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 the information concerning: our possible or assumed future results of operations; financial condition and leverage, including the expected impact of the Maui wildfires; dividend payments; our expectations regarding development profit margins, defaults and expected losses, notes receivable balances, commitments to owners’ associations, payments for property acquisitions and development plans, lease payments, that interest income and notes receivable will increase in 2023, interest rates, indemnification receivables, financing profit margin, general and administrative expenses, inventory costs and inventory spending, taxes, and any effects of the COVID-19 pandemic; and business strategies, such as our expectations that we will continue to offer financing incentives. 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 effects of a future health crisis, including its short and longer-term impacts on consumer confidence and demand for travel, and the pace of recovery following a health crisis; variations in demand for vacation ownership and exchange products and services; worker absenteeism; price and wage inflation; global supply chain disruptions; volatility in the international and national economy and credit markets; the impact of the current or a future banking crisis; wars involving Russia, Ukraine, Israel and Gaza 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 impact of rising interest rates; political or social strife; difficulties associated with implementing new or maintaining existing technology; changes in privacy laws; the effects of steps that we or our affiliates have taken and may continue to take to reduce operating costs; impacts from natural or man-made disasters and wildfires, including the Maui wildfires; and other matters referred to under the heading “Risk Factors” contained herein and also in our most recent Annual Report on Form 10-K, and which may be 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 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 in the Interim Condensed Notes to Consolidated Financial Statements that we include in the Financial Statements of this Quarterly Report on Form 10-Q. 36 Table of Contents 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 Vacation 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 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 an exchange network and membership programs, as well as the provision of management services to other resorts and lodging properties. Exchange & Third-Party Management revenue generally is fee-based and derived from membership, exchange and rental transactions, property and owners’ association management, and other related products and services. Since May 2022, we provide these services through our Interval International and Aqua-Aston businesses. 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 & Third-Party Management segment through the date of the sale. 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 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. Part of the rationale for our acquisition of ILG in 2018 was to achieve operating efficiencies and business growth by leveraging the brands then licensed by Marriott International and its subsidiaries to us and to 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 VOIs can access over 90 resorts under the Marriott Vacation Club, Sheraton Vacation Club and Westin Vacation Club brands using a common currency. The program also harmonizes fee structures and owner benefit levels and has allowed us to transition most of our Legacy-ILG sales galleries to sell our Marriott Vacation Club Destinations product. Further, in late 2022, we added certain Sheraton- and Westin-branded VOIs to the Marriott Vacation Club Destinations product. We recognize revenues from the sale of vacation ownership products (also referred to as 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 our contracts with the customer and business practices, control of the vacation ownership product has historically transferred to the customer at different points in time for each brand of VOIs. In the third quarter of 2022, we aligned our business practices and contract terms for the sale of vacation ownership products (the “Contract Alignment”), resulting in the prospective change in the timing of the transfer of control to the customer for Marriott-branded VOIs. Prior to these changes, control transfer occurred at closing for Marriott-branded vacation ownership products. Subsequent to the Contract Alignment, transfer of control of Marriott-branded vacation ownership products occurs at expiration of the statutory rescission period, consistent with the historical timing of Sheraton-, Westin- and Hyatt- branded transactions. Marriott-branded VOI sales contracts executed prior to these modifications have been accounted for with transfer of control of the VOI occurring at closing. Control transfer for Legacy-Welk VOIs continues to occur at closing. As a result of the unification of our Marriott-, Sheraton- and Westin-branded vacation ownership products under the Abound by Marriott Vacations program in the third quarter of 2022, we combined the reserves, and aligned our reserve methodology, for vacation ownership notes receivable for our Marriott, Sheraton and Westin brands (the “Reserve Alignment”). 37 Table of Contents Performance Measures We measure operating performance using the key metrics described below: • Contract sales from the sale of vacation ownership products, which consists of the total amount of vacation ownership product sales under contracts signed during the period where we have generally received a down payment of at least ten percent of the contract price, reduced by actual rescissions during the period, inclusive of contracts associated with sales of vacation ownership products on behalf of third parties, which we refer to as “resales contract sales.” In circumstances where customers apply 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 and adjustments 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. We consider contract sales to be an important operating measure because it reflects the pace of sales in our business. • Total contract sales include contract sales from the sale of vacation ownership products including non-consolidated joint ventures. • Consolidated contract sales exclude contracts sales from the sale of vacation ownership products for non-consolidated joint ventures. • 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. • Development profit margin is calculated by dividing Development profit by revenues from the sale of vacation ownership products. 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. We believe that Development profit margin is an important measure of the profitability of our development and subsequent marketing and sales of VOIs. • 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 because it represents 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 Interval International network active 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 16 “Business Segments” to our Financial Statements for further information on our reportable business segments. NM = Not meaningful. 38 Table of Contents Consolidated Results Three Months Ended Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 REVENUES Sale of vacation ownership products $ 319 $ 444 $ 1,085 $ 1,179 Management and exchange 205 198 611 623 Rental 138 165 435 438 Financing 81 74 239 217 Cost reimbursements 443 371 1,163 1,011 TOTAL REVENUES 1,186 1,252 3,533 3,468 EXPENSES Cost of vacation ownership products 50 76 174 216 Marketing and sales 202 207 618 603 Management and exchange 115 101 332 330 Rental 119 126 344 294 Financing 30 5 81 49 General and administrative 57 62 189 187 Depreciation and amortization 33 33 99 98 Litigation charges 2 2 7 7 Royalty fee 30 28 88 84 Impairment — 1 4 1 Cost reimbursements 443 371 1,163 1,011 TOTAL EXPENSES 1,081 1,012 3,099 2,880 Gains (losses) and other income (expense), net 3 (2) 34 39 Interest expense, net (36) (34) (106) (91) Transaction and integration costs (5) (34) (28) (99) Other (1) (1) — — INCOME BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS 66 169 334 437 Provision for income taxes (24) (59) (115) (134) NET INCOME 42 110 219 303 Net income attributable to noncontrolling interests — (1) — — NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 42 $ 109 $ 219 $ 303 39 Table of Contents Operating Statistics 2023 Third Quarter Three Months Ended (Contract sales $ in millions) September 30, 2023 September 30, 2022 Change % Change Vacation Ownership Total contract sales $ 443 $ 492 $ (49) (10%) Consolidated contract sales $ 438 $ 483 $ (45) (9%) Joint venture contract sales $ 5 $ 9 $ (4) (51%) VPG $ 4,055 $ 4,353 $ (298) (7%) Exchange & Third-Party Management Total active members at end of period (000's) 1,571 1,591 (20) (1%) Average revenue per member $ 39.15 $ 38.91 $ 0.24 1% 2023 First Three Quarters Nine Months Ended (Contract sales $ in millions) September 30, 2023 September 30, 2022 Change % Change Vacation Ownership Total contract sales $ 1,349 $ 1,411 $ (62) (4%) Consolidated contract sales $ 1,325 $ 1,383 $ (58) (4%) Joint venture contract sales $ 24 $ 28 $ (4) (16%) VPG $ 4,118 $ 4,544 $ (426) (9%) Exchange & Third-Party Management Total active members at end of period (000's) 1,571 1,591 (20) (1%) Average revenue per member $ 120.48 $ 122.30 $ (1.82) (1%) Revenues 2023 Third Quarter Three Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Vacation Ownership $ 1,126 $ 1,182 $ (56) (5%) Exchange & Third-Party Management 64 71 (7) (8%) Total Segment Revenues 1,190 1,253 (63) (5%) Consolidated Property Owners’ Associations (4) (1) (3) NM Total Revenues $ 1,186 $ 1,252 $ (66) (5%) 2023 First Three Quarters Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Vacation Ownership $ 3,335 3,229 $ 106 3% Exchange & Third-Party Management 200 229 (29) (12%) Total Segment Revenues 3,535 3,458 77 2% Consolidated Property Owners’ Associations (2) 10 (12) NM Total Revenues 3,533 3,468 $ 65 2% 40 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, net (excluding consumer financing interest expense associated with term securitization transactions), income taxes, depreciation and amortization. Adjusted EBITDA reflects additional adjustments for certain items, 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 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 provisions 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 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 attributable to common shareholders, which is the most directly comparable GAAP financial measure. 41 Table of Contents 2023 Third Quarter Three Months Ended Change ($ in millions) September 30, 2023 September 30, 2022 % Change Net income attributable to common shareholders $ 42 $ 109 $ (67) (61%) Interest expense, net 36 34 2 4% Provision for income taxes 24 59 (35) (59%) Depreciation and amortization 33 33 — 1% EBITDA 135 235 (100) (42%) Share-based compensation expense 6 10 (4) (33%) Certain items 9 39 (30) NM Adjusted EBITDA $ 150 $ 284 $ (134) (47%) Adjusted EBITDA Margin 20% 32% (12 pts) The table below details the components of Certain items for the three months ended September 30, 2023 and September 30, 2022. Three Months Ended ($ in millions) September 30, 2023 September 30, 2022 ILG integration $ — $ 22 Welk acquisition and integration 5 5 Other transformation initiatives — 6 Other transaction costs — 1 Transaction and integration costs 5 34 Purchase accounting adjustments 3 5 Litigation charges 2 2 Impairment — 1 Gain on disposition of hotel, land and other (1) — Gain on disposition of VRI Americas — (1) Foreign currency translation 5 3 Insurance proceeds (1) — Change in indemnification asset (6) (1) Other — 1 (Gains) losses and other (income) expense, net (3) 2 Expiration/forfeiture of deposits on pre-acquisition preview packages — (6) Change in estimate relating to pre-acquisition contingencies — (2) Other 2 3 Total Certain items $ 9 $ 39 42 Table of Contents 2023 First Three Quarters Nine Months Ended Change ($ in millions) September 30, 2023 September 30, 2022 % Change Net income attributable to common shareholders $ 219 $ 303 $ (84) (28%) Interest expense, net 106 91 15 15% Provision for income taxes 115 134 (19) (14%) Depreciation and amortization 99 98 1 1% EBITDA 539 626 (87) (14%) Share-based compensation expense 25 30 (5) (15%) Certain items 11 71 (60) NM Adjusted EBITDA $ 575 $ 727 $ (152) (21%) Adjusted EBITDA Margin 24% 30% (6%) The table below details the components of Certain items for the nine months ended September 30, 2023 and September 30, 2022. Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 ILG integration $ 15 $ 80 Welk acquisition and integration 13 10 Other transformation initiatives — 6 Other transaction costs — 3 Transaction and integration costs 28 99 Early redemption of senior secured notes 10 — Gain on disposition of hotel, land and other (8) (33) Gain on disposition of VRI Americas — (17) Foreign currency translation 1 10 Insurance proceeds (3) (5) Change in indemnification asset (30) 2 Other (4) 4 Gains and other income, net (34) (39) Purchase accounting adjustments 6 13 Litigation charges 7 7 Impairment 4 1 Expiration/forfeiture of deposits on pre-acquisition preview packages — (6) Early termination of VRI management contract — (2) Change in estimate relating to pre-acquisition contingencies — (5) Other — 3 Total Certain items $ 11 $ 71 43 Table of Contents Segment Adjusted EBITDA 2023 Third Quarter Three Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Vacation Ownership $ 173 $ 299 $ (126) (42%) Exchange & Third-Party Management 30 39 (9) (20%) Segment adjusted EBITDA 203 338 (135) (40%) General and administrative (53) (54) 1 NM Adjusted EBITDA $ 150 $ 284 $ (134) (47%) 2023 First Three Quarters Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Vacation Ownership $ 647 $ 772 $ (125) (16%) Exchange & Third-Party Management 99 117 (18) (15%) Segment adjusted EBITDA 746 889 (143) (16%) General and administrative (171) (162) (9) (6%) Adjusted EBITDA $ 575 $ 727 $ (152) (21%) The following tables present segment financial results attributable to common shareholders reconciled to segment Adjusted EBITDA. Vacation Ownership 2023 Third Quarter Three Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Segment financial results $ 149 $ 270 $ (121) (45%) Depreciation and amortization 23 23 — (3%) Share-based compensation expense 2 2 — 17% Certain items (1) 4 (5) NM Segment adjusted EBITDA $ 173 $ 299 $ (126) (42%) The table below details the components of Certain items for the three months ended September 30, 2023 and September 30, 2022. Three Months Ended ($ in millions) September 30, 2023 September 30, 2022 Transaction and integration costs $ — $ 2 Purchase accounting adjustments 3 5 Litigation charges 2 2 Impairment — 1 Foreign currency translation — (1) Insurance proceeds (1) — Change in indemnification asset (6) — Gains and other income, net (7) (1) Expiration/forfeiture of deposits on pre-acquisition preview packages — (6) Change in estimate relating to pre-acquisition contingencies — (2) Other 1 3 Total Certain items $ (1) $ 4 44 Table of Contents 2023 First Three Quarters Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Segment financial results $ 578 $ 720 $ (142) (20%) Depreciation and amortization 69 67 2 2% Share-based compensation expense 6 5 1 24% Certain items (6) (20) 14 NM Segment adjusted EBITDA $ 647 $ 772 $ (125) (16%) The table below details the components of Certain items for the nine months ended September 30, 2023 and September 30, 2022. Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 Transaction and integration costs $ — 3 Purchase accounting adjustments 6 13 Litigation charges 8 7 Impairment 4 1 Gain on disposition of hotel, land and other (7) (33) Insurance proceeds (3) (3) Change in indemnification asset (9) — Other (4) — Gains and other income, net (23) (36) Expiration/forfeiture of deposits on pre-acquisition preview packages — (6) Change in estimate relating to pre-acquisition contingencies — (5) Other (1) 3 Total Certain items $ (6) $ (20) 45 Table of Contents Exchange & Third-Party Management 2023 Third Quarter Three Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Segment financial results $ 23 $ 29 $ (6) (22%) Depreciation and amortization 7 8 (1) (3%) Share-based compensation expense — 1 (1) (30%) Certain items — 1 (1) NM Segment adjusted EBITDA $ 30 $ 39 $ (9) (20%) The table below details the components of Certain items for the three months ended September 30, 2023 and September 30, 2022. Three Months Ended ($ in millions) September 30, 2023 September 30, 2022 Gain on disposition of hotel, land and other $ (1) $ — Gain on disposition of VRI Americas — (1) Foreign currency translation — 2 (Gains) losses and other (income) expense, net (1) 1 Other 1 — Total Certain items $ — $ 1 2023 First Three Quarters Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Segment financial results $ 75 $ 108 $ (33) (30%) Depreciation and amortization 23 24 (1) (2%) Share-based compensation expense 1 2 (1) (22%) Certain items — (17) 17 NM Segment adjusted EBITDA $ 99 $ 117 $ (18) (15%) The table below details the components of Certain items for the nine months ended September 30, 2023 and September 30, 2022. Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 Gain on disposition of hotel, land and other $ (1) $ — Gain on disposition of VRI Americas — (17) Foreign currency translation — 2 Gains and other income, net (1) (15) Early termination of VRI management contract — (2) Other 1 — Total Certain items $ — $ (17) 46 Table of Contents Business Segments Our business is grouped into two reportable business segments: Vacation Ownership and Exchange & Third-Party Management. See Footnote 16 “Business Segments” to our Financial Statements for further information on our segments. Vacation Ownership Three Months Ended Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 REVENUES Sale of vacation ownership products $ 319 $ 444 $ 1,085 $ 1,179 Resort management and other services 143 136 425 402 Rental 128 154 404 405 Financing 81 74 239 217 Cost reimbursements 455 374 1,182 1,026 TOTAL REVENUES 1,126 1,182 3,335 3,229 EXPENSES Cost of vacation ownership products 50 76 174 216 Marketing and sales 202 207 618 603 Resort management and other services 69 64 202 178 Rental 122 130 354 311 Financing 30 5 81 49 Depreciation and amortization 23 23 69 67 Litigation charges 2 2 8 7 Royalty fee 30 28 88 84 Impairment — 1 4 1 Cost reimbursements 455 374 1,182 1,026 TOTAL EXPENSES 983 910 2,780 2,542 Gains and other income, net 7 1 23 36 Transaction and integration costs — (2) — (3) Other (1) (1) — — SEGMENT FINANCIAL RESULTS BEFORE NONCONTROLLING INTERESTS 149 270 578 720 Net income attributable to noncontrolling interests — — — — SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 149 $ 270 $ 578 $ 720 47 Table of Contents Sale of Vacation Ownership Products 2023 Third Quarter Three Months Ended ($ in millions) September 30, 2023 % of Consolidated Contract Sales, Net of Resales September 30, 2022 % of Consolidated Contract Sales, Net of Resales Change % Change Total consolidated contract sales $ 438 $ 483 $ (45) (9%) Joint venture contract sales 5 9 (4) (51%) Total contract sales 443 492 (49) (10%) Less: resales contract sales (11) (10) (1) Less: joint venture contract sales (5) (9) 4 Consolidated contract sales, net of resales 427 473 (46) (10%) Plus: Settlement revenue 12 3% 10 2% 2 Resales revenue 6 1% 5 1% 1 Revenue recognition adjustments: Reportability — —% 54 12% (54) Sales reserve (102) (24%) (64) (14%) (38) Other (1) (24) (6%) (34) (7%) 10 Sale of vacation ownership products $ 319 74% $ 444 94% $ (125) (28%) (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. Contract sales in the 2023 third quarter declined due to a 7% decrease in VPG and a 3% decrease in tours. The decline in VPG was attributed to the temporary suspension of activity at our sales centers in Maui, due to the wildfires, lower closing efficiencies due to the continued transition associated with the launch of Abound by Marriott Vacations (which commenced in the third quarter of 2022) and the continued integration of the Hyatt and Legacy-Welk business models and sales processes. Though improving, we expect these factors to continue to impact VPG and contract sales for the remainder of 2023. The favorable revenue reportability in the 2022 third quarter was primarily due to the Contract Alignment which resulted in the prospective acceleration of revenue for Marriott-branded vacation ownership interests of $46 million. Financing propensity was 64% in the third quarter of 2023, a 530 basis point increase over the third quarter of 2022. We expect to continue offering financing incentive programs throughout the remainder of 2023. The average FICO score of customers for whom a credit score was available, generally U.S. and Canadian residents, who financed a vacation ownership purchase was 729 and 730 for the three months ended September 30, 2023 and September 30, 2022, respectively. In the third quarter of 2023, we evaluated our vacation ownership notes receivable reserve in light of trends in delinquencies and default rates. As a result, we increased our originated vacation ownership notes receivable reserve by $59 million. We primarily used a historical period of increased defaults as a basis for estimating the increase in our reserve. This additional reserve adjusts our future default rate estimate to reflect current macroeconomic conditions, including inflation outpacing wage growth, continuing high interest rates, mixed economic indicators and increased global insecurity. The 2022 third quarter sales reserve included a $19 million increase attributed to the Reserve Alignment, which was offset by a decrease in the acquired reserve for vacation ownership notes receivable recorded as a reduction of Financing expenses. 48 Table of Contents 2023 First Three Quarters Nine Months Ended ($ in millions) September 30, 2023 % of Consolidated Contract Sales, Net of Resales September 30, 2022 % of Consolidated Contract Sales, Net of Resales Change % Change Total consolidated contract sales $ 1,325 $ 1,383 $ (58) (4%) Joint venture contract sales 24 28 (4) (16%) Total contract sales 1,349 1,411 (62) (4%) Less: resales contract sales (32) (30) (2) Less: joint venture contract sales (24) (28) 4 Consolidated contract sales, net of resales 1,293 1,353 (60) (4%) Plus: Settlement revenue 29 2% 26 2% 3 Resales revenue 18 1% 13 1% 5 Revenue recognition adjustments: Reportability 5 —% 7 1% (2) Sales reserve (185) (14%) (130) (10%) (55) Other (1) (75) (6%) (90) (7%) 15 Sale of vacation ownership products $ 1,085 84% $ 1,179 87% $ (94) (8%) (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. Contract sales in the first three quarters of 2023 declined, despite tour growth of 5%, due to a 9% decrease in VPG. The decline in VPG was attributed to the temporary suspension of activity at our sales centers in Maui, due to the wildfires, lower closing efficiencies due to the continued transition associated with the launch of Abound by Marriott Vacations and the continued integration of the Hyatt and Legacy-Welk business models and sales processes. Financing propensity was 58% in the first three quarters of 2023, a 390 basis point increase over the first three quarters of 2022. The average FICO score of customers for whom a credit score was available, generally U.S. and Canadian residents, who financed a vacation ownership purchase was 734 and 733 for the nine months ended September 30, 2023 and September 30, 2022, respectively. The sales reserve in the first three quarters of 2023 increased $78 million in light of trends in delinquencies and default rates in 2023. The sales reserve in the first three quarters of 2022 included a $19 million increase attributed to the Reserve Alignment, which was offset by a decrease in the acquired reserve for vacation ownership notes receivable recorded as a reduction of Financing expenses. 49 Table of Contents Development Profit 2023 Third Quarter Three Months Ended Change % Change ($ in millions) September 30, 2023 % of Revenue September 30, 2022 % of Revenue Sale of vacation ownership products $ 319 $ 444 $ (125) (28%) Cost of vacation ownership products (50) (16%) (76) (17%) 26 35% Marketing and sales (202) (64%) (207) (47%) 5 2% Development profit $ 67 $ 161 $ (94) (59%) Development profit margin 20.7% 36.1% (15.4 pts) The decrease in Development profit reflects $43 million from unfavorable revenue reportability primarily attributed to the Contract Alignment, which resulted in the prospective acceleration of $39 million of revenue recognition for Marriott-branded VOI sales in the 2022 third quarter, $24 million from lower contract sales volumes and $35 million related to higher sales reserves, partially offset by $8 million of favorable product cost due mainly to the sale of lower cost inventory. The $35 million of higher sales reserves included $49 million in the third quarter of 2023 ($59 million gross increase in reserve offset by a decrease of $10 million to product cost), partially offset by $14 million from the Reserve alignment in the third quarter of 2022. Development profit margin, excluding the impact of the sales reserve increase of $49 million, was 30.5% in the third quarter of 2023. We expect Development profit margin for the full year to be in line with year-to-date 2023 results. 2023 First Three Quarters Nine Months Ended ($ in millions) September 30, 2023 % of Revenue September 30, 2022 % of Revenue Change % Change Sale of vacation ownership products $ 1,085 $ 1,179 $ (94) (8%) Cost of vacation ownership products (174) (16%) (216) (18%) 42 20% Marketing and sales (618) (57%) (603) (51%) (15) (2%) Development profit $ 293 $ 360 $ (67) (18%) Development profit margin 27.0% 30.5% (3.5 pts) The decrease in Development profit reflects $47 million of lower contract sales volumes, $49 million related to higher sales reserves, and $5 million from unfavorable revenue reportability, partially offset by $28 million of favorable product cost due mainly to the sale of lower cost inventory, and $6 million of favorable product cost true-up activity. Development profit margin, excluding the impact of the $49 million sales reserve increase in the third quarter of 2023, was 29.9% in the first three quarters of 2023. 50 Table of Contents Resort Management and Other Services Revenues, Expenses and Profit 2023 Third Quarter Three Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Management fee revenues $ 44 $ 41 $ 3 9% Ancillary revenues 62 63 (1) (1%) Other management and exchange revenues 37 32 5 16% Resort management and other services revenues 143 136 7 6% Resort management and other services expenses (69) (64) (5) (8%) Resort management and other services profit $ 74 $ 72 $ 2 3% Resort management and other services profit margin 52.0% 53.2% (1.2 pts) Resort occupancy (1) 86.1% 88.9% (2.8 pts) (1) Resort occupancy represents all transient, previews, and owner keys divided by total keys available, net of keys out of service. The increase in Resort management and other services revenues reflects higher club dues of $4 million, higher management fees and $1 million of higher refurbishment project revenues, partially offset by lower ancillary revenues. The $5 million increase in Resort management and other services expenses reflects an increase in ancillary expenses of $2 million due to inflation and foreign currency exchange rate changes in Mexico, and an increase in customer services and exchange company expenses of $3 million due to incremental headcount, wages, benefits, and other operating cost increases. 2023 First Three Quarters Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Management fee revenues $ 134 $ 124 $ 10 8% Ancillary revenues 193 183 10 5% Other management and exchange revenues 98 95 3 4% Resort management and other services revenues 425 402 23 6% Resort management and other services expenses (202) (178) (24) (14%) Resort management and other services profit $ 223 $ 224 $ (1) —% Resort management and other services profit margin 52.5% 55.8% (3.3 pts) Resort occupancy (1) 87.9% 89.0% (1.1 pts) (1) Resort occupancy represents all transient, previews, and owner keys divided by total keys available, net of keys out of service. The increase in Resort management and other services revenues reflects higher ancillary revenues, including revenues from food and beverage and golf offerings (as a result of an 8% increase in revenue per occupied key, partially offset by a 2% decrease in occupied keys at resorts with ancillary businesses) and higher management fees and commissions from third-party vacation and other offerings. The decline in occupied keys at resorts with ancillary businesses was primarily in Maui due to the wildfires. The increase in Resort management and other services expenses reflects an increase in ancillary expenses of $15 million due to increased volumes sold, inflation and foreign currency exchange rate changes in Mexico, and an increase in customer services and exchange company expenses of $9 million due to incremental headcount, wages, benefits, and other operating cost increases. 51 Table of Contents Rental Revenues, Expenses and Profit 2023 Third Quarter Three Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Rental revenues $ 128 $ 154 $ (26) (17%) Rental expenses (122) (130) 8 6% Rental profit $ 6 $ 24 $ (18) (73%) Rental profit margin 5.1% 15.9% (10.8 pts) Three Months Ended September 30, 2023 September 30, 2022 Change % Change Transient keys rented (1) 509,057 509,621 (564) —% Average transient rate $ 256 $ 267 $ (12) (4%) Rental occupancy (2) 64.3% 69.2% (4.9 pts) (1) Transient keys rented exclude those occupied through the use of plus points and preview stays. (2) Rental occupancy represents transient and preview keys divided by keys available to rent, which is total available keys excluding owner usage. Rental profit for transient keys, including plus points and excluding keys from owned hotels, declined due to an $11 million increase in unsold maintenance fees associated with developer owned inventory, $9 million of decreased profit due largely to the Maui wildfires and declining average daily rates, offset by the continued rebound of the Asia Pacific region and $5 million of higher operating costs. These decreases were partially offset by $8 million of higher plus points revenue. In addition to these variances, there was a $25 million higher net down of rental revenues and expense in the 2023 third quarter associated with unsold VOIs that are registered and held for sale. Rental profit for our owned hotels in the third quarter of 2023 decreased $1 million compared to the third quarter of 2022. 2023 First Three Quarters Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Rental revenues $ 404 $ 405 $ (1) —% Rental expenses (354) (311) (43) (14%) Rental profit $ 50 $ 94 $ (44) (47%) Rental profit margin 12.3% 23.2% (10.9 pts) Nine Months Ended September 30, 2023 September 30, 2022 Change % Change Transient keys rented (1) 1,605,926 1,626,294 (20,368) (1%) Average transient key rate $ 269 $ 268 $ 1 —% Rental occupancy (2) 68.5% 70.3% (1.8 pts) (1) Transient keys rented exclude those occupied through the use of plus points and preview stays. (2) Rental occupancy represents transient and preview keys divided by keys available to rent, which is total available keys excluding owner usage. Rental profit for transient keys, including plus points and excluding keys from owned hotels, declined by $40 million due to a $34 million increase in unsold maintenance fees associated with developer owned inventory, $10 million of increased costs associated with higher owner utilization of third-party vacation and other offerings, $12 million of decreased profit due to lower demand, the Maui wildfires and an unfavorable change in the mix of keys available to rent, and $3 million of higher other costs. These decreases were partially offset by $16 million of higher plus points revenue and a $3 million reduction of rental costs associated with occupancy used for marketing and sales activities. In addition 52 Table of Contents to these variances, there was a $2 million lower net down of rental revenues and expense in the first three quarters of 2023 associated with unsold VOIs that are registered and held for sale. Rental profit for our owned hotels decreased by $4 million, or 30%, attributed to the disposition of our Puerto Vallarta hotel in 2022 and Branson hotel in 2023. Financing Revenues, Expenses and Profit 2023 Third Quarter Three Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Financing revenues $ 81 $ 74 $ 7 10% Financing expenses (11) 9 (20) NM Consumer financing interest expense (19) (14) (5) (36%) Financing profit $ 51 $ 69 $ (18) (26%) Financing profit margin 63.7% 94.5% (30.8 pts) Financing propensity 64.0% 58.7% Financing revenues reflect $8 million of higher interest income as a result of a higher average notes receivable balance partially offset by $1 million of higher plus point financing incentive costs. The higher average notes receivable balance was the result of new loan originations in excess of the repayment of existing vacation ownership notes receivable, which we expect to continue. As part of our Reserve Alignment for Marriott-, Westin- and Sheraton-branded vacation ownership notes receivable, in the third quarter of 2022, we recorded a $19 million reduction in our estimated reserve for acquired vacation ownership notes receivable as a decrease in Financing expenses. Excluding this difference, Financing expenses increased $1 million due to higher operating costs. The increase in consumer financing interest expense is attributable to the higher average securitized debt at a higher average interest rate for the more recent term securitization transactions. We expect consumer financing interest expense to continue to remain elevated over our average outstanding interest rates on existing securitization transactions as a result of rising interest rates for the remainder of 2023. We do not adjust interest rates on consumer financing offerings at the same pace as, or in lock-step with, broader market interest rates; thus we expect our financing profit margin to continue to decrease in 2023, as we repay existing securitization transactions with lower interest rates and enter into new securitization transactions with higher interest rates. 2023 First Three Quarters Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Financing revenues 239 217 22 10% Financing expenses (26) (10) (16) NM Consumer financing interest expense (55) (39) (16) (41%) Financing profit $ 158 $ 168 $ (10) (6%) Financing profit margin 66.2% 77.7% (11.5 pts) Financing propensity 58.2% 54.3% Financing revenues reflect $24 million of higher interest income as a result of a higher average notes receivable balance partially offset by $2 million of higher plus point financing incentive costs. The higher average notes receivable balance was the result of new loan originations in excess of the repayment of existing vacation ownership notes receivable, which we expect will continue. Excluding the change in our estimated reserve for acquired vacation ownership notes receivable, Financing expenses were in line with prior year. In 2023, we recorded a $3 million reduction to our reserve for acquired vacation ownership notes receivable compared to a $19 million reduction in the comparable reserve in 2022. 53 Table of Contents Royalty Fee 2023 Third Quarter Three Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Royalty fee $ 30 $ 28 $ 2 5% Royalty fee expense increased in the third quarter of 2023 due to an increase of $2 million in the volume of closings on Marriott-branded products. 2023 First Three Quarters Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Royalty fee $ 88 $ 84 $ 4 4% Royalty fee expense increased in the first three quarters of 2023 due to an increase in the volume of closings on Marriott-branded products ($2 million) and increased variable royalty fees paid to Hyatt, which commenced in the fourth quarter of 2022 ($2 million). Gains and Other Income 2023 Third Quarter Three Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Gains and other income, net $ 7 $ 1 $ 6 NM During the third quarter of 2023, we recorded a $6 million reduction in certain pre-acquisition contingencies associated with the ILG Acquisition and $1 million related to the receipt of insurance proceeds related to property damage from the 2017 hurricanes. During the third quarter of 2022, we recorded a $1 million gain from foreign currency translation. 2023 First Three Quarters Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Gains and other income, net $ 23 $ 36 $ (13) (36%) During the first three quarters of 2023, we recorded $7 million of gains on the disposition of excess real estate, a $4 million gain associated with the earn out of additional proceeds from the 2019 disposition of a land parcel in Cancun, Mexico, a $9 million reduction in certain pre-acquisition contingencies associated with the ILG Acquisition, $2 million related to the receipt of business interruption insurance proceeds, and $1 million related to the receipt of insurance proceeds related to property damage from the 2017 hurricanes. During the first three quarters of 2022, we recorded gains and other income of $33 million related to the strategic decision to dispose of our hotel in Puerto Vallarta, Mexico and $3 million related to the receipt of business interruption insurance proceeds. 54 Table of Contents Exchange & Third-Party Management Three Months Ended Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 REVENUES Management and exchange $ 50 $ 55 $ 157 $ 177 Rental 10 11 31 33 Cost reimbursements 4 5 12 19 TOTAL REVENUES 64 71 200 229 EXPENSES Management and exchange 31 28 91 93 Depreciation and amortization 7 8 23 24 Cost reimbursements 4 5 12 19 TOTAL EXPENSES 42 41 126 136 Gains (losses) and other income (expense), net 1 (1) 1 15 SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 23 $ 29 $ 75 $ 108 Management and Exchange Profit 2023 Third Quarter Three Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Management and exchange revenue $ 50 $ 55 $ (5) (7%) Management and exchange expense (31) (28) (3) (9%) Management and exchange profit $ 19 $ 27 $ (8) (25%) Management and exchange profit margin 38.9% 48.1% (9.2 pts) The decrease in management and exchange revenue reflects a $3 million decline in Aqua-Aston management revenues resulting from lower revenue per available room in the Hawaii market and the wildfires in Maui. Interval International management and exchange revenues declined $2 million primarily attributed to 5% lower transaction volume, partially offset by a 1% increase in average revenue per member. The decrease in management and exchange profit was primarily attributed to higher marketing and sales expense, higher information technology costs and higher wages and benefits and lower revenues. 2023 First Three Quarters Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Management and exchange revenue $ 157 $ 177 $ (20) (11%) Management and exchange expense (91) (93) 2 3% Management and exchange profit $ 66 $ 84 $ (18) (20%) Management and exchange profit margin 42.3% 47.3% (5.0 pts) Excluding the $12 million decrease attributed to the disposition of our VRI Americas business during the second quarter of 2022, management and exchange revenue decreased $8 million or 4%. Aqua-Aston management revenue declined $3 million as a result of the wildfires in Maui and higher property level expenses adversely impacting management fees. Interval International management and exchange revenues declined $5 million, primarily attributed to lower membership fees and transaction revenues. Interval International transaction volume declined 6% and average revenue per member decreased 1% compared to the prior year comparable period. Excluding the impact of the disposition of VRI Americas, management and exchange profit decreased by $14 million or 15% in the first three quarters of 2023, primarily attributed to higher information technology costs and higher wages and benefits and lower revenues. 55 Table of Contents Rental Revenues 2023 Third Quarter Three Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Rental revenues $ 10 $ 11 $ (1) (7%) Results reflect higher rental inventory procurement costs, which are recorded net within Rental revenues. 2023 First Three Quarters Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Rental revenues $ 31 $ 33 $ (2) (5%) Results reflect higher rental inventory procurement costs, which are recorded net within Rental revenues. Gains (Losses) and Other Income (Expense) 2023 Third Quarter Three Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Gains (losses) and other income (expense), net $ 1 $ (1) $ 2 NM 2023 First Three Quarters Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Gains and other income, net $ 1 $ 15 $ (14) NM During the first three quarters of 2022, we recorded a $17 million gain related to the sale of our VRI Americas business, partially offset by $2 million of foreign currency translation losses. See Footnote 3 “Acquisitions and Dispositions” for more information on the disposition of VRI Americas. 56 Table of Contents Corporate and Other Corporate and Other consists of results that are not allocable to our segments, including company-wide general and administrative costs, corporate interest expense, transaction and integration costs, and income taxes. In addition, Corporate and Other includes the revenues and expenses from Consolidated Property Owners’ Associations. Three Months Ended Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 REVENUES Resort management and other services $ 12 $ 7 $ 29 $ 44 Cost reimbursements (16) (8) (31) (34) TOTAL REVENUES (4) (1) (2) 10 EXPENSES Resort management and other services 15 9 39 59 Rental (3) (4) (10) (17) General and administrative 57 62 189 187 Depreciation and amortization 3 2 7 7 Litigation charges — — (1) — Cost reimbursements (16) (8) (31) (34) TOTAL EXPENSES 56 61 193 202 (Losses) gains and other (expense) income, net (5) (2) 10 (12) Interest expense, net (36) (34) (106) (91) Transaction and integration costs (5) (32) (28) (96) FINANCIAL RESULTS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS (106) (130) (319) (391) Provision for income taxes (24) (59) (115) (134) Net income attributable to noncontrolling interests — (1) — — FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (130) $ (190) $ (434) $ (525) Consolidated Property Owners’ Associations The following table illustrates the impact of certain Consolidated Property Owners’ Associations under the relevant accounting guidance and the changes attributed to the deconsolidation of individual Consolidated Property Owners’ Associations. Three Months Ended Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 REVENUES Resort management and other services $ 12 $ 6 $ 29 $ 42 Cost reimbursements (16) (8) (31) (34) TOTAL REVENUES (4) (2) (2) 8 EXPENSES Resort management and other services 15 9 39 59 Rental (3) (4) (10) (17) Cost reimbursements (16) (8) (31) (34) TOTAL EXPENSES (4) (3) (2) 8 Losses and other expense, net — — — (3) Interest expense, net — — 1 — FINANCIAL RESULTS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS — 1 1 (3) Provision for income taxes (1) — (1) — Net income attributable to noncontrolling interests — (1) — — FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (1) $ — $ — $ (3) 57 Table of Contents General and Administrative 2023 Third Quarter Three Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change General and administrative $ 57 $ 62 $ (5) (7%) The change in General and administrative expenses is due to $17 million of lower variable compensation expense and $4 million of higher allocations of expenses to operations, offset by $9 million of incremental costs primarily related to compliance activities and new product development initiatives, $5 million of higher costs related to the implementation of technology, and a $2 million increase in wages and benefits. We expect General and administrative expenses for the remainder of 2023 to increase due the continued impact of increased wages and additional investment in upgrading, maintaining, and implementing technology, including the continued transition to software as a service, which are recorded as a component of General and administrative expense as opposed to Depreciation expense. 2023 First Three Quarters Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change General and administrative $ 189 $ 187 $ 2 1% General and administrative expenses increased due to $20 million of costs related to the implementation of technology associated with the integration of Legacy-ILG, $15 million of incremental costs primarily related to compliance activities and new product development initiatives, $8 million of increased wages and benefits, a $3 million increase in insurance expense, and $2 million of other miscellaneous expenses, partially offset by a $40 million decrease in variable compensation expense and $6 million of higher allocations of general and administrative expenses to operations. Gains (Losses) and Other Income (Expense) 2023 Third Quarter Three Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Losses and other expense, net $ (5) $ (2) $ (3) NM In the third quarter of 2023, we recorded $5 million of foreign currency translation losses. In the third quarter of 2022, we recorded $2 million of foreign currency translation losses and $1 million of miscellaneous losses and other expense, partially offset by $1 million of non-income tax related adjustments to the receivable for the indemnification we expect to receive from Marriott International for indemnified tax matters. 2023 First Three Quarters Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Gains (losses) and other income (expense), net $ 10 $ (12) $ 22 NM In the first three quarters of 2023, we recorded a $21 million increase in our receivable from Marriott International for indemnified income tax matters (the offsetting accrual is included in the Provision for income taxes line), partially offset by a $10 million expense attributed to the redemption premium and write-off of unamortized debt issuance costs in connection with the early redemption of our senior secured notes, and $1 million of foreign currency translation losses. In the first three quarters of 2022, we recorded $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, $2 million of non-income tax related adjustments to the receivable for the indemnification we expect to receive from Marriott International for indemnified tax matters, and $1 million of miscellaneous losses and other expense, partially offset by $2 million of proceeds from corporate owned life insurance. 58 Table of Contents Interest Expense 2023 Third Quarter Three Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Interest expense, net $ (36) $ (34) $ (2) (4%) The increase in Interest expense, net is attributed to $5 million associated with higher borrowings and higher variable interest rates on both the Warehouse Credit Facility and the Revolving Corporate Credit Facility, $2 million of higher variable interest expense on the Term Loan, and $2 million of interest expense related to leased assets. This was partially offset by $4 million of lower interest expense associated with the early redemption of our senior secured notes, $1 million of lower interest expense associated with our convertible notes, $1 million of lower other interest expense and $1 million of interest income. 2023 First Three Quarters Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Interest expense, net $ (106) $ (91) $ (15) (15%) The increase in Interest expense, net is attributed to $14 million associated with higher borrowings and higher variable interest rates on both the Warehouse Credit Facility and the Revolving Corporate Credit Facility, $7 million of higher interest expense associated with our 2027 Convertible Notes issued in December 2022, $8 million of higher variable interest expense on the Term Loan, and $5 million of interest expense related to leased assets. This was partially offset by $12 million of lower interest expense associated with the early redemption of our senior secured notes, $3 million of lower interest on non-income tax related items, $3 million of higher interest income, and $1 million of lower other interest expense. Income Tax 2023 Third Quarter Three Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Provision for income taxes $ (24) $ (59) $ 35 59% Our effective tax rate was 36.1% and 34.7% for the three months ended September 30, 2023 and September 30, 2022, respectively. The increase in the effective tax rate is predominately attributable to a decrease in Income before income taxes and noncontrolling interests from 2022 to 2023 without a proportional decrease to non-deductible tax expenses, in addition to a net decrease in the tax expense for foreign uncertain tax benefits in 2023. 2023 First Three Quarters Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 Change % Change Provision for income taxes $ (115) $ (134) $ 19 14% Our interim effective tax rate was 34.3% and 30.6% for the nine months ended September 30, 2023 and September 30, 2022, respectively. The increase in the effective tax rate is predominately attributable to a decrease in Income before income taxes and noncontrolling interests from 2022 to 2023 without a proportional decrease to non-deductible tax expenses, partially offset by a net increase in the tax expense for foreign uncertain tax benefits in 2023. 59 Table of Contents Liquidity and Capital Resources Typically, our capital needs are supported by cash on hand, cash generated from operations, our ability to access funds under the Warehouse Credit Facility and the Revolving Corporate Credit Facility, our ability to raise capital through securitizations in the ABS market, and, to the extent necessary, our ability to issue new debt and refinance existing debt. 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. We continuously monitor the capital markets to evaluate the effect that changes in market conditions may have on our ability to fund our liquidity needs. Our corporate debt, net of cash and equivalents, to Adjusted EBITDA ratio was 3.5 at September 30, 2023. We have no material maturities of corporate debt until 2025. At the end of the third quarter of 2023, the interest rate applicable to approximately 80% of our total corporate debt, excluding finance leases and including the impact of interest rate hedges, was effectively fixed. The weighted average interest rate of our total corporate debt, excluding finance leases and including the impact of interest rate hedges, was 3.9% as of September 30, 2023. Sources of Liquidity Cash from Operations 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. Vacation Ownership Notes Receivable Securitizations We periodically securitize, without recourse, through bankruptcy remote special purpose entities, the majority of the notes receivable originated in connection with the sale of vacation ownership products to institutional investors in the ABS term securitization market. These vacation ownership notes receivable securitizations provide liquidity for general corporate purposes. In a vacation ownership notes receivable term securitization, several classes of debt securities issued by a special purpose entity are generally collateralized by a single tranche of transferred assets, which consist of vacation ownership notes receivable. In connection with each vacation ownership notes receivable securitization, we may retain all or a portion of the securities that are issued. Typically, we receive cash at inception of the term securitization transaction for the amount of notes issued less fees and monies held in reserve and we receive cash during the life of the transaction in amounts reflecting the excess spread of interest received on the related vacation ownership notes receivable less the interest payable on the ABS securities, less administrative fees and amounts from related vacation ownership notes receivable that default. Each of the securitized vacation ownership notes receivable transactions contains various triggers relating to the performance of the underlying vacation ownership notes receivable. If a pool of securitized vacation ownership notes receivable fails to perform within the pool’s parameters (default or delinquency thresholds vary by transaction), transaction provisions effectively redirect the monthly excess spread of interest accruing on the related vacation ownership notes receivable less the interest accruing on the ABS securities and fees we would otherwise receive from that pool (attributable to the interests we retained) to accelerate the principal payments to investors (taking into account the subordination of the different tranches to the extent there are multiple tranches) until the performance trigger is cured. During the third quarter of 2023, and as of September 30, 2023, we had 14 term securitization transactions outstanding, all of which were in compliance with their respective required parameters. Since 2000, we have issued almost $8.5 billion of debt securities in securitization transactions in the term ABS market, excluding amounts securitized through warehouse credit facilities or private bank transactions. On an ongoing basis, we have the ability to use our Warehouse Credit Facility to securitize, on a revolving non-recourse basis, eligible consumer loans derived from certain vacation ownership sales. Those loans may later be transferred to term securitization transactions in the ABS market, which typically occur twice a year. During the second quarter of 2023, we amended certain agreements associated with our Warehouse Credit Facility, which increased the borrowing capacity of the existing facility from $425 million to $500 million and extended the revolving period from July 28, 2024 to May 31, 2025. At September 30, 2023, we had $345 million of borrowings outstanding on our Warehouse Credit Facility. As of September 30, 2023, $70 million of gross vacation ownership notes receivable were eligible for securitization. 60 Table of Contents Revolving Corporate Credit Facility Our Revolving Corporate Credit Facility, which expires on March 31, 2027, provides for up to $750 million of aggregate borrowings for general corporate needs, including working capital, capital expenditures, letters of credit, and acquisitions. At September 30, 2023, $90 million of borrowings were outstanding on our Revolving Corporate Credit Facility, and $1 million of le tters of credit were outstanding. Redemption of Senior Secured Notes During the first quarter of 2023, we redeemed, prior to maturity, the remaining $250 million of the 2025 Notes outstanding pursuant to a redemption notice issued in the fourth quarter of 2022 and the terms of the indenture governing the 2025 Notes. In connection with this redemption, we incurred charges of $10 million, including a redemption premium and the write-off of unamortized debt issuance costs, which were recorded in Gains (losses) and other income (expense), net on our Income Statement for the nine months ended September 30, 2023. Uses of Cash We minimize our working capital needs through cash management, strict credit-granting policies, and disciplined collection efforts. Our working capital needs fluctuate throughout the year given the timing of annual maintenance fees on unsold inventory we pay to owners’ associations and certain annual compensation-related outflows. In addition, our cash from operations varies due to the timing of repayment by owners of vacation ownership notes receivable, the closing or recording of sales contracts for vacation ownership products, financing propensity, and cash outlays for inventory acquisitions and development. Seasonality Our cash flow from operations fluctuates during the year due to the timing of certain receipts and contractual and compensation-related payments. Significant changes in cash flow can result from the timing of our collection of maintenance fees, club dues, and other customer payments, which typically occur in either the fourth quarter or the first quarter of each year. Generally, cash outflows related to our payment of maintenance fees associated with unsold inventory occurs in the fourth quarter for our points-based products, and in the first quarter for our weeks-based products. In addition, during the first quarter of each year, we generally have significant variable compensation-related cash outflows associated with payment of annual bonuses. Operations In addition to net income or loss and adjustments for non-cash items, the following are key drivers of our cash flow from operating activities: Inventory Spending Less Than Cost of Sales Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 Inventory spending $ (56) $ (108) Purchase of property for future transfer to inventory (27) (12) Inventory costs 137 183 Inventory spending less than cost of sales $ 54 $ 63 Although we have significant excess inventory on hand, we intend to continue selectively pursuing growth opportunities by targeting high-quality inventory that allows us to add desirable new destinations to our systems with new on-site sales locations. Where possible, we will structure 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 transaction structures may consist of the development of new inventory, or the conversion of previously built units, by third parties. In addition, we may develop inventory in key markets where opportunities generate acceptable risk adjusted returns. Through our existing VOI repurchase program, we proactively acquire previously sold VOIs from owners’ associations and individual owners at lower costs than would be required to develop new inventory. Among other reasons, by repurchasing inventory, we expect to be able to help stabilize the future cost of our vacation ownership products. Our spending for real estate inventory in the first three quarters of 2023 was lower than cost of sales and was primarily related to purchases under our VOI repurchase programs. Purchase of property for future transfer to inventory included the acquisition of property in Savannah, Georgia and Charleston, South Carolina in 2023 (see Footnote 3 “Acquisitions and Dispositions”). We expect inventory spending to be less than cost of sales for 2023. 61 Table of Contents Vacation Ownership Notes Receivable Collections Less Than Originations Nine Months Ended ($ in millions) September 30, 2023 September 30, 2022 Vacation ownership notes receivable collections — non-securitized $ 119 $ 91 Vacation ownership notes receivable collections — securitized 342 378 Vacation ownership notes receivable originations (749) (728) Vacation ownership notes receivable collections less than originations $ (288) $ (259) Vacation ownership notes receivable collections were less than originations in each of the first three quarters of 2023 and 2022 due to the growth of the average vacation ownership notes receivable pool attributed to sales of VOIs. 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 Basis of Shares Repurchased Average Price Paid per Share As of December 31, 2022 22,773,218 $ 2,119 $ 93.06 For the first three quarters of 2023 1,936,855 248 128.03 As of September 30, 2023 24,710,073 $ 2,367 $ 95.80 See Footnote 13 “Shareholders' Equity” to our Financial Statements for further information related to our current share repurchase program. Payment of Dividends to Common Shareholders We distributed cash dividends to holders of common stock during the first three quarters of 2023 as follows: Declaration Date Shareholder Record Date Distribution Date Dividend per Share December 1, 2022 December 22, 2022 January 5, 2023 $0.72 February 16, 2023 March 2, 2023 March 16, 2023 $0.72 May 11, 2023 May 25, 2023 June 8, 2023 $0.72 We declared cash dividends to holders of our common stock during the third quarter of 2023, and distributed such cash dividends subsequent to the end of the third quarter of 2023 as follows: Declaration Date Shareholder Record Date Distribution Date Dividend per Share September 7, 2023 September 21, 2023 October 5, 2023 $0.72 We currently expect to pay quarterly dividends in the future, but any future dividend payments will be subject to Board of Directors approval, which will depend on our financial condition, results of operations and capital requirements, as well as applicable law, regulatory constraints, industry practice, and other business considerations that our Board of Directors considers relevant. In addition, our Corporate Credit Facility and the indentures governing our senior notes contain restrictions on our ability to pay dividends, and the terms of agreements governing debt that we may incur in the future may also limit or prohibit the payment of dividends. The payment of certain cash dividends may also result in an adjustment to the conversion rate of our convertible notes in a manner adverse to us. Accordingly, there can be no assurance that we will pay dividends in the future at any particular rate or at all. 62 Table of Contents Material Cash Requirements The following table summarizes our future material cash requirements from known contractual or other obligations as of September 30, 2023: Payments Due by Period ($ in millions) Total Remainder of 2023 2024 2025 2026 2027 Thereafter Contractual Obligations Debt (1) $ 3,275 $ 33 $ 118 $ 882 $ 635 $ 723 $ 884 Securitized debt (1)(2) 2,484 68 270 267 541 218 1,120 Purchase obligations (3) 453 37 181 132 70 17 16 Operating lease obligations (4) 130 7 24 22 20 13 44 Finance lease obligations (4)(5) 528 4 17 15 13 12 467 Other long-term obligations 11 4 3 2 — 1 1 $ 6,881 $ 153 $ 613 $ 1,320 $ 1,279 $ 984 $ 2,532 (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) The lease term of the finance lease arrangement for our new global headquarters office building located in Orlando, Florida commenced for accounting purposes during the first quarter of 2023, upon substantial completion of construction. See Footnote 12 “Debt” to our Financial Statements for additional information on this lease. 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 owners’ associations, these obligations have minimal impact on our net income and cash flow. These purchase commitments are excluded from the table above. 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 September 30, 2023 and December 31, 2022, and for the nine months ended September 30, 2023 for MVWC and MORI on a stand-alone basis (collectively, the “Issuers”), the Senior Notes Guarantors, the combined non-guarantor subsidiaries of MVWC, and MVW on a consolidated basis. 63 Table of Contents Condensed Consolidating Statement of Income Nine Months Ended September 30, 2023 Issuers Senior Notes Guarantors Non-Guarantor Subsidiaries Total Eliminations MVW Consolidated ($ in millions) MVWC MORI Revenues $ — $ 679 $ 2,077 $ 808 $ (31) $ 3,533 Expenses (15) (809) (1,834) (572) 31 (3,199) Benefit from (provision for) income taxes 4 27 (76) (70) — (115) Equity in net income (loss) of subsidiaries 230 350 — — (580) — Net income (loss) 219 247 167 166 (580) 219 Net income attributable to noncontrolling interests — — — — — — Net income (loss) attributable to common shareholders $ 219 $ 247 $ 167 $ 166 $ (580) $ 219 Condensed Consolidating Balance Sheet As of September 30, 2023 Issuers Senior Notes Guarantors Non-Guarantor Subsidiaries Total Eliminations MVW Consolidated ($ in millions) MVWC MORI Cash and cash equivalents $ — $ 46 $ 101 $ 118 $ — $ 265 Restricted cash — 27 63 148 — 238 Accounts and contracts receivable, net 13 115 72 97 1 298 Vacation ownership notes receivable, net — 97 191 2,003 — 2,291 Inventory — 207 323 112 — 642 Property and equipment, net — 264 733 253 — 1,250 Goodwill — — 3,117 — — 3,117 Intangibles, net — — 837 31 — 868 Investments in subsidiaries 3,463 3,985 — — (7,448) — Other 125 116 226 121 (104) 484 Total assets $ 3,601 $ 4,857 $ 5,663 $ 2,883 $ (7,551) $ 9,453 Accounts payable $ 51 $ 38 $ 77 $ 72 $ — $ 238 Advance deposits — 67 85 17 — 169 Accrued liabilities 12 79 160 108 — 359 Deferred revenue — 9 171 198 (7) 371 Payroll and benefits liability — 102 65 26 — 193 Deferred compensation liability — 118 35 3 — 156 Securitized debt, net — — — 2,048 (22) 2,026 Debt, net 1,130 1,720 176 5 — 3,031 Other — 1 147 17 — 165 Deferred taxes — 124 281 4 (74) 335 MVW shareholders' equity 2,408 2,599 4,466 383 (7,448) 2,408 Noncontrolling interests — — — 2 — 2 Total liabilities and equity $ 3,601 $ 4,857 $ 5,663 $ 2,883 $ (7,551) $ 9,453 64 Table of Contents As of December 31, 2022 Issuers Senior Notes Guarantors Non-Guarantor Subsidiaries Total Eliminations MVW Consolidated ($ in millions) MVWC MORI Cash and cash equivalents $ 150 $ 119 $ 89 $ 166 $ — $ 524 Restricted cash — 25 145 160 — 330 Accounts and contracts receivable, net 10 120 116 73 (27) 292 Vacation ownership notes receivable, net — 132 195 1,871 — 2,198 Inventory — 204 375 81 — 660 Property and equipment, net — 202 659 278 — 1,139 Goodwill — — 3,117 — — 3,117 Intangibles, net — — 880 31 — 911 Investments in subsidiaries 3,417 4,076 — — (7,493) — Other 106 129 228 78 (73) 468 Total assets $ 3,683 $ 5,007 $ 5,804 $ 2,738 $ (7,593) $ 9,639 Accounts payable $ 60 $ 45 $ 166 $ 85 $ — $ 356 Advance deposits — 63 79 16 — 158 Accrued liabilities 2 75 193 121 (22) 369 Deferred revenue — 9 169 172 (6) 344 Payroll and benefits liability — 139 86 26 — 251 Deferred compensation liability — 110 27 2 — 139 Securitized debt, net — — — 1,961 (23) 1,938 Debt, net 1,125 1,876 76 11 — 3,088 Other — 1 148 18 — 167 Deferred taxes — 89 291 — (49) 331 MVW shareholders' equity 2,496 2,600 4,569 324 (7,493) 2,496 Noncontrolling interests — — — 2 — 2 Total liabilities and equity $ 3,683 $ 5,007 $ 5,804 $ 2,738 $ (7,593) $ 9,639 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. 65 Table of Contents