496 million of completed vacation ownership units that have been classified as a component of Property and equipment until the time at which they are legally registered and available for sale as vacation ownership products. Our material cash requirements from known contractual or other obligations were $6 billion as of March 31, 2022, of which we expect $748 million to be payable during 2022. These obligations primarily relate to our debt, securitized debt and purchase obligations. Please see “Material Cash Requirements” below for additional information. The following table summarizes the changes in cash, cash equivalents and restricted cash: Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Cash, cash equivalents and restricted cash provided by (used in): Operating activities $ 129 $ (60) Investing activities (10) (8) Financing activities (272) 255 Effect of change in exchange rates on cash, cash equivalents and restricted cash — (1) Net change in cash, cash equivalents and restricted cash $ (153) $ 186 Cash from Operating Activities Our primary sources of funds from operations are (1) cash sales and down payments on financed sales, (2) cash from our financing operations, including principal and interest payments received on outstanding vacation ownership notes receivable, (3) cash from fee-based membership, exchange and rental transactions and (4) net cash generated from our rental and resort management and other services operations. Outflows include spending for the development of new phases of existing resorts, the acquisition of additional inventory, enhancement of our inventory exchange network of resorts and related technology infrastructure and funding our working capital needs. We minimize our working capital needs through cash management, strict credit-granting policies and disciplined collection efforts. Our working capital needs fluctuate throughout the year given the timing of annual maintenance fees on unsold inventory we pay to owners’ associations and certain annual compensation-related outflows. In addition, our cash from operations varies due to the timing of repayment by owners of vacation ownership notes receivable, the closing or recording of sales contracts for vacation ownership products, financing propensity, and cash outlays for inventory acquisition and development. 52 Table of Contents Excluding the impact of changes in net income or loss and adjustments for non-cash items, the change in cash flows from operations increased as a result of lower inventory spending, higher operational expense accruals, higher sales and rental deposits due to the continued ramp-up of the business, and higher collections of vacation ownership notes receivable, partially offset by timing of certain employee benefit payments. In addition to net income or loss and adjustments for non-cash items, the following operating activities are key drivers of our cash flow from operating activities: Inventory Spending Less Than (In Excess of) Cost of Sales Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Inventory spending $ (22) $ (57) Purchase of vacation ownership units for future transfer to inventory (12) (99) Inventory costs 50 31 Inventory spending less than (in excess of) cost of sales $ 16 $ (125) While we have significant inventory on hand, we will continue to selectively pursue growth opportunities in North America and Asia Pacific by targeting high-quality inventory that allows us to add desirable new destinations to our system with new on-site sales locations through transactions that limit our up-front capital investment and allow us to purchase finished inventory closer to the time it is needed for sale. These capital efficient vacation ownership deal structures may consist of the development of new inventory, or the conversion of previously built units by third parties, just prior to sale. Our spending for real estate inventory in the first quarter of 2022 was lower than real estate inventory costs due to our strategy to minimize spending because we have a significant amount of inventory on hand. Through our existing vacation ownership interest repurchase program, we proactively buy back previously sold vacation ownership interests at lower costs than would be required to develop new inventory. By repurchasing inventory, we expect to be able to help stabilize the future cost of vacation ownership products. Vacation Ownership Notes Receivable Collections (Less Than) In Excess of Originations Three Months Ended ($ in millions) March 31, 2022 March 31, 2021 Vacation ownership notes receivable collections — non-securitized $ 67 $ 42 Vacation ownership notes receivable collections — securitized 121 123 Vacation ownership notes receivable originations (205) (108) Vacation ownership notes receivable collections (less than) in excess of originations $ (17) $ 57 Vacation ownership notes receivable collections increased during the first quarter of 2022, as compared to the first quarter of 2021, due to an increase in the portfolio of outstanding vacation ownership notes receivable. Vacation ownership notes receivable originations in the first quarter of 2022 increased, as compared to the first quarter of 2021, due to higher sales combined with a higher financing propensity. Financing propensity increased to 50% for the first quarter of 2022, compared to 46% for the first quarter of 2021, reflecting a higher mix of sales to first-time buyers, who tend to have a higher financing propensity. Cash from Investing Activities Capital Expenditures for Property and Equipment In the first quarter of 2022, capital expenditures for property and equipment included $9 million to support business operations (including $6 million for ancillary and other operations assets and $3 million for sales locations). In the first quarter of 2021, capital expenditures for property and equipment of $7 million included $5 million to support business operations (including $3 million for ancillary and other operations assets and $2 million for sales locations) and $2 million for technology. 53 Table of Contents Cash from Financing Activities Borrowings from / Repayment of Debt Related to Securitization Transactions During the first quarter of 2022, we securitized vacation ownership notes receivable under our Warehouse Credit Facility. The carrying amount of the vacation ownership notes receivable securitized was $125 million. The average advance rate was 81%, which resulted in gross proceeds of $102 million. Net proceeds were $101 million due to the funding of reserve accounts of $1 million. As of March 31, 2022, $120 million of gross vacation ownership notes receivable were eligible for securitization. Proceeds from / Repayments of Debt Borrowings from / Repayment of Corporate Credit Facility Our Corporate Credit Facility includes the Term Loan and our Revolving Corporate Credit Facility, which is further discussed in Footnote 13 “Debt” to our Financial Statements. No principal payments were made on our Term Loan during the first quarter of 2022. During the first quarter of 2022, we borrowed $30 million under our Revolving Corporate Credit Facility, all of which was repaid prior to the end of the quarter. There were no borrowed amounts outstanding under our Revolving Corporate Credit Facility as of March 31, 2022. As of March 31, 2022, we had $2 million of letters of credit outstanding under our Revolving Corporate Credit Facility. During the first quarter of 2021, we repaid $100 million of the amount outstanding under the Term Loan. We had no borrowings or repayments under our Revolving Corporate Credit Facility during the first quarter of 2021. Finance Lease Payment During the first quarter of 2022, we paid $2 million related to our finance lease obligations for technology and business operations equipment. Debt Issuance Costs During the first quarter of 2022, we paid $4 million of debt issuance costs associated with an amendment to the Revolving Corporate Credit Facility, which is further discussed in Footnote 13 “Debt” to our Financial Statements. During the first quarter of 2021, we paid $2 million of debt issuance costs, which included $1 million associated with the 2026 Convertible Notes and $1 million associated with the extension of the Waiver which suspended certain requirements under the Revolving Corporate Credit Facility. Repurchase of Common Stock The following table summarizes share repurchase activity under our current share repurchase program: ($ in millions, except per share amounts) Number of Shares Repurchased Cost of Shares Repurchased Average Price Paid per Share As of December 31, 2021 17,681,395 $ 1,418 $ 80.17 For the first quarter of 2022 764,824 119 156.50 As of March 31, 2022 18,446,219 $ 1,537 $ 83.34 See Footnote 14 “Shareholders' Equity” to our Financial Statements for further information related to our share repurchase program, including the additional share repurchase authorization approved by our Board of Directors during the first quarter of 2022. Dividends We distributed cash dividends to holders of our common stock during the first quarter of 2022 as follows: Declaration Date Shareholder Record Date Distribution Date Dividend per Share December 9, 2021 December 23, 2021 January 6, 2022 $0.54 February 18, 2022 March 3, 2022 March 17, 2022 $0.62 We currently expect to pay quarterly dividends in the future, but any future dividend payments will be subject to Board approval, which will depend on our financial condition, results of operations and capital requirements, as well as applicable law, regulatory constraints, industry practice, and other business considerations that our Board of Directors 54 Table of Contents considers relevant. In addition, our Corporate Credit Facility and the indentures governing our senior notes contain restrictions on our ability to pay dividends, and the terms of agreements governing debt that we may incur in the future may also limit or prohibit the payment of dividends. The payment of certain cash dividends may also result in an adjustment to the conversion rate of our convertible notes in a manner adverse to us. Accordingly, there can be no assurance that we will pay dividends in the future at any particular rate or at all. Material Cash Requirements The following table summarizes our future material cash requirements from known contractual or other obligations as of March 31, 2022: Payments Due by Period ($ in millions) Total Remainder of 2022 Years 2023 - 2024 Years 2025 - 2026 Thereafter Contractual Obligations Debt obligations (1) $ 3,088 $ 294 $ 155 $ 1,710 $ 929 Securitized debt (1)(2) 1,994 167 529 410 888 Purchase obligations (3) 377 250 86 41 — Operating lease obligations 122 18 44 35 25 Finance lease obligations (4) 283 6 11 7 259 Other long-term obligations (5) 24 13 7 3 1 $ 5,888 $ 748 $ 832 $ 2,206 $ 2,102 _________________________ (1) Includes principal as well as interest payments and excludes unamortized debt discount and issuance costs. (2) Payments based on estimated timing of cash flow associated with securitized notes receivable. (3) Arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure, and approximate timing of the transaction. Amounts reflected herein represent expected funding under such contracts. Amounts reflected on the consolidated balance sheet as accounts payable and accrued liabilities are excluded from the table above. (4) Includes interest. (5) Primarily relates to our 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, in lieu of maintenance fees, of $10 million. In the normal course of our resort management business, we enter into purchase commitments on behalf of owners’ associations to manage the daily operating needs of our resorts. Since we are reimbursed for these commitments from the cash flows of the resorts, these obligations have minimal impact on our net income and cash flow. These purchase commitments are excluded from the table above. Leases That Have Not Yet Commenced During 2020, we entered into a finance lease arrangement, that was amended in 2021, for our new global headquarters office building, which is being constructed in Orlando, Florida. The new Orlando corporate office building is currently expected to be completed in 2023, at which time the lease term will commence and a right-of-use asset and corresponding liability will be recorded on our balance sheet. The initial lease term is approximately 16 years with total lease payments of $137 million for the aforementioned period. 55 Table of Contents Supplemental Guarantor Information The 2028 Notes are guaranteed by MVWC, Marriott Ownership Resorts, Inc. (“MORI”), and certain other subsidiaries whose voting securities are wholly owned directly or indirectly by MORI (such subsidiaries collectively, the “Senior Notes Guarantors”). These guarantees are full and unconditional and joint and several. The guarantees of the Senior Notes Guarantors are subject to release in limited circumstances only upon the occurrence of certain customary conditions. The following tables present consolidating financial information as of March 31, 2022 and December 31, 2021, and for the three months ended March 31, 2022 for MVWC and MORI on a stand-alone basis (collectively, the “Issuers”), the Senior Notes Guarantors, the combined non-guarantor subsidiaries of MVW, and MVW on a consolidated basis. Condensed Consolidating Balance Sheet As of March 31, 2022 Issuers Senior Notes Guarantors Non-Guarantor Subsidiaries Total Eliminations MVW Consolidated ($ in millions) MVWC MORI Cash and cash equivalents $ — $ 129 $ 77 $ 148 $ — $ 354 Restricted cash — 22 76 198 — 296 Accounts receivable, net 4 55 117 67 (9) 234 Vacation ownership notes receivable, net — 109 204 1,717 — 2,030 Inventory — 227 374 92 — 693 Property and equipment — 196 641 325 — 1,162 Goodwill — — 3,142 — — 3,142 Intangibles, net — — 827 151 — 978 Investments in subsidiaries 3,582 4,211 — — (7,793) — Other 74 116 275 189 (40) 614 Total assets $ 3,660 $ 5,065 $ 5,733 $ 2,887 $ (7,842) $ 9,503 Accounts payable $ 48 $ 15 $ 91 $ 58 $ — $ 212 Advance deposits — 83 85 26 — 194 Accrued liabilities 5 102 147 102 (9) 347 Deferred revenue — 10 241 276 (20) 507 Payroll and benefits liability 1 100 88 25 — 214 Deferred compensation liability — 109 25 2 — 136 Securitized debt, net — — — 1,799 (20) 1,779 Debt, net 792 1,871 76 12 — 2,751 Other — 3 171 32 — 206 Deferred taxes — 60 272 — 1 333 MVW shareholders' equity 2,814 2,712 4,537 545 (7,794) 2,814 Noncontrolling interests — — — 10 — 10 Total liabilities and equity $ 3,660 $ 5,065 $ 5,733 $ 2,887 $ (7,842) $ 9,503 56 Table of Contents As of December 31, 2021 Issuers Senior Notes Guarantors Non-Guarantor Subsidiaries Total Eliminations MVW Consolidated ($ in millions) MVWC MORI Cash and cash equivalents $ — $ 126 $ 77 $ 139 $ — $ 342 Restricted cash — 18 94 349 — 461 Accounts receivable, net 14 49 172 119 (75) 279 Vacation ownership notes receivable, net — 127 203 1,715 — 2,045 Inventory — 244 381 94 — 719 Property and equipment — 200 644 292 — 1,136 Goodwill — — 2,841 309 — 3,150 Intangibles, net — — 840 153 — 993 Investments in subsidiaries 3,645 4,371 — — (8,016) — Other 76 108 211 107 (14) 488 Total assets $ 3,735 $ 5,243 $ 5,463 $ 3,277 $ (8,105) $ 9,613 Accounts payable $ 63 $ 22 $ 121 $ 59 $ — $ 265 Advance deposits — 69 70 21 — 160 Accrued liabilities 12 151 145 114 (77) 345 Deferred revenue — 11 151 291 — 453 Payroll and benefits liability — 102 72 27 — 201 Deferred compensation liability — 114 25 3 — 142 Securitized debt, net — — — 1,877 (21) 1,856 Debt, net 684 1,870 76 1 — 2,631 Other — 19 172 33 — 224 Deferred taxes — 91 250 — 9 350 MVW shareholders' equity 2,976 2,794 4,381 841 (8,016) 2,976 Noncontrolling interests — — — 10 — 10 Total liabilities and equity $ 3,735 $ 5,243 $ 5,463 $ 3,277 $ (8,105) $ 9,613 Condensed Consolidating Statements of Income Three Months Ended March 31, 2022 Issuers Senior Notes Guarantors Non-Guarantor Subsidiaries Total Eliminations MVW Consolidated ($ in millions) MVWC MORI Revenues $ — $ 161 $ 658 $ 241 $ (8) $ 1,052 Expenses (2) (236) (533) (199) 8 (962) Benefit (provision) for income taxes — 24 (38) (18) — (32) Equity in net income (loss) of subsidiaries 60 117 — — (177) — Net (loss) income 58 66 87 24 (177) 58 Net income attributable to noncontrolling interests — — — — — — Net (loss) income attributable to common shareholders $ 58 $ 66 $ 87 $ 24 $ (177) $ 58 57 Table of Contents Recent Accounting Pronouncements See Footnote 2 “Significant Accounting Policies and Recent Accounting Standards” to our Financial Statements for a discussion of recently issued accounting pronouncements, including information on new accounting standards and the future adoption of such standards. Critical Accounting Policies and Estimates Our preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. We have discussed those policies and estimates that we believe are critical and require the use of complex judgment in their application in our most recent Annual Report on Form 10-K. Since the date of our most recent Annual Report on Form 10-K, there have been no material changes to our critical accounting policies or the methodologies or assumptions we apply under them. Item 3. Quantitative and Qualitative Disclosures About Market Risk Our exposure to market risk has not changed materially from that disclosed in Part I, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2021.