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 resort occupancies will continue to remain strong for the remainder of 2022 and that interest income will increase in 2022; our expectations regarding availability of inventory for Getaways and exchange transactions; 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 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 consumer confidence and demand for travel, and the pace of recovery following the COVID-19 pandemic or as effective treatments or vaccines against variants of the COVID-19 virus become widely available; variations in demand for vacation ownership and exchange products and services; worker absenteeism; price inflation; global supply chain disruptions; volatility in the international and national economy and credit markets, including as a result of the COVID-19 pandemic and the ongoing conflict between Russia and Ukraine and related sanctions and other measures; our ability to attract and retain our global workforce; 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 as may be updated in our future periodic filings with the U.S. Securities and Exchange Commission (the “SEC”). All forward-looking statements in this Quarterly Report on Form 10-Q apply only as of the date of this Quarterly Report on Form 10-Q or as of the date they were made or as otherwise specified herein. 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, 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 40 Table of Contents 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 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 second quarter of 2022, we provided these services through Interval International and Aqua-Aston. Exchange & Third-Party Management revenue generally is fee-based and derived from membership, exchange and rental transactions, property and association management, and other related products and services. In April 2022, we disposed of VRI Americas after determining that the business was not a core component of our future growth strategy and operating model. This business was a component of our Exchange and Third-Party Management segment through the date of the sale. See Footnote 3 “Acquisitions and Dispositions” 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”). Integration of Marriott, Sheraton and Westin Branded Vacation Ownership Products Part of the rationale for our acquisition of ILG in 2018 was to achieve operating efficiencies and business growth by leveraging the brands licensed by Marriott International and its subsidiaries to us and to ILG. In 2016, Marriott International purchased Starwood Hotels and Resorts Worldwide, Inc., which at the time exclusively licensed the Sheraton and Westin vacation ownership brands to Legacy-ILG. In August 2022, we launched Abound by Marriott Vacations, a new owner benefit and exchange program which affiliates the Marriott, Sheraton and Westin vacation ownership brands to offer similar benefits to owners of our products under these brands. Under this program, owners of Marriott-, Sheraton- and Westin-branded vacation ownership interests can access over 90 Marriott Vacation Club, Sheraton Vacation Club and Westin Vacation Club resorts using a common currency. The program also harmonizes fee structures and owner benefit levels and allows us to transition certain of our Legacy-ILG sales galleries to sell our Marriott Vacation Club Destinations product. Later in 2022, we plan to add certain Sheraton- and Westin-branded vacation ownership interests to the Marriott Vacation Club Destinations product. 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. 41 Table of Contents 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 (also referred to as vacation ownership interests or “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 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. Revenue Recognition Change Commencing in August 2022 In connection with the affiliation of the Marriott-, Sheraton-, and Westin-branded vacation ownership products discussed above, in mid-August, we intend to modify our business practices and the terms of our Marriott-branded VOI sales contracts to be consistent with the existing terms of our Sheraton- and Westin-branded VOI sales contracts. As a result of these modifications, control of Marriott-branded vacation ownership products will be transferred to the customer upon expiration of the statutory rescission period, consistent with the current method for Sheraton- and Westin-branded vacation ownership products. This will result in the acceleration of revenue and a one-time benefit to development profit, net income attributable to common shareholders and Adjusted EBITDA (defined below), however at this time we are 42 Table of Contents unable to quantify the magnitude of this impact. Marriott-branded VOI sales contracts executed prior to these modifications will continue to be accounted for as outlined above, with transfer of control of the VOI occurring at closing. 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 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: Six Months Ended June 30, 2022 June 30, 2021 Average FICO score 735 733 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. While we adjust interest rates from time to time, such changes are typically not made in step with the timing and magnitude of changes in broader market rates. We do use incentives to encourage our customers to take our financing. 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 53% in the second quarter of 2022 and 52% in the second quarter of 2021. We expect to continue offering financing incentive programs throughout the remainder of 2022. Growing sales to first-time buyers, who are more likely to finance their purchases, remains an integral part of our overall marketing and sales strategy. We expect the current financing incentives and other initiatives to increase sales to first-time buyers to further increase propensity and interest income as new originations of vacation ownership notes receivable outpace the decline in principal of existing vacation ownership notes receivable. 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. 43 Table of Contents 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 reserves, net of collateral value, as adjustments 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: Six Months Ended June 30, 2022 June 30, 2021 Historical default rates 2.1% 2.4% The decrease in default rates in 2022 reflects the continued improvement in the performance of our vacation ownership notes receivable portfolio subsequent to the increased default rates experienced in 2020 as a result of the COVID-19 pandemic. 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. Rental revenues associated with Getaways are reported net of related expenses. 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 44 Table of Contents 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 primary 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 include fees paid to change-management consultants and technology-related costs associated with the integration of ILG and Welk and charges for employee retention, severance and other termination related benefits. Transaction and integration costs also include 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. Other Items We measure operating performance using the key metrics described below. • 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. We consider contract sales to be an important operating measure because it reflects the pace of our business. • Volume per guest (“VPG”) is calculated by dividing consolidated vacation ownership contract sales, excluding fractional sales, telesales, resales, 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 is the number of Interval International network active members at the end of the applicable period. We consider active members to be an important metric as it provides the population of owners eligible to book transactions using the Interval International network. • Average revenue per member is calculated by dividing membership fee revenue, transaction revenue, rental 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. We believe this metric is valuable in measuring the overall engagement of our members. • Segment financial results attributable to common shareholders represents revenues less expenses directly attributable to each applicable reportable business segment (Vacation Ownership and Exchange & Third-Party Management). We consider this measure to be important in evaluating the performance of our reportable business segments. See Footnote 17 “Business Segments” to our Financial Statements for further information on our reportable business segments. NM = Not meaningful. 45 Table of Contents Consolidated Results Three Months Ended Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 REVENUES Sale of vacation ownership products $ 425 $ 296 $ 735 $ 459 Management and exchange 203 220 425 413 Rental 140 121 273 210 Financing 72 68 143 127 Cost reimbursements 324 274 640 529 TOTAL REVENUES 1,164 979 2,216 1,738 EXPENSES Cost of vacation ownership products 80 67 140 107 Marketing and sales 214 164 396 273 Management and exchange 102 126 229 243 Rental 87 81 168 163 Financing 23 21 44 42 General and administrative 64 66 125 112 Depreciation and amortization 32 36 65 77 Litigation charges 2 3 5 6 Royalty fee 29 27 56 52 Impairment — 5 — 5 Cost reimbursements 324 274 640 529 TOTAL EXPENSES 957 870 1,868 1,609 Gains (losses) and other income (expense), net 37 (2) 41 4 Interest expense (30) (44) (57) (87) Transaction and integration costs (37) (29) (65) (48) Other 1 1 1 1 INCOME (LOSS) BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS 178 35 268 (1) Provision for income taxes (43) (27) (75) (16) NET INCOME (LOSS) 135 8 193 (17) Net loss (income) attributable to noncontrolling interests 1 (2) 1 (5) NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 136 $ 6 $ 194 $ (22) Operating Statistics 2022 Second Quarter Three Months Ended (Contract sales $ in millions) June 30, 2022 June 30, 2021 Change % Change Vacation Ownership Total contract sales $ 516 $ 372 $ 144 39% Consolidated contract sales $ 506 $ 362 $ 144 40% Joint venture contract sales $ 10 $ 10 $ — 6% VPG $ 4,613 $ 4,304 $ 309 7% Exchange & Third-Party Management Total active members at end of period (000's) 1,596 1,321 275 21% Average revenue per member $ 38.79 $ 46.36 $ (7.57) (16%) 46 Table of Contents 2022 First Half Six Months Ended (Contract sales $ in millions) June 30, 2022 June 30, 2021 Change % Change Vacation Ownership Total contract sales $ 919 $ 604 $ 315 52% Consolidated contract sales $ 900 $ 588 $ 312 53% Joint venture contract sales $ 19 $ 16 $ 3 22% VPG $ 4,653 $ 4,428 $ 225 5% Exchange & Third-Party Management Total active members at end of period (000's) 1,596 1,321 275 21% Average revenue per member $ 83.32 $ 93.77 $ (10.45) (11%) Revenues 2022 Second Quarter Three Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Vacation Ownership $ 1,091 $ 883 $ 208 24% Exchange & Third-Party Management 74 86 (12) (15%) Total Segment Revenues 1,165 969 196 20% Consolidated Property Owners’ Associations (1) 10 (11) (108%) Total Revenues $ 1,164 $ 979 $ 185 19% 2022 First Half Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Vacation Ownership $ 2,047 $ 1,544 $ 503 33% Exchange & Third-Party Management 158 172 (14) (8%) Total Segment Revenues 2,205 1,716 489 28% Consolidated Property Owners’ Associations 11 22 (11) (48%) Total Revenues $ 2,216 $ 1,738 $ 478 28% 47 Table of Contents 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, expand our business, and return cash to shareholders. 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 Second Quarter Three Months Ended Change ($ in millions) June 30, 2022 June 30, 2021 % Change Net income attributable to common shareholders $ 136 $ 6 $ 130 NM Interest expense 30 44 (14) (32%) Provision for income taxes 43 27 16 65% Depreciation and amortization 32 36 (4) (11%) EBITDA 241 113 128 NM Share-based compensation expense 12 14 (2) (12%) Certain items 2 37 (35) (96%) Adjusted EBITDA $ 255 $ 164 $ 91 55% Certain items for the second quarter of 2022 consisted of $37 million of gains and other income, $2 million of revenue associated with an early termination of a VRI management contract, and $3 million of miscellaneous other adjustments, partially offset by $37 million of transaction and integration costs (including $23 million of ILG integration related costs, $10 million of other integration costs, $2 million of Welk Acquisition and integration related costs, and $2 million of other transaction costs), $5 million of purchase accounting adjustments, and $2 million of litigation charges. The $37 million of gains and other income included $33 million of gains and other income related to the strategic decision to dispose of our hotel in Puerto Vallarta, Mexico, $16 million of gains and other income related to the strategic decision to dispose of our VRI Americas business, and $2 million of proceeds from corporate owned life insurance, partially offset by $8 million of foreign currency translation losses, $3 million of non-cash losses pursuant to a change in control of certain Consolidated Property Owners’ Associations, and $3 million of non-income tax related adjustments to the receivable for the indemnification payment we expect to receive from Marriott International. See Footnote 5 “Income Taxes” to our Financial Statements for further information regarding our indemnification assets. 48 Table of Contents Certain items for the second quarter of 2021 consisted of $29 million of transaction costs (including $25 million of ILG integration related costs and $3 million of Welk Acquisition and integration related costs), $5 million of impairment charges, $3 million of litigation charges, $2 million of purchase accounting adjustments, and $2 million of losses and other expense, partially offset by $2 million to eliminate the impact of consolidating certain property owners’ associations, and $2 million of activity related to the accrual for health and welfare costs for furloughed associates. 2022 First Half Six Months Ended Change ($ in millions) June 30, 2022 June 30, 2021 % Change Net income (loss) attributable to common shareholders $ 194 $ (22) $ 216 NM Interest expense 57 87 (30) (34%) Provision for income taxes 75 16 59 NM Depreciation and amortization 65 77 (12) (16%) EBITDA 391 158 233 NM Share-based compensation expense 20 22 (2) (8%) Certain items 32 53 (21) (42%) Adjusted EBITDA $ 443 $ 233 $ 210 90% Certain items for the first half of 2022 consisted of $65 million of transaction and integration costs (including $48 million of ILG integration related costs, $10 million of other integration costs, $5 million of Welk Acquisition and integration related costs, and $2 million of other transaction costs), $8 million of purchase accounting adjustments, and $5 million of litigation charges, partially offset by $41 million of gains and other income, $2 million of revenue associated with an early termination of a VRI management contract, and $3 million of miscellaneous other adjustments. The $41 million of gains and other income included $33 million of gains and other income related to the strategic decision to dispose of our hotel in Puerto Vallarta, Mexico, $16 million of gains and other income related to the strategic decision to dispose of our VRI Americas business, $3 million of business interruption insurance proceeds received and $2 million of proceeds from corporate owned life insurance, partially offset by $7 million of foreign currency translation charges, $3 million of non-cash losses pursuant to a change in control of certain Consolidated Property Owners’ Associations, and $3 million of non-income tax related adjustments to the receivable for the indemnification payment we expect to receive from Marriott International. See Footnote 5 “Income Taxes” to our Financial Statements for further information regarding our indemnification assets. Certain items for the first half of 2021 consisted of $48 million of transaction costs (including $42 million of ILG integration related costs and $5 million of Welk Acquisition and integration related costs), $6 million of litigation charges, $5 million of impairment charges and $2 million of purchase accounting adjustments, partially offset by $4 million of gains and other income net (including $6 million of foreign currency translation gains, partially offset by $2 million of non-income tax related charges), $2 million to eliminate the impact of consolidating certain property owners’ associations, and $2 million of activity related to the accrual for health and welfare costs for furloughed associates. 49 Table of Contents Segment Adjusted EBITDA 2022 Second Quarter Three Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Vacation Ownership $ 274 $ 182 $ 92 51% Exchange & Third-Party Management 35 37 (2) (5%) Segment adjusted EBITDA 309 219 90 41% General and administrative (54) (55) 1 1% Adjusted EBITDA $ 255 $ 164 $ 91 55% 2022 First Half Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Vacation Ownership $ 473 $ 250 $ 223 89% Exchange & Third-Party Management 78 78 — —% Segment adjusted EBITDA 551 328 223 68% General and administrative (108) (95) (13) (14%) Adjusted EBITDA $ 443 $ 233 $ 210 90% The following tables present Adjusted EBITDA for our reportable segments reconciled to segment financial results attributable to common shareholders. Vacation Ownership 2022 Second Quarter Three Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Segment adjusted EBITDA $ 274 $ 182 $ 92 51% Depreciation and amortization (22) (23) 1 5% Share-based compensation expense (2) (2) — (20%) Certain items 27 (6) 33 NM Segment financial results attributable to common shareholders $ 277 $ 151 $ 126 85% Certain items in the Vacation Ownership segment for the second quarter of 2022 consisted of $32 million of gains and other income, net (including $33 million related to the strategic decision to dispose of our hotel in Puerto Vallarta, Mexico, partially offset by $1 million of foreign currency translation charges) and $3 million of miscellaneous other adjustments, partially offset by $5 million of purchase accounting adjustments, $2 million of litigation charges and $1 million of miscellaneous other transaction costs. Certain items in the Vacation Ownership segment for the second quarter of 2021 consisted of $3 million of litigation charges, $2 million of purchase accounting adjustments and $1 million of transaction and integration costs. 50 Table of Contents 2022 First Half Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Segment adjusted EBITDA $ 473 $ 250 $ 223 89% Depreciation and amortization (44) (42) (2) (4%) Share-based compensation expense (3) (3) — (21%) Certain items 24 (10) 34 NM Segment financial results attributable to common shareholders $ 450 $ 195 $ 255 NM Certain items in the Vacation Ownership segment for the first half of 2022 consisted primarily of $35 million of gains and other income, net (including $33 million related to the strategic decision to dispose of our hotel in Puerto Vallarta, Mexico, and $3 million related to business interruption insurance proceeds, partially offset by $1 million of foreign currency translation charges) and $3 million of miscellaneous other adjustments, partially offset by $8 million of purchase accounting adjustments, $5 million of litigation charges, and $1 million of miscellaneous other transaction costs. Certain items in the Vacation Ownership segment for the first half of 2021 consisted of $6 million of litigation charges, $2 million of purchase accounting adjustments, $1 million of transaction and integration costs, and $1 million of restructuring costs. Exchange & Third-Party Management 2022 Second Quarter Three Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Segment adjusted EBITDA $ 35 $ 37 $ (2) (5%) Depreciation and amortization (7) (9) 2 16% Share-based compensation expense — (1) 1 (10%) Certain items 18 — 18 NM Segment financial results attributable to common shareholders $ 46 $ 27 $ 19 66% Certain items for the Exchange & Third-Party Management segment for the second quarter of 2022 consisted of $16 million of gains and other income related to the strategic decision to dispose of our VRI Americas business and $2 million of revenue associated with an early termination of a VRI management contract. 2022 First Half Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Segment adjusted EBITDA $ 78 $ 78 $ — —% Depreciation and amortization (16) (29) 13 43% Share-based compensation expense (1) (1) — (23%) Certain items 18 — 18 NM Segment financial results attributable to common shareholders $ 79 $ 48 $ 31 63% Certain items for the Exchange & Third-Party Management segment for the first half of 2022 consisted of $16 million of gains and other income related to the strategic decision to dispose of our VRI Americas business and $2 million of revenue associated with an early termination of a VRI management contract. 51 Table of Contents Business Segments Our business is grouped into two reportable business segments: Vacation Ownership and Exchange & Third-Party Management. See Footnote 17 “Business Segments” to our Financial Statements for further information on our segments. Vacation Ownership Three Months Ended Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 REVENUES Sale of vacation ownership products $ 425 $ 296 $ 735 $ 459 Resort management and other services 140 123 266 217 Rental 129 110 251 187 Financing 72 68 143 127 Cost reimbursements 325 286 652 554 TOTAL REVENUES 1,091 883 2,047 1,544 EXPENSES Cost of vacation ownership products 80 67 140 107 Marketing and sales 214 164 396 273 Resort management and other services 60 46 114 81 Rental 91 95 181 191 Financing 23 21 44 42 Depreciation and amortization 22 23 44 42 Litigation charges 2 3 5 6 Restructuring — — — 1 Royalty fee 29 27 56 52 Cost reimbursements 325 286 652 554 TOTAL EXPENSES 846 732 1,632 1,349 Gains and other income, net 32 — 35 — Transaction and integration costs (1) (1) (1) (1) Other 1 1 1 1 SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 277 $ 151 $ 450 $ 195 Contract Sales 2022 Second Quarter Three Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Total consolidated contract sales $ 506 $ 362 $ 144 40% Joint venture contract sales 10 10 — 6% Total contract sales $ 516 $ 372 $ 144 39% 2022 First Half Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Total consolidated contract sales $ 900 $ 588 $ 312 53% Joint venture contract sales 19 16 3 22% Total contract sales $ 919 $ 604 $ 315 52% 52 Table of Contents Sale of Vacation Ownership Products 2022 Second Quarter Three Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Total contract sales $ 516 $ 372 $ 144 39% Less: resales contract sales (11) (7) (4) Less: joint venture contract sales (10) (10) — Consolidated contract sales, net of resales 495 355 140 39% Plus: Settlement revenue 9 8 1 Resales revenue 4 1 3 Revenue recognition adjustments: Reportability (14) (17) 3 Sales reserve (37) (28) (9) Other (1) (32) (23) (9) Sale of vacation ownership products $ 425 $ 296 $ 129 44% _______________ (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. Higher settlement and resales revenues, sales incentives issued, and sales reserve activity were driven by the higher contract sales volumes. 2022 First Half Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Total contract sales $ 919 $ 604 $ 315 52% Less: resales contract sales (20) (12) (8) Less: joint venture contract sales (19) (16) (3) Consolidated contract sales, net of resales 880 576 304 53% Plus: Settlement revenue 16 13 3 Resales revenue 8 3 5 Revenue recognition adjustments: Reportability (47) (53) 6 Sales reserve (66) (42) (24) Other (1) (56) (38) (18) Sale of vacation ownership products $ 735 $ 459 $ 276 60% _______________ (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 $29 million in contract sales relating to the Welk Acquisition, which we acquired in the second quarter of 2021. Higher settlement and resales revenues, sales incentives issued and sales reserve activity were driven by the higher contract sales volumes as well as the Welk Acquisition. 53 Table of Contents Development Profit 2022 Second Quarter Three Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Sale of vacation ownership products $ 425 $ 296 $ 129 44% Cost of vacation ownership products (80) (67) (13) (18%) Marketing and sales (214) (164) (50) (32%) Development profit $ 131 $ 65 $ 66 (100%) Development profit margin 31.0% 22.3% 8.7 pts The increase in Development profit reflects $50 million as a result of higher contract sales volumes net of the sales reserve and direct variable expenses (i.e. cost of vacation ownership products and marketing and sales), in part from continued strong VPG and lower marketing and sales spending as a percentage of revenue, $11 million from a favorable mix of lower cost inventory being sold, $3 million of favorable product cost true-up activity, and $2 million of favorable revenue reportability. 2022 First Half Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Sale of vacation ownership products $ 735 $ 459 $ 276 60% Cost of vacation ownership products (140) (107) (33) (31%) Marketing and sales (396) (273) (123) (45%) Development profit $ 199 $ 79 $ 120 NM Development profit margin 27.1% 17.3% 9.8 pts The increase in Development profit reflects $93 million as a result of higher contract sales volumes net of the sales reserve and direct variable expenses (i.e. cost of vacation ownership products and marketing and sales), in part from continued strong VPGs and lower marketing and sales spending as a percentage of revenue, $14 million from a favorable mix of lower cost inventory being sold, $9 million of favorable product cost true-up activity, and $4 million of favorable revenue reportability. Resort Management and Other Services Revenues, Expenses and Profit 2022 Second Quarter Three Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Management fee revenues $ 41 $ 39 $ 2 3% Ancillary revenues 66 52 14 27% Other management and exchange revenues 33 32 1 5% Resort management and other services revenues 140 123 17 14% Resort management and other services expenses (60) (46) (14) (31%) Resort management and other services profit $ 80 $ 77 $ 3 3% Resort management and other services profit margin 56.7% 62.4% (5.7 pts) Resort management and other services revenues reflected 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, and higher management fees. attributed to budgeted expense increases at owners’ associations, as our management fees are largely calculated as a percentage of budgeted costs to operate resorts. Resort occupancies continued to increase subsequent to the initial impact of the pandemic as travel and tourism trends continue to recover. We expect resort occupancies to remain strong for the remainder of 2022 and this trend in business improvement to continue for the remainder of 2022. The increase in resort management and other services profit reflected the higher ancillary expenses as a result of the higher ancillary revenues mentioned above. 54 Table of Contents 2022 First Half Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Management fee revenues $ 83 $ 77 $ 6 7% Ancillary revenues 120 80 40 50% Other management and exchange revenues 63 60 3 6% Resort management and other services revenues 266 217 49 23% Resort management and other services expenses (114) (81) (33) (41%) Resort management and other services profit $ 152 $ 136 $ 16 12% Resort management and other services profit margin 57.1% 62.7% (5.6 pts) Resort management and other services revenues reflected 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, $5 million of revenues relating to the Welk Acquisition, which we acquired in the second quarter of 2021, and higher management fees. The increase in resort management and other services profit reflected the higher ancillary expenses as a result of the higher ancillary revenues mentioned above. Rental Revenues, Expenses and Profit 2022 Second Quarter Three Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Rental revenues $ 129 $ 110 $ 19 18% Rental expenses (91) (95) 4 4% Rental profit $ 38 $ 15 $ 23 NM Rental profit margin 29.5% 13.2% 16.3 pts Three Months Ended June 30, 2022 June 30, 2021 Change % Change Transient keys rented (1) 577,114 547,041 30,073 5% Average transient key rate $ 262.38 $ 230.67 $ 31.71 14% Resort occupancy 90.5% 85.0% 5.5 pts _________________________ (1) Transient keys rented exclude those occupied through the use of plus points and preview stays. Rental revenues increased by $37 million due to additional transient keys rented at a higher average transient rate, partially offset by $18 million of increased rental expenses recorded as a reduction to rental revenues. Rental expenses decreased by $4 million attributed to $18 million of costs recorded as a reduction to rental revenues and $1 million of lower administrative expenses, partially offset by a $6 million increase in operating hotel expenses attributable to higher revenues, $5 million of higher carry costs of excess inventory on hand resulting from our fulfillment of purchase commitments in 2021 and $4 million of additional costs attributed to higher utilization in 2022 of third-party vacation offerings by owners. As the majority of the governmental restrictions in response to the COVID-19 pandemic that caused rental activity to decline (such as travel restrictions and quarantine requirements) have been lifted, we expect high resort occupancies throughout the remainder of 2022. However, we do not expect this part of our business to fully recover to pre-pandemic levels in 2022 as a result of reduced rental inventory availability due to higher owner usage as well as higher inventory carrying costs, as described above. 55 Table of Contents 2022 First Half Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Rental revenues $ 251 $ 187 $ 64 34% Rental expenses (181) (191) 10 5% Rental profit (loss) $ 70 $ (4) $ 74 NM Rental profit margin 27.7% NM Six Months Ended June 30, 2022 June 30, 2021 Change % Change Transient keys rented (1) 1,116,673 932,786 183,887 20% Average transient key rate $ 268.71 $ 229.99 $ 38.72 17% Resort occupancy 89.1% 76.1% 13.0 pts _________________________ (1) Transient keys rented exclude those occupied through the use of plus points and preview stays. Rental revenues increased by $115 million due to the increase in transient keys rented and a higher average transient rate, partially offset by $51 million of increased rental expenses recorded as a reduction to rental revenues. Rental expenses decreased by $10 million attributed to $51 million of costs recorded as a reduction to rental revenues and $11 million of higher allocations of rental costs to marketing and sales expense for marketing purposes partially offset by $15 million in operating hotel expenses attributable to higher revenues, $13 million of additional tidy and variable costs associated with increased transient keys rented, $8 million of higher carry costs of excess inventory on hand resulting from our fulfillment of purchase commitments in 2021, $8 million of additional costs attributed to higher utilization in 2022 of third-party vacation offerings by owners, $5 million of higher subsidy expenses, and $3 million of higher owner list for rent costs. Financing Revenues, Expenses and Profit 2022 Second Quarter Three Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Financing revenues 72 68 4 5% Financing expenses (10) (8) (2) (22%) Consumer financing interest expense (13) (13) — 4% Financing profit $ 49 $ 47 $ 2 5% Financing propensity 53.1% 52.0% Financing revenues reflected $3 million of higher interest income as a result of a higher average notes receivable balance, a slightly higher average interest rate driven by mix of customers and brands, and $1 million of lower plus point financing incentive costs year-over-year. The higher average notes receivable balance was the result of new loan originations in excess of the amount of the continued pay-down of the existing vacation ownership notes receivable portfolio. We expect the average notes receivable balance, and resulting interest income, to continue to increase with the expected growth in contract sales and loan originations. Financing expenses increased primarily due to the timing of when lien fee income is recognized. As we move through 2022, we expect to continue to increase our focus on sales to first-time buyers, which should further increase financing propensity. 56 Table of Contents 2022 First Half Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Financing revenues 143 127 16 12% Financing expenses (19) (16) (3) (17%) Consumer financing interest expense (25) (26) 1 4% Financing profit $ 99 $ 85 $ 14 17% Financing propensity 51.9% 49.2% Financing revenues reflected $13 million of higher interest income (including $10 million due to the Welk Acquisition and $3 million as a result of a higher average vacation ownership notes receivable balance and a slightly higher average interest rate driven by mix of customers and brands) and $3 million of lower plus point financing incentive costs year-over-year. Financing expenses increased primarily due to the timing of when lien fee income is recognized. The higher financing propensity is primarily a result of the Welk Acquisition in the second quarter of 2021. Legacy-Welk customers have a higher financing propensity than Legacy-MVW customers. Royalty Fee 2022 Second Quarter Three Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Royalty fee $ 29 $ 27 $ 2 7% The increase in royalty fee expense in the second quarter of 2022 included $2 million from an increase in the dollar volume of closings and $1 million from a contractual increase in the fixed portion of the royalty fee owed to Marriott International, partially offset by $1 million from an increase in sales of pre-owned inventory, which carry a lower royalty fee as compared to initial sales of our inventory (one percent versus two percent). 2022 First Half Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Royalty fee $ 56 $ 52 $ 4 8% The increase in royalty fee expense in the first half of 2022 included $4 million from an increase in the dollar volume of closings and $2 million from a contractual increase in the fixed portion of the royalty fee owed to Marriott International, partially offset by $2 million from an increase in sales of pre-owned inventory, which carry a lower royalty fee as compared to initial sales of our inventory (one percent versus two percent). Litigation Charges 2022 Second Quarter Three Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Litigation charges $ 2 $ 3 $ (1) (42%) 2022 First Half Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Litigation charges $ 5 $ 6 $ (1) (26%) During the second quarter and first half of 2022, as well as the second quarter and first half of 2021, the litigation charges related primarily to projects in Europe. 57 Table of Contents Gains and Other Income 2022 Second Quarter Three Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Gains and other income, net $ 32 $ — $ 32 NM During the second quarter of 2022, we recorded $33 million related to the strategic decision to dispose of our hotel in Puerto Vallarta, Mexico, partially offset by $1 million of foreign currency translation charges. 2022 First Half Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Gains and other income, net $ 35 $ — $ 35 NM During the first half of 2022, we recorded $33 million related to the strategic decision to dispose of our hotel in Puerto Vallarta, Mexico, and $3 million related to receipt of business interruption insurance proceeds, partially offset by $1 million of foreign currency translation charges. Exchange & Third-Party Management Three Months Ended Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 REVENUES Management and exchange $ 58 $ 60 $ 122 $ 120 Rental 11 11 22 23 Cost reimbursements 5 15 14 29 TOTAL REVENUES 74 86 158 172 EXPENSES Management and exchange 32 35 65 66 Depreciation and amortization 7 9 16 29 Cost reimbursements 5 15 14 29 TOTAL EXPENSES 44 59 95 124 Gains and other income, net 16 — 16 — SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 46 $ 27 $ 79 $ 48 58 Table of Contents Management and Exchange Profit 2022 Second Quarter Three Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Management and exchange revenue $ 58 $ 60 $ (2) (4%) Management and exchange expense (32) (35) 3 9% Management and exchange profit $ 26 $ 25 $ 1 3% Management and exchange profit margin 45.2% 42.2% 3.0 pts The decrease in management and exchange revenue reflected $4 million of lower revenue due to the disposition of our VRI Americas business during the second quarter of 2022 and $1 million of lower Interval International transaction fee revenue due to fewer exchanges as more members chose to occupy their home resorts rather than exchange for usage through Interval International, partially offset by $2 million of higher management fees at Aqua-Aston managed properties due to the continued ramp-up of the business in Hawaii subsequent to the initial impact of the COVID-19 pandemic. For Interval International, average revenue per member decreased 16% over the prior year comparable period. This decline was due, in part, to recently added affiliations, for which we expect exchange activity to ramp-up over time, as well as the decline in exchange revenue. The increase in management and exchange profit primarily reflected the higher management fees at Aqua Aston. 2022 First Half Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Management and exchange revenue $ 122 $ 120 $ 2 1% Management and exchange expense (65) (66) 1 2% Management and exchange profit $ 57 $ 54 $ 3 6% Management and exchange profit margin 47.0% 45.1% 1.9 pts The increase in management and exchange revenue and profit reflects higher management fees at Aqua-Aston managed properties due to continued ramp-up of business in Hawaii subsequent to the initial impact of the COVID-19 pandemic, partially offset by lower Interval International transaction fee revenue and profit due to fewer exchanges as more members chose to occupy their home resorts rather than exchange for usage through Interval International. The management and exchange revenue was also negatively impacted by the disposition of our VRI Americas business during the second quarter of 2022 as discussed above. For Interval International, average revenue per member decreased 11% over the prior year comparable period. This decline was due, in part, to recently added affiliations, for which we expect exchange activity to ramp-up over time, as well as the decline in exchange revenue. Rental Revenues 2022 Second Quarter Three Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Rental revenues $ 11 $ 11 $ — (3%) Results reflect a $2 million decrease in gross Getaway revenues, which resulted from an 18% decline in transactions, partially offset by a 7% increase in the average Getaway fee. Rental revenues remain flat to the prior year, as rental inventory procurement costs, which are recorded net within Rental revenues, declined by $2 million. The decline in Getaway transactions reflected fewer owner deposits as more members chose to occupy their home resorts rather than exchange for usage through Interval International, which put pressure on the inventory available for Getaways. We expect the reduced exchange volume and Getaway specific inventory sourcing to continue through the remainder of the year. 59 Table of Contents 2022 First Half Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Rental revenues $ 22 $ 23 $ (1) (6%) Results reflect a $2 million decrease in gross Getaway revenues, which resulted from a 15% decline in transactions, partially offset by an 11% increase in the average Getaway fee. This was partially offset by lower rental inventory procurement costs, which are recorded net within Rental revenues, of $1 million. The decline in Getaway transactions reflected fewer owner deposits as more members chose to occupy their home resorts rather than exchange for usage through Interval International, which put pressure on the inventory available for Getaways. Depreciation and Amortization 2022 Second Quarter Three Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Depreciation and amortization $ 7 $ 9 $ (2) (16%) 2022 First Half Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Depreciation and amortization $ 16 $ 29 $ (13) (43%) The decrease in depreciation expense in the first half of 2022 relates to a true-up made in the prior year to accelerate depreciation on a technology asset. Gains and Other Income 2022 Second Quarter Three Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Gains and other income, net $ 16 $ — $ 16 NM 2022 First Half Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Gains and other income, net $ 16 $ — $ 16 NM During the second quarter and first half of 2022, we recorded a $16 million gain related to the strategic decision to dispose of our VRI Americas business . See Footnote 3 “Acquisitions and Dispositions” for more information on the disposition of VRI Americas. 60 Table of Contents Corporate and Other Corporate and Other consists of results that are not allocable to our segments, including company-wide general and administrative costs, corporate interest expense, transaction and integration costs, and income taxes. In addition, Corporate and Other includes the revenues and expenses from the Consolidated Property Owners’ Associations. Three Months Ended Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 REVENUES Resort management and other services $ 5 $ 37 $ 37 $ 76 Cost reimbursements (6) (27) (26) (54) TOTAL REVENUES (1) 10 11 22 EXPENSES Resort management and other services 10 45 50 96 Rental (4) (14) (13) (28) General and administrative 64 66 125 112 Depreciation and amortization 3 4 5 6 Restructuring — — — (1) Impairment — 5 — 5 Cost reimbursements (6) (27) (26) (54) TOTAL EXPENSES 67 79 141 136 (Losses) gains and other (expense) income, net (11) (2) (10) 4 Interest expense (30) (44) (57) (87) Transaction and integration costs (36) (28) (64) (47) FINANCIAL RESULTS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS (145) (143) (261) (244) Provision for income taxes (43) (27) (75) (16) Net loss (income) attributable to noncontrolling interests 1 (2) 1 (5) FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (187) $ (172) $ (335) $ (265) 61 Table of Contents Consolidated Property Owners’ Associations The following table illustrates the impact of certain Consolidated Property Owners’ Associations under the relevant accounting guidance. Three Months Ended Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 REVENUES Resort management and other services $ 4 $ 37 $ 36 $ 76 Cost reimbursements (6) (27) (26) (54) TOTAL REVENUES (2) 10 10 22 EXPENSES Resort management and other services 10 45 50 96 Rental (4) (14) (13) (28) Cost reimbursements (6) (27) (26) (54) TOTAL EXPENSES — 4 11 14 Losses and other expense, net (3) (2) (3) — FINANCIAL RESULTS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS (5) 4 (4) 8 Provision for income taxes — (1) — (1) Net loss (income) attributable to noncontrolling interests 1 (2) 1 (5) FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (4) $ 1 $ (3) $ 2 General and Administrative 2022 Second Quarter Three Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change General and administrative $ 64 $ 66 $ (2) (2%) For the second quarter of 2022, General and administrative expenses decreased due primarily to lower bonus expenses. 2022 First Half Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change General and administrative $ 125 $ 112 $ 13 12% For the first half of 2022, General and administrative expenses increased primarily due to $12 million of higher salary costs due to reduced work week programs in the prior year and a $2 million decrease in credits related to incentives under the CARES Act, partially offset by $1 million in lower overall spending. Gains / Losses and Other Income / Expense 2022 Second Quarter Three Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Losses and other expense, net $ (11) $ (2) $ (9) NM In the second quarter of 2022, we recorded $7 million of foreign currency translation losses, a tax related charge of $3 million, and $3 million of non-cash losses pursuant to a change in control of certain Consolidated Property Owners’ Associations, partially offset by $2 million of proceeds from corporate owned life insurance. In the second quarter of 2021, we recorded a tax related charge of $2 million. 62 Table of Contents 2022 First Half Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change (Losses) gains and other (expense) income, net $ (10) $ 4 $ (14) NM In the first half of 2022, we recorded $6 million of foreign currency translation losses, a tax related charge of $3 million, and $3 million of non-cash losses pursuant to a change in control of certain Consolidated Property Owners’ Associations, partially offset by $2 million of proceeds from corporate owned life insurance. In the first half of 2021, we recorded $6 million of foreign currency translation gains, partially offset by a tax related charge of $2 million. Interest Expense 2022 Second Quarter Three Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Interest expense $ (30) $ (44) $ 14 32% Interest expense decreased $14 million, including $12 million due to the early redemption of the 2026 Notes in 2021, $7 million due to the adoption of new accounting guidance related to our convertible debt (see Footnote 2 “Significant Accounting Policies and Recent Accounting Standards” to our Financial Statements), and $4 million due to the early redemption of a portion of the 2025 Notes in 2021, partially offset by $5 million due to the issuance of the 2029 Notes in June 2021, $3 million of non-income tax related interest expense and $1 million of higher interest related to finance leases. 2022 First Half Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Interest expense $ (57) $ (87) $ 30 34% Interest expense decreased $30 million, including $25 million due to the early redemption of the 2026 Notes in 2021, $13 million due to the adoption of new accounting guidance related to our convertible debt (see Footnote 2 “Significant Accounting Policies and Recent Accounting Standards” to our Financial Statements), and $8 million due to the early redemption of a portion of the 2025 Notes in 2021, partially offset by $11 million due to the issuance of the 2029 Notes in June 2021, $3 million of non-income tax related interest expense and $2 million of higher interest related to finance leases. Transaction and Integration Costs 2022 Second Quarter Three Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Transaction and integration costs $ (36) $ (28) $ (8) (27%) In the second quarter of 2022, Transaction and integration costs included $23 million of ILG integration related costs, $10 million of other integration costs, $2 million of Welk Acquisition and integration related costs, and $1 million of other transactions costs. In the second quarter of 2021, Transaction and integration costs included $25 million of ILG integration related costs, and $3 million of Welk Acquisition and integration related costs. 63 Table of Contents 2022 First Half Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Transaction and integration costs $ (64) $ (47) $ (17) (36%) In the first half of 2022, Transaction and integration costs included $48 million of ILG integration related costs, $10 million of other integration costs, $5 million of Welk Acquisition and integration related costs and $1 million of other transaction costs. In the first half of 2021, Transaction and integration costs included $42 million of ILG integration related costs and $5 million of Welk Acquisition and integration related costs. Income Tax 2022 Second Quarter Three Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Provision for income taxes $ (43) $ (27) $ (16) (65%) The change in the Provision for income taxes is predominately attributable to an increase in pre-tax income for the three months ended June 30, 2022. 2022 First Half Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Change % Change Provision for income taxes $ (75) $ (16) $ (59) NM The change in the Provision for income taxes is predominately attributable to an increase in pre-tax income for the six months ended June 30, 2022. Liquidity and Capital Resources Typically, our capital needs are supported by cash on hand ($0.3 billion at the end of the second 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, 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. Subsequent to the end of the second quarter of 2022, we amended certain agreements associated with our Warehouse Credit Facility, which increased the borrowing capacity of the existing facility from $350 million to $425 million and extended the revolving period from April 21, 2023 to July 28, 2024. At June 30, 2022, we had $4.7 billion of total gross debt outstanding, which included $1.9 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 $10 million related to a non-interest bearing note payable. During the second quarter of 2022, we issued irrevocable notice of our intent to settle the 2022 Convertible Notes in cash. Excluding repayment of non-recourse debt, which is funded by the performance of vacation ownership notes receivable, principal repayments for the remainder of 2022 and 2023 consist of $230 million related to the 2022 Convertible Notes and $6 million related to a non-interest bearing note payable, respectively. At June 30, 2022, we had $686 million of completed real estate inventory on hand and $506 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. 64 Table of Contents Our material cash requirements from known contractual or other obligations were $6 billion as of June 30, 2022, of which we expect $569 million to be payable during the second half of 2022. These obligations primarily relate to our debt, securitized debt, and purchase obligations. See “Material Cash Requirements” below for additional information. The following table summarizes the changes in cash, cash equivalents, and restricted cash: Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Cash, cash equivalents, and restricted cash provided by (used in): Operating activities $ 218 $ 148 Investing activities 15 (176) Financing activities (428) 716 Effect of change in exchange rates on cash, cash equivalents, and restricted cash (2) — Net change in cash, cash equivalents, and restricted cash $ (197) $ 688 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. 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 collections of vacation ownership notes receivable, higher sales and rental deposits due to the continued ramp-up of the business, and higher operational expense accruals, partially offset by timing of certain employee benefit payments and recognition of previously deferred revenues. 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 Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Inventory spending $ (92) $ (77) Purchase of vacation ownership units for future transfer to inventory (12) (99) Inventory costs 118 90 Inventory spending less than (in excess of) cost of sales $ 14 $ (86) While we have significant excess 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. Through our existing vacation ownership interest repurchase program, we proactively acquire 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. Our spending for real estate inventory in the first half of 2022 was lower than real estate inventory costs and was primarily related to our vacation ownership interest repurchase program. We acquired a higher amount of previously sold 65 Table of Contents vacation ownership interests in the first half of 2022 due to the reinstatement of our vacation ownership interest repurchase program that was suspended as part of the cash preservation measures implemented in response to the COVID-19 pandemic. We expect inventory spending to be less than cost of sales for the remainder of 2022 as we intend to repurchase less inventory and provided we are able to negotiate a capital efficient inventory arrangement under which a third party will develop the Waikiki property we are committed to purchase and agree to resell it to us at a later date. See Footnote 16 “Variable Interest Entities” to our Financial Statements for more information. Vacation Ownership Notes Receivable Collections (Less Than) In Excess of Originations Six Months Ended ($ in millions) June 30, 2022 June 30, 2021 Vacation ownership notes receivable collections — non-securitized $ 133 $ 110 Vacation ownership notes receivable collections — securitized 232 252 Vacation ownership notes receivable originations (483) (320) Vacation ownership notes receivable collections (less than) in excess of originations $ (118) $ 42 Vacation ownership notes receivable collections increased during the first half of 2022, as compared to the first half of 2021, due to an increase in the portfolio of outstanding vacation ownership notes receivable, reflecting the continued ramp up of sales and higher financing propensity (52% for the first half of 2022, compared to 49% for the first half of 2021). Cash from Investing Activities Acquisition of a Business, Net of Cash and Restricted Cash Acquired Net cash outflows of $157 million in the first half of 2021 were due to the Welk Acquisition. See Footnote 3 “Acquisitions and Dispositions” to our Financial Statements for more information. Proceeds from Disposition of Subsidiaries, Net of Cash and Restricted Cash Transferred Proceeds from disposition of subsidiaries, net of cash and restricted cash transferred of $93 million in the first half of 2022 were due to the disposition of various subsidiaries, including $55 million for the VRI Americas business entities and $38 million for the entities that owned and operated the hotel in Puerto Vallarta, Mexico. See Footnote 3 “Acquisitions and Dispositions” to our Financial Statements for more information. Capital Expenditures for Property and Equipment In the first half of 2022, capital expenditures for property and equipment included $23 million to support business operations (including $15 million for ancillary and other operations assets and $7 million for sales locations) and $1 million for technology. In the first half of 2021, capital expenditures for property and equipment of $11 million included $8 million to support business operations (including $5 million for ancillary and other operations assets and $3 million for sales locations) and $3 million for technology. Issuance of Note Receivable to VIE During the second quarter of 2022, in connection with the amendment of an inventory purchase commitment, we extended a loan to a VIE, which we do not consolidate, for $47 million. The loan is due in full upon the earlier of either a sale of the property, including a sale to us, or an amendment and restatement of our purchase commitment, one of which is expected to occur in 2022. See Footnote 16 “Variable Interest Entities” to our Financial Statements for more information. 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. 66 Table of Contents During the second quarter of 2022, we completed the securitization of a pool of $383 million of vacation ownership notes receivable. Approximately $342 million of the vacation ownership notes receivable were purchased by the 2022-1 LLC during the second quarter of 2022. Of the $375 million in proceeds from the transaction, $40 million was held by the 2022-1 LLC as of June 30, 2022 and released subsequently as it purchased all of the remaining loans. In addition, approximately $98 million was used to repay all outstanding amounts previously drawn under our Warehouse Credit Facility, approximately $7 million was used to pay transaction expenses and fund required reserves, and the remaining $176 million will be used for general corporate purposes. In connection with this securitization, we redeemed the remaining vacation ownership loan backed notes, issued in a prior securitization, for approximately $38 million; the majority of the loans acquired through the redemption were purchased by the 2022-1 LLC. As of June 30, 2022, $106 million of gross vacation ownership notes receivable were eligible for securitization. Proceeds from / Repayments of Debt All proceeds from and repayments of debt during the first half of 2022 were related to borrowings from and repayments of our 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 half of 2022. During the first half of 2022, we borrowed and repaid $125 million under our Revolving Corporate Credit Facility. There were no borrowed amounts outstanding under our Revolving Corporate Credit Facility as of June 30, 2022. As of June 30, 2022, w e had $1 million of le tters of credit outstanding under our Revolving Corporate Credit Facility. During the first half 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 half of 2021. Finance Lease Payment During the first half of 2022, we paid $2 million related to our finance lease obligations for technology and business operations equipment. Debt Issuance Costs During the first half of 2022, we paid $9 million of debt issuance costs, which included $5 million associated with the vacation ownership notes receivable securitization completed in 2022 and $4 million 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 half of 2021, we paid $15 million of debt issuance costs, which included $6 million associated with the vacation ownership notes receivable securitization we completed in 2021, $7 million associated with the issuance of the 2029 Notes, $1 million associated with the issuance of the 2026 Convertible Notes, and $1 million associated with the amendment of a waiver to the agreement that governs our Corporate Credit Facility. Repurchase of Common Stock The following table summarizes share repurchase activity under our current share repurchase program: ($ 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 half of 2022 2,187,336 312 143.02 As of June 30, 2022 19,868,731 $ 1,730 $ 87.09 See Footnote 14 “Shareholders' Equity” to our Financial Statements for further information related to our share repurchase program, including the additional share repurchase authorization and extension approved by our Board of Directors during the first half of 2022. 67 Table of Contents Dividends We distributed cash dividends to holders of our common stock during the first half 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 May 12, 2022 May 26, 2022 June 9, 2022 $0.62 We currently expect to pay quarterly dividends in the future, but any future dividend payments will be subject to Board approval, which will depend on our financial condition, results of operations and capital requirements, as well as applicable law, regulatory constraints, industry practice, and other business considerations that our Board of Directors considers relevant. In addition, our Corporate Credit Facility and the indentures governing our senior notes contain restrictions on our ability to pay dividends, and the terms of agreements governing debt that we may incur in the future may also limit or prohibit the payment of dividends. The payment of certain cash dividends may also result in an adjustment to the conversion rate of our convertible notes in a manner adverse to us. Accordingly, there can be no assurance that we will pay dividends in the future at any particular rate or at all. Material Cash Requirements The following table summarizes our future material cash requirements from known contractual or other obligations as of June 30, 2022: Payments Due by Period ($ in millions) Total Remainder of 2022 2023 2024 2025 2026 Thereafter Contractual Obligations Debt obligations (1) $ 3,111 $ 276 $ 94 $ 89 $ 1,107 $ 616 $ 929 Securitized debt (1)(2) 2,166 116 229 228 224 221 1,148 Purchase obligations (3) 279 154 55 31 22 17 — Operating lease obligations (4) 128 12 25 21 20 18 32 Finance lease obligations (4) 283 4 6 6 4 4 259 Other long-term obligations (5) 18 7 4 3 2 1 1 $ 5,985 $ 569 $ 413 $ 378 $ 1,379 $ 877 $ 2,369 _________________________ (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 future guaranteed purchases of rental inventory of $8 million and 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 $5 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. 68 Table of Contents 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 $137 million for the aforementioned period. Supplemental Guarantor Information The 2028 Notes are guaranteed by MVWC, Marriott Ownership Resorts, Inc. (“MORI”), and certain other subsidiaries whose voting securities are wholly owned directly or indirectly by MORI (such subsidiaries collectively, the “Senior Notes Guarantors”). These guarantees are full and unconditional and joint and several. The guarantees of the Senior Notes Guarantors are subject to release in limited circumstances only upon the occurrence of certain customary conditions. The following tables present consolidating financial information as of June 30, 2022 and December 31, 2021, and for the six months ended June 30, 2022 for MVWC and MORI on a stand-alone basis (collectively, the “Issuers”), the Senior Notes Guarantors, the combined non-guarantor subsidiaries of MVW, and MVW on a consolidated basis. Condensed Consolidating Balance Sheet As of June 30, 2022 Issuers Senior Notes Guarantors Non-Guarantor Subsidiaries Total Eliminations MVW Consolidated ($ in millions) MVWC MORI Cash and cash equivalents $ — $ 82 $ 102 $ 140 $ — $ 324 Restricted cash — 22 90 170 — 282 Accounts receivable, net 6 112 93 58 (25) 244 Vacation ownership notes receivable, net — 129 225 1,721 — 2,075 Inventory — 213 407 75 — 695 Property and equipment — 195 636 320 — 1,151 Goodwill — — 3,117 — — 3,117 Intangibles, net — — 909 32 — 941 Investments in subsidiaries 3,497 4,211 — — (7,708) — Other 76 120 224 130 (39) 511 Total assets $ 3,579 $ 5,084 $ 5,803 $ 2,646 $ (7,772) $ 9,340 Accounts payable $ 25 $ 43 $ 84 $ 65 $ — $ 217 Advance deposits — 85 89 21 — 195 Accrued liabilities 15 77 157 107 (26) 330 Deferred revenue — 9 217 161 (15) 372 Payroll and benefits liability — 111 72 21 — 204 Deferred compensation liability — 103 25 2 — 130 Securitized debt, net — — — 1,868 (22) 1,846 Debt, net 788 1,873 76 11 — 2,748 Other 6 1 174 29 — 210 Deferred taxes — 60 283 — (1) 342 MVW shareholders' equity 2,745 2,722 4,626 360 (7,708) 2,745 Noncontrolling interests — — — 1 — 1 Total liabilities and equity $ 3,579 $ 5,084 $ 5,803 $ 2,646 $ (7,772) $ 9,340 69 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 Six Months Ended June 30, 2022 Issuers Senior Notes Guarantors Non-Guarantor Subsidiaries Total Eliminations MVW Consolidated ($ in millions) MVWC MORI Revenues $ — $ 390 $ 1,366 $ 476 $ (16) $ 2,216 Expenses (4) (510) (1,053) (397) 16 (1,948) Benefit (provision) for income taxes 1 40 (92) (24) — (75) Equity in net income (loss) of subsidiaries 197 294 — — (491) — Net income (loss) 194 214 221 55 (491) 193 Net loss attributable to noncontrolling interests — — — 1 — 1 Net income (loss) attributable to common shareholders $ 194 $ 214 $ 221 $ 56 $ (491) $ 194 70 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 the 2021 Annual Report.