# MARRIOTT VACATIONS WORLDWIDE Corp: Form 10-K for the period ended Dec 31, 2019

- Company: [MARRIOTT VACATIONS WORLDWIDE Corp](/companies/vac.md) (CIK 1524358)
- Form: 10-K
- Filed: 2020-03-02
- Accepted by EDGAR: Mar 2, 2020, 22:20 ET
- Period: 2019-12-31
- Accession: 0001524358-20-000011
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1524358/000152435820000011/a2019q410-kdocument.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1524358/000152435820000011/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2019-10-01 to 2019-12-31 | $1.15bn | us-gaap:Revenues |
| Revenue | 12 months, 2019-01-01 to 2019-12-31 | $4.08bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Income tax | 12 months, 2019-01-01 to 2019-12-31 | $83.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2019-10-01 to 2019-12-31 | $74.0m | us-gaap:NetIncomeLoss |
| Net income | 12 months, 2019-01-01 to 2019-12-31 | $138.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2019-10-01 to 2019-12-31 | $1.71 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 12 months, 2019-01-01 to 2019-12-31 | $3.09 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2019-10-01 to 2019-12-31 | $1.74 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 12 months, 2019-01-01 to 2019-12-31 | $3.13 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 12 months, 2019-01-01 to 2019-12-31 | 44,500,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 12 months, 2019-01-01 to 2019-12-31 | $382.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 12 months, 2019-01-01 to 2019-12-31 | $46.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 12 months, 2019-01-01 to 2019-12-31 | $81.0m | us-gaap:PaymentsOfDividends |
| Share repurchases | 12 months, 2019-01-01 to 2019-12-31 | $465.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2019-12-31 | $287.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2019-12-31 | $9.21bn | us-gaap:Assets |
| Total liabilities | at 2019-12-31 | $6.18bn | us-gaap:Liabilities |
| Shareholders' equity | at 2019-12-31 | $3.02bn | us-gaap:StockholdersEquity |

## Business

As filed, 93,851 characters.

### 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. 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, Westin, and Hyatt Residence Club brands, as well as under Marriott Vacation Club Pulse, an extension of 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, and have the non-exclusive right to develop, market and sell whole ownership residential products under The Ritz-Carlton Residences brand. We have a license to use the St. Regis brand for specified fractional ownership products.

Our business operates in two reportable segments: Vacation Ownership and Exchange & Third-Party Management. We were incorporated in Delaware in June 2011 and have been an independent public company since our November 2011 spin-off from Marriott International (the “Marriott Spin-Off”).

*($ in millions)*

|  | 2019 Segment Revenue | % of Segment Revenue |
| --- | ---: | ---: |
| Vacation Ownership | $3,869 | 89% |
| Exchange & Third-Party Management | 454 | 11% |
| Total Segment Revenue | $4,323 | 100% |

### Acquisition of ILG

On September 1, 2018, we completed the acquisition of ILG. The businesses acquired that are currently operated by the Company as part of its Vacation Ownership business include Hyatt Vacation Ownership (“HVO”) and Vistana Signature Experiences (“Vistana”), which includes vacation ownership products branded as Sheraton or Westin. The businesses acquired that are currently operated by the Company as part of its Exchange & Third-Party Management business include Aqua-Aston Hospitality, Interval International, Trading Places International, and Vacation Resorts International.

### The Vacation Ownership Industry

The vacation ownership industry (also known as the timeshare industry) enables customers to share ownership and use of fully-furnished vacation accommodations. Typically, a purchaser acquires an interest (known as a “vacation ownership interest” or a “VOI”) that is either a real estate ownership interest (known as a “timeshare estate”) or a contractual right-to-use interest (known as a “timeshare license”) in a single resort or a collection of resort properties. In the United States, most vacation ownership products are sold as timeshare estates, which can be structured in a variety of ways including, but not limited to, a deeded real estate interest in a specified accommodation unit, an undivided interest in a building or an entire resort, or a beneficial interest in a trust that owns one or more resort properties. By purchasing a vacation ownership interest, owners make a commitment to vacation. For many purchasers, vacation ownership provides an attractive alternative to traditional lodging accommodations (such as hotels, resorts and condominium rentals). In addition to avoiding the volatility in room rates to which traditional lodging customers are subject, vacation ownership purchasers also enjoy accommodations that are, on average, more than twice the size of traditional hotel rooms and typically have more features, such as kitchens and separate living areas. Purchasers who might otherwise buy a second home find vacation ownership a preferable alternative because it is more affordable and reduces maintenance and upkeep concerns.

Typically, developers sell vacation ownership interests for a fixed purchase price that is paid in full at closing or financed with a loan. Many vacation ownership companies provide financing or facilitate access to third-party bank financing for customers. Vacation ownership resorts are often operated by a nonprofit property owners’ association of which owners of vacation ownership interests are members. Most property owners’ associations are governed by a board of directors that includes owners and which may include representatives of the developer. Some vacation ownership resorts are held through a trust structure in which a trustee holds title and manages the property. The board of the property owners’ association, or trustee, as applicable, typically delegates much of the responsibility for managing the resort to a management company, which is often affiliated with the developer.

After the initial purchase, most vacation ownership programs require the owner of the vacation ownership interest to pay an annual maintenance fee. This fee represents the owner’s allocable share of the costs and expenses of operating and maintaining the vacation ownership property and providing program services. This fee typically covers expenses such as housekeeping, landscaping, taxes, insurance and resort labor, a property management fee payable to the management company for providing management services, and an assessment to fund a capital asset reserve account used to renovate, refurbish and replace furnishings, common areas and other assets (such as parking lots or roofs) as needed over time. Owners typically reserve their usage of vacation accommodations in advance through a reservation system (often provided by the management company or an affiliated entity), unless a vacation ownership interest specifies fixed usage dates and a particular unit every year.

The vacation ownership industry has grown through expansion of established vacation ownership developers as well as entrance into the market of well-known lodging and entertainment brands, including Marriott, Sheraton, Hilton, Hyatt, Westin and Disney. The industry’s growth can also be attributed to increased market acceptance of vacation ownership products, stronger consumer protection laws and the evolution of vacation ownership interests from a fixed- or floating-week product, which provides the right to use the same property every year, to membership in multi-resort vacation networks, which offer a more flexible vacation experience. These vacation networks often issue their members an annual allotment of points that can be redeemed for stays at affiliated vacation ownership resorts or for alternative vacation experiences available through the program.

To enhance the flexibility and appeal of their products, many vacation ownership developers affiliate their projects with vacation ownership exchange service providers so that owners may exchange their rights to use the developer’s resorts in which they have purchased an interest for accommodation at other resorts in the exchange service provider’s broader network of properties. The two leading exchange service providers are Interval International, our subsidiary, and RCI, LLC, a subsidiary of Wyndham Destinations, Inc. (“RCI”). Interval International’s network includes nearly 3,200 resorts, and RCI’s network includes over 6,000 affiliated resorts, as identified on RCI’s website.

According to the American Resort Development Association (“ARDA”), a trade association representing the vacation ownership and resort development industries, as of December 31, 2018, the U.S. vacation ownership community was comprised of over 1,500 resorts, representing more than 200,000 units. According to ARDA, sales in the U.S. market were approximately $10.2 billion in 2018. We believe there is considerable potential for further growth in the industry both in the U.S. and globally.

### License Agreements and Intellectual Property

In connection with the Marriott Spin-Off, we entered into a License, Services, and Development Agreement (the “Marriott License Agreement”) with Marriott International and a License, Services, and Development Agreement (the “Ritz-Carlton License Agreement”) with The Ritz-Carlton Hotel Company, a subsidiary of Marriott International. Under these long-term license agreements that expire between 2090 and 2096, we are granted the exclusive right, for the terms of the license agreements, to use certain Marriott and Ritz-Carlton marks and intellectual property in our vacation ownership business, the exclusive right to use the Grand Residences by Marriott marks and intellectual property in our residential real estate business, and the non-exclusive right to use certain Ritz-Carlton marks and intellectual property in our residential real estate business.

In connection with our acquisition of ILG, we became the exclusive licensee for the Sheraton and Westin brands in vacation ownership. Our license agreements for these brands grant us the exclusive right, for the terms of the license agreements, to use certain Sheraton and Westin marks and intellectual property in our vacation ownership business, and the right to use the St. Regis brand for specified fractional ownership products. In addition, we assumed a license agreement with Hyatt that grants us the exclusive global use of the Hyatt brand in connection with the Hyatt Vacation Ownership business. Our license agreement with Hyatt was amended and restated effective January 2020.

We operate in a highly competitive industry and our brand names, trademarks, service marks, trade names and logos are very important to the marketing and sales of our products and services. We believe that our licensed brand names and other intellectual property represent high standards of quality, caring, service and value to our customers and the traveling public. We register and protect our intellectual property where we deem appropriate and otherwise seek to protect against its unauthorized use.

#### Licensor Customer Loyalty Programs

Under our affiliation agreements with Marriott International and its affiliates, our owners who are Marriott Bonvoy members generally have the ability to redeem their vacation ownership usage rights to access participating Marriott-, Sheraton-, and Westin-branded properties or other products and services offered through the program.

Through our relationship with Hyatt, our owners who are members of the World of Hyatt customer loyalty program generally have the ability to redeem their vacation ownership usage rights to access participating Hyatt-branded properties or other products and services offered through the program.

### Business Strategy

Our strategic goal is to further strengthen our leadership position in the vacation ownership industry. To achieve this goal, we are pursuing the following initiatives:

#### Drive profitable revenue growth

We intend to continue to generate growth in vacation ownership sales by leveraging our globally recognized brand names and targeting high-quality inventory that allows us to add desirable new destinations to our systems with new on-site sales locations. We expect to continue to generate growth through our integrated platform that provides exclusive access to the world-class loyalty programs of Marriott International and Hyatt. We will also continue to focus on our over 660,000 owners around the world. We are concentrating on growing our tour flow cost effectively as we seek to grow first-time buyer tours through our strategy that emphasizes new sales locations and new marketing channels, including digital and social media marketing. As the vacation ownership business continues to grow sales and we add new resorts, our vacation ownership revenue streams from consumer financing, management fees, rentals and ancillary services are expected to grow.

We also plan to grow our recurring revenues which tend to be less capital intensive than sales of vacation ownership. Our recurring revenues include management of resorts and owners’ associations as well as membership, club and other revenues in both our Vacation Ownership and Exchange & Third-Party Management segments. These revenues generally are more predictable due to the relatively fixed nature of resort operating expenses and, in the case of management and exchange revenues, contractual agreements that typically span many years and are often automatically renewable.

#### Maximize cash flow and optimize our capital structure, including by selectively pursuing capital efficient vacation ownership deal structures

Through the use of our points-based products, we are able to more closely match inventory investment with sales pace and reduce inventory levels, thereby generating strong cash flows over time. Limiting the amount of completed inventory on hand and pursuing capital efficient vacation ownership inventory arrangements enable us to reduce the maintenance fees that we pay on unsold inventory and improve returns on invested capital and liquidity. In addition, we reacquire previously sold vacation ownership interests at lower costs than would be required to develop new inventory which increases margins on our sales of vacation ownership interests.

We expect to maintain an attractive leverage profile. We intend to meet our ongoing liquidity needs through cash on hand, operating cash flow, our $600 million revolving credit facility (the “Revolving Corporate Credit Facility”), our $350 million non-recourse warehouse credit facility (the “Warehouse Credit Facility”), and continued access to the asset-backed securities (“ABS”) term financing market. We believe this will enable us to maintain a level of liquidity that ensures financial flexibility, giving us the ability to pursue strategic growth opportunities, withstand potential future economic downturns, optimize our cost of capital, and pursue strategies for returning excess capital to shareholders.

#### Enhance digital capabilities

A key area of focus for us is the expansion of digital tools to drive more efficient digital marketing and enhance user experience for our owners. We intend to engage in data driven approaches to digital marketing, which we believe will lead to efficiencies in our cost of marketing. We also believe making new and enhanced digital tools available to our owners presents revenue and cost reduction opportunities.

#### Focus on the satisfaction of our owners and guests as well as the engagement of our associates

We provide high-quality vacation experiences to our owners and guests around the world and we believe that maintaining a high level of engagement across all of our customer groups is key to our success. We intend to maintain and improve their satisfaction with our products and services, which drives incremental sales as customers choose to spend more time at our resorts. Because our owners and guests are our most cost-effective vacation ownership sales channels, we intend to continue to leverage our strong customer satisfaction to drive higher margin sales volumes. We intend to provide innovative offerings in new destinations to meet the needs of current and future customers and intend to develop new offerings to attract the next generation of travelers looking for a greater variety of experiences with the high quality standards expected from brands they trust.

Engaging our associates in the success of our business continues to be one of our long-term core strategies. We understand the connection between the engagement of our associates and the satisfaction and engagement of our owners and guests. At the heart of our culture is the belief that if we take care of our associates, they will take care of our owners and guests and the owners and guests will return again and again.

#### Transform our business in connection with the integration of the ILG Acquisition

As we continue to integrate the ILG businesses, we are simultaneously working to develop new growth channels and streamline our business processes through technology. We are focused on integrating functions, leveraging strengths across our businesses, and pursuing transformational opportunities that can further differentiate us from our competitors. We intend to advance our company analytics to encourage greater points utilization, provide enhanced resort experiences, and create more relevant and high value targeted leads for tour offers and vacation options. This is a multi-year process that is designed to achieve cost savings synergies and increase revenue opportunities.

#### Selectively pursue compelling new business opportunities

We are positioned to explore new business opportunities, such as the continued enhancement of our exchange programs, new management affiliations and acquisitions of existing vacation ownership and related businesses. We intend to selectively pursue these types of opportunities, focusing on those opportunities that drive recurring revenue and profit streams. Prior to entering into any new business opportunity, we will evaluate its strategic fit and assess whether it is complementary to our current business, has strong expected financial returns and complements our existing competencies.

### Competitive Strengths

#### A leading global vacation ownership company

We are one of the world’s largest vacation ownership companies, based on number of owners, members, number of resorts and revenues. We believe our scale and global reach, coupled with our renowned brands and development, marketing, sales, exchange and management expertise, help us achieve operational efficiencies and support future growth opportunities. Our size allows us to provide owners with the flexibility of a wide variety of experiences within our high-quality resort portfolio, coupled with the ease and certainty of working with a single trusted provider. We also believe our size helps us obtain better financing terms from lenders, achieve operational cost savings from our increased scale, and attract talented management and associates. Our Interval International network includes members and resorts from our Marriott, Westin, Sheraton and Hyatt clubs that can attract developers and homeowners associations to affiliate with the network and provide an opportunity for their owners to exchange into our branded resorts.

The breadth and depth of our operations enables us to offer a variety of products and to continue to adapt those products to the ever changing needs and preferences of our existing and future customers. For example, in addition to traditional resort experiences, our Marriott Vacation Club Pulse brand extension features unique properties that embrace the spirit and culture of their urban locations, creating an authentic sense of place while delivering easy access to local interests, attractions and transportation.

#### Premier global brands with access to expansive customer bases

We believe that our exclusive licenses with Marriott International and Hyatt for premier global brands in the vacation ownership business provide us with a meaningful competitive advantage. Through seven brands that we license from Marriott International for use in vacation ownership, we benefit from exclusive long-term access to the 125 million members in the Marriott Bonvoy loyalty program as of December 31, 2019. Through our relationship with Hyatt, we benefit from access to members of the World of Hyatt loyalty program, which includes over 22 million members as of December 31, 2019. We believe our access to guests with an affinity for our brands aids our marketing efforts and significantly enhances our ability to drive future sales, as we predominantly generate vacation ownership interest sales through brand loyalty-affiliated sales channels. We expect to continue to leverage our exclusive call transfer arrangements, on-site marketing at Marriott branded hotels, and use of certain exclusive marketing rights to increase sales across all of our Marriott-affiliated vacation ownership properties.

#### Loyal, highly satisfied customers

We have a large, highly satisfied customer base. Owner satisfaction is evidenced both by positive survey responses and by the fact that our average resort occupancy for our Vacation Ownership segment was approximately 88 percent in 2019, higher than the overall vacation ownership industry average. We believe that strong customer satisfaction and brand loyalty result in more frequent use of our products and encourage owners to purchase additional products and to recommend our products to friends and family, which in turn generates higher revenues.

*Capital efficient business model providing strong free cash flow and financial flexibility.*

We believe that our scale, recurring revenue fee streams and enhanced margin profile will enable us to maintain flexibility for continued organic growth, strategic acquisitions and debt repayment. Following the ILG Acquisition, a higher proportion of our total revenue excluding cost reimbursements derives from sources other than the sale of vacation ownership interests. The addition of our Exchange & Third-Party Management businesses creates ample opportunities to realize recurring higher-margin, fee-based revenue streams with modest required capital expenditures, enhancing our margins and free cash flow generation over time.

Our points-based vacation ownership products allow us to utilize capital efficient structures and maintain long-term sales locations without the need to construct additional units at each location. We are able to better manage our inventory needs, while achieving top line growth without a need to significantly increase inventory investments. Our disciplined inventory approach and use of capital efficient vacation ownership deal structures, including working with third parties that develop new inventory or convert previously built units that are sold to us close to when such inventory is needed to support sales, is expected to support strong free cash flow generation.

#### Long-standing track record, experienced management and engaged associates

We have been a pioneer in the vacation ownership industry since 1984, when Marriott International became the first company to introduce a lodging-branded vacation ownership product. Our seasoned management team is led by Stephen P. Weisz, our President and Chief Executive Officer. Mr. Weisz has served as President of our company since 1996 and has over 45 years of combined experience at Marriott International and Marriott Vacations Worldwide. William J. Shaw, the Chairman of our Board of Directors, is the former Vice Chairman, President and Chief Operating Officer of Marriott International and spent nearly 37 years with Marriott International. Our eleven executive officers have an average of nearly 30 years of total combined experience at Marriott Vacations Worldwide, our subsidiary companies, and Marriott International. We believe our management team’s extensive public company and vacation ownership industry experience has enabled us to achieve solid operating results and will enable us to continue to respond quickly and effectively to changing market conditions and consumer trends. Our management’s experience in the highly regulated vacation ownership industry also provides us with a competitive advantage in expanding existing product forms and developing new ones.

#### Engaged associates delivering high levels of customer service driving repeat customers

We believe that our associates provide superior customer service and this dedication to serving the customer enhances our competitive position. Approximately 65 percent of our vacation ownership contract sales in 2019 were to existing owners, which enabled them to enjoy longer stays and have greater flexibility in their vacation choices. Sales to existing owners typically have significantly lower sales and marketing costs than sales to new owners. We leverage outstanding associate engagement and strong corporate culture to deliver positive customer experiences in sales, marketing, exchange, management and resort operations.

We survey our associates regularly through an external survey provider to understand their satisfaction and engagement, defined as how passionate employees are about the company’s mission and their willingness to “go the extra mile” to see it succeed. We have historically ranked highly compared to other companies participating in such surveys.

### VACATION OWNERSHIP SEGMENT

Our Vacation Ownership segment develops, markets, sells, rents, and manages vacation ownership and related products under our licensed brands. Our vacation ownership resorts typically combine many of the comforts of home, such as spacious accommodations with one, two and three bedroom options, living and dining areas, in-unit kitchens and laundry facilities, with resort amenities such as large feature swimming pools, restaurants and bars, convenience stores, fitness facilities and spas, as well as sports and recreation facilities appropriate for each resort’s unique location.

As of December 31, 2019, our Vacation Ownership segment had more than 100 resorts and over 660,000 owners and members. The Vacation Ownership segment represented 89 percent of our consolidated revenue for 2019.

*($ in millions)*

|  | 2019 Vacation Ownership Segment Revenues |
| --- | ---: |
| Sale of vacation ownership products | $1,390 |
| Resort management and other services | 509 |
| Rental | 562 |
| Financing | 271 |
| Cost reimbursements | 1,137 |
| **TOTAL REVENUES** | $3,869 |

### Brands

We design, build, manage and maintain our properties at upper upscale and luxury levels primarily under the following brands:

**Marriott Vacation Club** is a collection of upper upscale vacation ownership programs with a diverse portfolio of resorts and timeshare villas and other accommodations throughout the U.S., Caribbean, Europe, Asia, and Australia. Marriott Vacation Club provides owners and their families with the flexibility to enjoy a wide variety of vacation experiences that are characterized by the consistent high quality and warm hospitality for which the Marriott name has become known. Marriott Vacation Club Pulse, a brand extension of Marriott Vacation Club, offers properties in the heart of vibrant cities, including San Francisco and New York City, among others. Because of their urban locations, Marriott Vacation Club Pulse properties typically offer limited on-site amenities and may include smaller guest rooms without separate living areas and kitchens.

**Sheraton Vacation Club** provides enriching and unexpected vacation experiences in fun family destinations like Florida, South Carolina and Colorado. This collection of Sheraton-branded upper upscale vacation ownership resorts allows owners and guests to relax, play and experience what the world has to offer. Sheraton Vacation Club resorts are part of the Vistana Signature Network.

**Westin Vacation Club** is a collection of Westin-branded upper upscale vacation ownership resorts located in some of the most sought-after destinations and designed with well-being in mind. From the world-renowned Heavenly Bed to an energizing WestinWORKOUT and revitalizing Heavenly Spa treatments, every element of a vacation stay is created to leave owners and guests feeling better than when they arrived. Westin Vacation Club resorts are part of the Vistana Signature Network.

**Grand Residences by Marriott** provides vacation ownership through fractional real estate and whole ownership offerings. Grand Residences by Marriott is dedicated to providing carefree property ownership. The accommodations for this brand are similar to those we offer under the Marriott Vacation Club brand, but the duration of the vacation ownership interest is longer, ranging between three and thirteen weeks.

**The Ritz-Carlton Destination Club** is a vacation ownership program that provides luxurious vacation experiences for members and their families commensurate with the legacy of The Ritz-Carlton brand. The Ritz-Carlton Destination Club resorts include luxury villas and resort amenities that offer inspirational vacation lifestyles tailored to every member’s needs and expectations. The Ritz-Carlton Destination Club resorts typically feature two, three and four bedroom units that usually include marble foyers, walk-in closets, custom kitchen cabinetry and luxury resort amenities such as large feature swimming pools and access to full service restaurants and bars. On-site management and services, which usually include daily housekeeping service, valet, in-residence dining, and access to fitness facilities as well as spa and sports facilities as appropriate for each destination, are provided by The Ritz-Carlton Hotel Company.

**The Ritz-Carlton Residences** is a luxury tier whole ownership residence brand. The Ritz-Carlton Residences includes whole ownership luxury residential condominiums co-located with The Ritz-Carlton Destination Club resorts. Owners can typically purchase condominiums that vary in size from one-bedroom apartments to spacious penthouses. Owners of The Ritz-Carlton Residences can avail themselves of the services and facilities that are associated with the co-located The Ritz-Carlton Destination Club resort on an a la carte basis. On-site management and services are provided by The Ritz-Carlton Hotel Company.

**St. Regis Residence Club** and **The Luxury Collection** offer luxury real estate and distinctive privileges to members who embrace the art of living in unforgettable destinations. For connoisseurs who desire the finest in luxury living, magnificent residences exude the timeless grandeur and glamour synonymous with the illustrious past of the St. Regis brand.

**Hyatt Residence Club** is a vacation ownership program that provides flexible access to global travel experiences through a diverse portfolio of boutique upper upscale residential-style retreats. Set in unique destinations from Maui, Carmel and Aspen to Sedona, San Antonio and Key West, Hyatt Residence Club resorts deliver genuine Hyatt care.

### Products

#### Points-Based Vacation Ownership Products

We sell the majority of our products through points-based ownership programs, including Marriott Vacation Club, Sheraton Flex, Westin Flex, Westin Aventuras, and the Hyatt Residence Club Portfolio Program. While the structural characteristics of each of our points-based programs differ, in each program, owners receive an annual allotment of points representing owners’ usage rights, and owners can use these points to access vacation ownership units across multiple destinations within their program’s portfolio of resort locations. Each program permits shorter or longer stays than a traditional weeks-based vacation ownership product and provides for flexibility with respect to check-in days and size of accommodations. In addition to traditional resort stays, the programs enable our owners to exchange their points for a wide variety of innovative vacation experiences, which may include cruises, airline travel, guided tours, safaris and other unique vacation alternatives. Members of our points-based programs typically pay annual fees in exchange for the ability to participate in the program. In addition to points-based ownership programs that allow owners to access multiple destinations within a single program, we offer points programs at certain resorts in St. John and Hawaii that allow owners to access that particular single site using points in a similar use fashion to the other points based products.

Our points programs allow owners to bank and borrow their annual point allotments, access other locations through the applicable internal exchange programs that we operate, and access Interval International’s network of nearly 3,200 affiliated resorts. Owners can also trade their vacation ownership usage rights for Marriott Bonvoy points or World of Hyatt points, as applicable, which can be used to access participating hotels or redeemed for airline miles or other merchandise offered through such customer loyalty program. Our points-based products offer usage in perpetuity or for a term of years, and may consist of real estate interests or a contractual right-to-use.

#### Weeks-Based Vacation Ownership Products

We continue to sell Marriott Vacation Club, Westin, Sheraton and Hyatt branded weeks-based vacation ownership products in select markets, including in countries where legal and tax constraints currently limit our ability to include those locations in one of our existing points-based programs. Our products include multi-week vacation ownership interests in specific Grand Residences by Marriott, St. Regis Residence Club, The Luxury Collection Residence Club, and The Ritz-Carlton Destination Club resorts. Our weeks-based vacation ownership products in the United States and select Caribbean locations are typically sold as fee simple deeded real estate interests at a specific resort representing an ownership interest in perpetuity, except where restricted by leasehold or other structural limitations. We sell vacation ownership interests as a right-to-use product subject to a finite term in Asia Pacific and Europe.

#### Global Exchange Opportunities

We offer our existing Marriott Vacation Club owners who hold weeks-based products the opportunity to participate, on a voluntary basis, in Marriott Vacation Club Destinations (“MVCD”), an exchange program through which many of MVCD’s vacation experiences are offered. All existing owners, whether or not they elect to participate in the MVCD exchange program, retain their existing rights and privileges of vacation ownership. Owners who elect to participate in the exchange program receive the ability to trade their weeks-based interval usage for vacation club points usage each year, typically subject to payment of an initial enrollment fee and annual club dues. As of the end of 2019, approximately 185,000 weeks-based owners have enrolled approximately 292,000 weeks in MVCD’s exchange program since its launch in 2010, with more than 234,000 total owners able to use points.

The Vistana Signature Network (“VSN”) provides Westin Vacation Club and Sheraton Vacation Club owners access to its affiliated resorts as well as the opportunity to exchange their points through the new Marriott Bonvoy program to Marriott resorts, through the Interval International network, or for a cruise. Based on the point value of the home resort interest owned, customers can choose other VSN affiliated resorts, the type of villa, the date of travel and the length of stay. VSN members have a four-month period in which they have exclusive occupancy rights at the related resort or points program without competition from other network members. During this home resort period, they can reserve occupancy based on the season and unit type purchased. As of December 31, 2019, VSN included more than 187,000 members.

Hyatt Residence Club provides its owners internal exchange rights among Hyatt Residence Club resorts as well as the opportunity to trade their club points for World of Hyatt points which may be redeemed at participating Hyatt branded properties and exchanged through the Interval International network. Owners will receive Hyatt Residence Club points if they have not reserved at their home resort or through its points program during their allotted preference period or if they elect to convert to points earlier. As of December 31, 2019, this points-based membership exchange system served more than 32,000 owners.

### Sources of Revenue

We generate most of our 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.

#### Sale of Vacation Ownership Products

Our principal source of revenue is the sale of vacation ownership interests.

#### Resort Management and Other Services

We generate revenue from fees we earn for managing each of our resorts. In addition, we earn revenue for providing ancillary offerings, including food and beverage, retail, and golf and spa offerings at our resorts. We also receive annual fees, club dues, settlement fees from the sale of vacation ownership products, and certain transaction-based fees from owners and other third parties, including external exchange service providers with which we are associated.

#### Financing

We earn interest income on loans that we provide to purchasers of our vacation ownership interests, as well as loan servicing and other fees.

#### Rental

We generate revenue from rentals of inventory that we hold for sale as interests in our vacation ownership programs or as residences, or inventory that we control because our owners have elected alternative usage options permitted under our vacation ownership programs. By using Marriott.com and other direct booking channels to rent available inventory, we are able to reach potential new members that may already have an affinity for and loyalty to the Marriott, Ritz-Carlton, Sheraton and Westin brands and introduce them to our products.

### Marketing and Sales Activities

We sell our upper upscale tier vacation ownership products under our brands primarily through our worldwide network of resort-based sales centers and certain off-site sales locations. Our vacation ownership interests are currently marketed for sale throughout the United States and in over 25 countries around the world, targeting customers who vacation regularly with a focus on family, relaxation and recreational activities. In 2019, over 90 percent of our vacation ownership contract sales originated at sales centers that are co-located with one of our resorts. We maintain a range of different off-site sales centers, including our central telesales organization based in Orlando and our network of third-party brokers in Latin America and Europe. We have more than 85 global sales locations focused on the sale of vacation ownership interests. We utilize a number of marketing channels to attract qualified customers to our sales locations, including digital and social media marketing.

We solicit our existing owners primarily while they are staying in our resorts, but also offer our owners the opportunity to make additional purchases through direct phone sales, owner events and inquiries from our central customer service centers located in Salt Lake City, Utah, Orlando, Florida, and Palm Springs, California. In 2019, approximately 65 percent of our vacation ownership contract sales were to our existing owners. In addition, we are concentrating on growing our tour flow cost effectively as we seek to generate more first-time buyer tours through our strategy that emphasizes adding new sales locations and new marketing channels.

We also market to existing Marriott and Hyatt customer loyalty program members and travelers who are staying in locations where we have like-branded resorts. We market extensively to guests in Marriott International or Hyatt hotels that are located near one of our sales locations. We also market through call transfer arrangements with Marriott International pursuant to which callers to certain of its reservation centers are asked if they would like to be transferred to one of our representatives that can tell them about our products. In addition, we operate other local marketing venues in various high-traffic areas. A significant part of our direct marketing activities are focused on prospects in the Marriott and Hyatt customer loyalty program databases and our in-house databases of qualified prospects. We offer guests who do not buy a vacation ownership interest during their initial tour the opportunity to purchase a return package for a future stay at our resorts. These return guests are nearly twice as likely to purchase as a first-time visitor.

One of our key areas of focus is expanding our use of social media and digital marketing channels. We are focused on building stronger brand reputation associations via social media audience growth, community engagement, and data driven content marketing.

Our sales tours are designed to provide our guests with an overview of our company and our products, as well as a customized presentation to explain how our products and services can meet their vacationing needs. Our sales force is highly trained in a consultative sales approach designed to ensure that we meet customers’ needs on an individual basis. We hire our sales executives based on stringent selection criteria. After they are hired, they spend a minimum of four weeks in product and sales training before interacting with any customers. We manage our sales executives’ consistency of presentation and professionalism using a variety of sales tools and technology and through a post-presentation survey of our guests that measures many aspects of each guest’s interaction with us.

We believe consumers place a great deal of trust in the Marriott, Westin, Sheraton, Ritz-Carlton and Hyatt brands and the strength of these brands is important to our ability to attract qualified prospects in the marketplace. We maintain a prominent presence on the www.marriott.com, www.ritzcarlton.com and www.hyatt.com websites. Our proprietary sites include www.marriottvacationsworldwide.com, www.marriottvacationclub.com, www.ritzcarltonclub.com, www.vistana.com, www.theresidenceclub.com, and www.hyattresidenceclub.com.

### Inventory and Development Activities

We secure inventory by building additional phases at our existing resorts, repurchasing previously sold inventory in the secondary market, repurchasing inventory as a result of owner loan or maintenance fee defaults, or developing or acquiring inventory at resorts in strategic markets. We proactively buy back previously sold vacation ownership interests under our repurchase programs at lower costs than would be required to develop new inventory. Efficient use of our capital is also achieved through our points-based business model, which allows us to supply many sales locations with new inventory sourced from a small number of resort locations.

We intend to continue to selectively pursue growth opportunities primarily 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 in ways that optimize the timing of our capital investments. These capital efficient vacation ownership deal structures may include working with third parties to develop new inventory or to convert previously built units to be sold to us close to when we need such inventory.

Approximately a quarter of our Vacation Ownership segment resorts are co-located with same-branded hotel properties. Co-location of our resorts with same-branded hotels can provide several advantages from development, operations, customer experience and marketing perspectives, including sharing amenities, infrastructure and staff, integration of services, and other cost efficiencies. The larger campus of an integrated vacation ownership and hotel resort often can afford our owners more varied and elaborate amenities than those that would generally be available at a stand-alone resort. Shared infrastructure can also reduce our overall development costs for our resorts on a per unit basis. Integration of services and sharing staff and other expenses can lower overhead and operating costs for our resorts. Our on-site access to hotel customers, including customer loyalty program members, who are visiting co-located hotels also provides us with a cost-effective marketing channel for our vacation ownership products.

Co-located resorts require cooperation and coordination among all parties and are subject to cost sharing and integration agreements among us, the applicable property owners’ association and managers and owners of the co-located hotel. Our license agreements with Marriott International and Hyatt allow for the development of co-located properties in the future, and we intend to opportunistically pursue co-located projects with them.

Owners generally can offer their vacation ownership interests for resale on the secondary market, which can create pricing pressure on the sale of developer inventory. However, owners who purchase vacation ownership interests on the secondary market typically do not receive all of the benefits that owners who purchase products directly from us receive. When an owner purchases a vacation ownership interest directly from us or a resale on the secondary market, the owner receives certain entitlements that are tied to the underlying vacation ownership interest, such as the right to reserve a resort unit that underlies their vacation ownership interest in order to occupy that unit or exchange its use for use of a unit at another resort through an external exchange service provider, as well as benefits that are incidental to the purchase of the vacation ownership interest. However, the purchaser on the secondary market may not be entitled to receive certain incidental benefits such as full access to our internal exchange programs or the right to trade their usage rights for Marriott Bonvoy points. Additionally, many of our vacation ownership interests provide us with a right of first refusal on secondary market sales. We monitor sales that occur in the secondary market and exercise our right of first refusal when it is advantageous for us to do so, whether due to pricing, desire for the particular inventory, or other factors. All owners, whether they purchase directly from us or on the secondary market, are responsible for the annual maintenance fees, property taxes and any assessments that are levied by the relevant property owners’ association, as well as any exchange service membership dues or service fees.

### Management Activities

We enter into a management agreement with the property owners’ association or other governing body at our resorts and, when a trust holds interests in resorts, with the trust’s governing body. In exchange for a management fee, we typically provide owner account management (reservations and usage selection), housekeeping, check-in, maintenance and billing and collections services. The management fee is typically based on either a percentage of the budgeted costs to operate such resorts or a fixed fee arrangement. We earn these fees regardless of usage or occupancy. We also receive revenues that represent reimbursement for certain costs we incur under our management agreements, which are principally payroll-related costs at the locations where we employ the associates providing on-site services.

The terms of our management agreements generally range from three to ten years and are generally subject to periodic renewal for one to five year terms. Many of these agreements renew automatically unless either party provides advance notice of termination before the expiration of the term. When our management agreement for a branded resort is not renewed or is terminated, the resort loses the ability to use the brand and trademarks. The owners at such resorts also lose their ability to trade their vacation ownership usage rights for customer loyalty points and to access other resorts through one of our internal exchange systems.

The Ritz-Carlton Hotel Company manages the on-site operations for The Ritz-Carlton Destination Club and The Ritz-Carlton Residences properties in our portfolio under separate management agreements with us. We provide property owners’ association governance and vacation ownership program management services for The Ritz-Carlton Destination Club and co-located The Ritz-Carlton Residences properties, including preparing association budgets, facilitating association meetings, billing and collecting maintenance fees, and supporting reservations, vacation experience planning and other off-site member services. We and The Ritz-Carlton Hotel Company typically split the management fees equally for these resorts. If a management agreement for a resort expires or is terminated, the resort loses the ability to use the Ritz-Carlton name and trademarks. The owners at such resorts also lose their ability to access other usage benefits, such as access to accommodations at other The Ritz-Carlton Destination Club resorts, preferential access to Ritz-Carlton hotels worldwide and access to our internal exchange and vacation travel options.

Each management agreement requires the property owners’ association, trust association or other governing body to provide sufficient funds to pay for the vacation ownership program and operating costs. To satisfy this requirement, owners of vacation ownership interests pay an annual maintenance fee. This fee represents the owner’s allocable share of the costs of operating and maintaining the resorts or interests in the timeshare plan in which they hold a vacation ownership interest, including management fees and expenses, taxes (in some locations), insurance, and other related costs, and the costs of providing program services (such as reservation services). This fee includes a management fee payable to us for providing management services as well as an assessment for funds to be deposited into a capital asset reserve fund and used to renovate, refurbish and replace furnishings, common areas and other resort assets (such as parking lots or roofs) as needed over time. As the owner of completed but unsold vacation ownership inventory, we also pay maintenance fees in accordance with the legal requirements of the jurisdictions applicable to such resorts and programs. In addition, in early phases of development at a resort, we sometimes enter into subsidy agreements with the property owners’ associations under which we agree to pay costs that otherwise would be covered by annual maintenance fees associated with vacation ownership interests or units that have not yet been built. These subsidy arrangements help keep maintenance fees at a reasonable level for owners who purchase in the early stages of development.

If an owner defaults in payment of maintenance fees or other assessments, the property owners’ association typically has the right to foreclose on or revoke the defaulting owner’s vacation ownership interest. We have arrangements with several property owners’ associations to assist in reselling foreclosed or revoked vacation ownership interests in exchange for a fee, or to reacquire such foreclosed or revoked vacation ownership interests from the property owners’ associations.

### Consumer Financing

We offer purchase money financing for purchasers of our vacation ownership products who meet our underwriting guidelines. By offering or eliminating financing incentives and modifying underwriting standards, we have been able to increase or decrease the volume of our financing activities depending on market conditions. We are not providing financing to buyers of our residential products. We generally do not face competition in our consumer financing business to finance sales of vacation ownership products.

In 2019, our financing propensity was 63 percent and the average loan originated by us for vacation ownership products totaled approximately $26,800, which represented 76 percent of the average purchase price. We require a minimum down payment of 10 percent of the purchase price, although down payments and interest rates are typically higher for applicants with credit scores below certain levels and for purchasers who do not have credit scores, such as non-U.S. purchasers. The average interest rate for originated loans in 2019 was 13.05 percent and the average term was 11 years. Interest rates are fixed and a loan fully amortizes over the life of the loan. The average monthly mortgage payment for an owner who received a loan in 2019 was $396. We do not impose any prepayment penalties.

In 2019, approximately 94 percent of our loans were used to finance U.S.-based products. In our North America business, we perform a credit investigation or other review or inquiry to determine the purchaser’s credit history before originating a loan. The interest rates on the loans we provide are based primarily upon the purchaser’s credit score, the size of the purchase, and the term of the loan. We base our financing terms largely on a purchaser’s FICO score, which is a branded version of a consumer credit score widely used in the United States by banks and lending institutions. FICO scores range from 300 to 850 and are calculated based on information obtained from one or more of the three major U.S. credit reporting agencies that compile and report on a consumer’s credit history. In 2019, the average FICO score of our customers who were U.S. citizens or residents who financed a vacation ownership purchase was 736; 73 percent had a credit score of over 700, 89 percent had a credit score of over 650 and 97 percent had a credit score of over 600.

We use other information to determine minimum down payments and interest rates applicable to loans made to purchasers who do not have a credit score or who do not reside within the United States, such as regional historical default rates and currency fluctuation risk.

In the event of a default, we generally have the right to foreclose on or revoke the defaulting owner’s vacation ownership interest. We typically resell interests that we reacquire through foreclosure or revocation or place such interests into one of our points-based programs.

We securitize the majority of the consumer loans we originate in support of our vacation ownership business. Historically, we have sold these loans to institutional investors in the ABS market on a non-recourse basis. These vacation ownership notes receivable securitizations provide funding for us at interest rates similar to those available to companies with investment grade credit ratings, and transfer the economic risks and substantially all the benefits of the consumer loans we originate to third parties. In a vacation ownership notes receivable securitization, various classes of debt securities issued by a special purpose entity are generally collateralized by a single tranche of transferred assets, which consist of vacation ownership notes receivable. During 2019, we completed three securitization transactions, which are discussed in detail in Footnote 13 “Securitized Debt” to our Financial Statements. On an ongoing basis, we have the ability to use our Warehouse Credit Facility to securitize eligible consumer loans derived from certain branded vacation ownership sales. Those loans may later be transferred to term securitization transactions in the ABS market, which we intend to continue to complete at least once per year. Since 2000, we have issued over $6 billion of debt securities in securitization transactions in the ABS market, excluding amounts securitized through warehouse credit facilities or private bank transactions. We retain the servicing and collection responsibilities for the loans we securitize, for which we receive a servicing fee.

#### Our Resorts

As of December 31, 2019, our portfolio consisted of more than 100 properties with over 20,000 vacation ownership villas, also referred to as units, in the following locations.

### Vacation Ownership

#### Mainland U.S. and Hawaii

|  | # of Resorts |  | # of Resorts |  | # of Resorts |
| --- | ---: | --- | ---: | --- | ---: |
| Arizona | 5 | Massachusetts | 1 | South Carolina | 10 |
| California | 14 | Missouri | 1 | Texas | 1 |
| Colorado | 13 | Nevada | 2 | Utah | 2 |
| Florida | 23 | New Jersey | 1 | Virginia | 1 |
| Hawaii | 12 | New York | 2 | Washington, D.C. | 1 |

#### Caribbean and Mexico

|  | # of Resorts |  | # of Resorts |
| --- | ---: | --- | ---: |
| Aruba | 2 | U.S. Virgin Islands | 3 |
| Bahamas | 1 | West Indies | 1 |
| Puerto Rico | 1 | Mexico | 3 |

#### Europe and Asia Pacific

|  | # of Resorts |  | # of Resorts |
| --- | ---: | --- | ---: |
| France | 1 | Indonesia | 1 |
| Spain | 3 | Thailand | 3 |
| United Kingdom | 1 | Australia | 1 |

#### Brands

|  | # of Resorts |
| --- | ---: |
| Marriott Vacation Club | 61 |
| Sheraton Vacation Club | 9 |
| Westin Vacation Club | 12 |
| Grand Residences by Marriott | 2 |
| The Ritz-Carlton Club | 5 |
| St. Regis Residence Club and The Luxury Collection | 3 |
| Hyatt Residence Club | 16 |
| Other | 2 |
|  | 110 |

### Hotels

|  | Location |
| --- | --- |
| Sheraton Kauai Resort | Kauai, HI |
| The Westin Resort & Spa, Cancun\* | Cancun, Mexico |
| The Westin Resort & Spa, Puerto Vallarta | Puerto Vallarta, Mexico |
| Hyatt Highlands Inn | Carmel, CA |

\*A portion of this hotel is comprised of vacation ownership units.

### EXCHANGE & THIRD-PARTY MANAGEMENT SEGMENT

Our Exchange & Third-Party Management segment includes exchange networks and membership programs comprised of nearly 3,200 resorts in over 80 nations and nearly two million members, as well as management of over 170 other resorts and lodging properties. We provide these services through a variety of brands including Interval International, Trading Places International, Vacation Resorts International and Aqua-Aston. The segment revenue generally is fee-based and derived from membership, exchange and rental transactions, property and owners’ association management, and other related products and services. The Exchange & Third-Party Management segment represented 10 percent of our consolidated revenue for 2019.

*($ in millions)*

|  | 2019 Exchange & Third-Party Management Segment Revenues |
| --- | ---: |
| Management and exchange | $298 |
| Rental | 61 |
| Financing | 4 |
| Cost reimbursements | 91 |
| **TOTAL REVENUES** | $454 |

### Exchange Networks and Membership Programs

### Interval International

Our primary exchange offering is Interval International’s network, a membership-based exchange program which also provides a comprehensive package of value-added products and services to members and developers. Generally, individuals are enrolled by resort developers in connection with their purchase of vacation ownership interests from such resort developers, with initial membership fees being paid on behalf of members by the resort developers. Members may also enroll directly, for instance, when they purchase a vacation ownership interest through resale or owners’ association affiliation at a resort that participates in the Interval International network. Interval International has established multi-year relationships with resort developers, including leading independent developers and our branded vacation ownership programs, under exclusive affiliation agreements, which typically provide for continued resort participation following the agreement’s term.

Our traditional Interval International network members have the option, after their initial membership period ends, to renew their memberships for terms ranging from one to five years and paying their own membership fees directly to us. Alternatively, some resort developers incorporate the Interval International network membership fee into certain annual fees they charge to owners of vacation ownership interests at their resorts or vacation ownership clubs. As a result, membership in the Interval International network and, where applicable, the Interval Gold or Interval Platinum program (as described below), for these corporate members is automatically renewed through the period of their resort’s or club’s participation in the Interval International network. As of December 31, 2019, 55 percent of total Interval International network members were traditional members and 45 percent were corporate members.

Interval International recognizes certain of its eligible Interval International network resorts as either a “Select Resort,” a “Select Boutique Resort,” a “Premier Resort,” a “Premier Boutique Resort,” an “Elite Resort” or an “Elite Boutique Resort” based upon the satisfaction of qualifying criteria, inspection, member feedback, and other resort-specific factors. Over 40 percent of Interval International network resorts were recognized as a Select, Select Boutique, Premier, Premier Boutique, Elite or Elite Boutique Resort as of December 31, 2019.

### Products and Services

#### Exchange

Members are offered the ability to exchange usage rights in their vacation ownership interest for accommodations which are generally of comparable trading value to those relinquished, based on factors including location, quality, seasonality, unit attributes and time of relinquishment prior to occupancy.

#### Getaways

We also offer additional vacation rental opportunities to members of the Interval International network and certain other membership or affinity programs at attractive rates through Getaways. Getaways allow members to rent resort accommodations for a fee, plus applicable taxes. Resort accommodations available as Getaways consist of seasonal oversupply of vacation ownership accommodations within the applicable exchange network, as well as resort accommodations we source specifically for use in Getaways.

#### Interval Gold and Interval Platinum

Interval International network members may take advantage of one of our two enhanced membership tiers, Interval Gold, or Interval Platinum, each of which provides value-added benefits and services for an additional fee. These benefits and services vary by country of residence, but generally consist of discounts on Getaways, a concierge service, a hotel discount program and Interval Options, a service that allows members to relinquish annual occupancy rights in their vacation ownership interests towards the purchase of various travel products, including hotel, cruise, golf and spa vacations. Members are enrolled in these programs either by resort developers in connection with the initial purchase of their vacation ownership interests or by upgrading their membership directly.

#### Club Interval

This product gives owners of fixed or floating week vacation ownership interests the opportunity to use their resort week as points within the Interval International network. Club Interval members also receive all of the benefits of Interval Gold and can upgrade to Interval Platinum.

#### Sales and Marketing Support for Interval International network resorts

Resort developers promote membership in our exchange programs and related value-added services as an important benefit of owning a vacation ownership interest. We offer developers a selection of sales and marketing materials. These materials, many of which are available in multiple languages, include brochures, publications, sales-office displays, resort directories and Interval HD, an online video channel featuring resort and destination overviews. In addition, we offer programs, including our Leisure Time Passport program that resort developers use as a trial membership program for potential purchasers of vacation ownership interests.

#### Operational Support for Interval International network resorts

Interval International also makes available a comprehensive array of back-office servicing solutions to resort developers and resorts. For example, for an additional fee, we provide reservation services and billing and collection of maintenance fees and other amounts due to developers or owners’ associations. In addition, through consulting arrangements, we assist resort developers in the design of tailored vacation programs for owners of vacation ownership interests.

### Trading Places International

Trading Places International provides exchange services to owners at certain of our managed timeshare properties as well as other direct-to-consumer exchanges that do not require a membership fee. For an annual fee, vacation owners may choose to join the upgraded Trading Places Prime program with additional benefits. Exchanges in these Trading Places programs are based on like value and upgrades are available upon payment of additional fees.

### Marketing

Our exchange businesses maintain corporate and consumer marketing departments that are responsible for implementing marketing strategies. We also develop printed and digital materials to promote membership participation, exchange opportunities and other value-added services to existing members as well as for the Interval International business to secure new relationships with resort developers, owners’ associations and resorts to obtain and retain members.

Our consumer marketing efforts revolve around the deepening of new and existing customer relationships and increasing engagement and loyalty of members through a number of channels including direct mail, email, telemarketing, and online distribution as well as utilizing social media channels like Facebook and Instagram to inspire vacations, share stories and promote the vacation ownership lifestyle.

Interval International also markets products and services to resort developers and other parties in the vacation ownership industry through a series of business development initiatives. Our sales and services personnel proactively seek to establish strong relationships with developers and owners’ associations, providing input on consumer preferences and industry trends based upon years of experience. We believe that we have established a strong reputation within the vacation ownership industry as being highly responsive to the needs of resort developers, owners’ associations, management companies and owners of vacation ownership interests. In addition, we sponsor, participate in and attend numerous industry conferences around the world, to provide potential and existing industry participants opportunities to network and learn more about vacation ownership.

### Third-Party Management

We provide resort management services for vacation ownership resorts and other third-party vacation property owners through Vacation Resorts International, Trading Places International and Aqua-Aston. Our services may include day-to-day operations of the resorts, maintenance of the resorts, preparation of reports, budgets, owners’ association administration, quality assurance and employee training. As of December 31, 2019, we provided third-party management services to over 170 resorts.

Vacation Resorts International and Trading Places International provide management services to vacation ownership resorts pursuant to agreements with terms generally ranging from one to ten years, many of which are automatically renewable. Generally, our management fees are paid by the owners’ association and funded from the annual maintenance fees paid by the individual owners to the association. These maintenance fees represent each owner’s allocable share of the costs of operating and maintaining the resorts, which generally includes personnel, property taxes, insurance, a capital asset reserve to fund refurbishment and other related costs. The management fees we earn are highly predictable due to the relatively fixed nature of resort operating expenses. We are reimbursed for the costs incurred to perform our services, principally related to personnel providing on-site services. We also offer vacation rental services to these owners’ associations. These rentals are made online directly to consumers through our websites, www.vriresorts.com, and www.tradingplaces.com, through third-party online travel agencies, and through Interval International’s Getaways program.

Aqua-Aston provides management and rental services for condominium owners, hotel owners, and owners’ associations. The condominium rental properties are generally investment properties, and, to a lesser extent, second homes, owned by individuals who contract with Aqua‑Aston directly to manage, market and rent their properties, generally pursuant to short‑term agreements. We also offer such owners a comprehensive package of marketing, management and rental services designed to enhance rental income and profitability. Generally, owners’ association management services, including administrative, fiscal and quality assurance services, are provided pursuant to exclusive agreements with terms typically ranging from one to ten years or more, many of which are automatically renewable. Revenue is derived principally from fees for management of the hotel or condominium resort, and owners’ association as well as related rental services. Management fees consist of a base management fee and, in some instances for hotels or condominium resorts, an incentive management fee which is generally a percentage of operating profits or improvement in operating profits. Service fee revenue is based on the services provided internally or through third-party providers to owners including reservations, sales and marketing, property accounting and information technology services.

The success and continued growth of the Aqua-Aston business depends largely on our ability to source vacationers interested in booking vacation properties made available through our rental services. Our sales and marketing team in Honolulu, Hawaii, utilizes a variety of sales, marketing, revenue management and digital marketing initiatives to attract consumers and additional properties to Aqua‑Aston. The team in Hawaii utilizes many channels of distribution including traditional wholesale through tour operators and travel partners, online travel agencies and global distribution systems. In addition, Aqua‑Aston focuses on driving direct business through brand websites and our central reservations office. The sales team covers several market segments from corporate and government/military to travel agents and groups. We offer a variety of leisure accommodations to visitors from around the world through consumer websites such as, www.astonhotels.com, www.aquaresorts.com, www.aquahospitality.com, and www.mauicondo.com.

### CORPORATE AND OTHER

Corporate and Other consists of results not allocable to the Vacation Ownership or Exchange & Third-Party Management segments, including company-wide general and administrative costs, corporate interest expense, and consolidation of certain owners’ associations under the voting interest model, which are not included in operating segment resource allocation decision-making.

### Seasonality

Our revenue is influenced by the seasonal nature of travel. Within our Vacation Ownership segment, our sales and financing business experiences a modest impact from seasonality, with higher sales volumes during the traditional vacation periods. Our vacation ownership management businesses by and large do not experience significant seasonality, with the exception of our resort operations revenue, which tends to be higher in the first quarter.

Within our Exchange & Third-Party Management segment, we recognize exchange and Getaways revenue based on confirmation of the vacation; revenue is generally higher in the first quarter and lower in the fourth quarter. Remaining rental revenue is recognized based on occupancy.

### Competition

Competition in the vacation ownership industry is driven primarily by the quality, number and location of vacation ownership resorts, the quality and capability of the related property management program, trust in the brand, pricing of product offerings and the availability of program benefits, such as exchange programs and access to affiliated hotel networks. We believe that our focus on offering distinctive vacation experiences, combined with our financial strength, well-established and diverse market presence, strong brands, expertise and well-managed and maintained properties, will enable us to remain competitive. Vacation ownership is a vacation option that is positioned and sold as an attractive alternative to vacation rentals (such as hotels, resorts and condominium rentals) and second home ownership. The various segments within the vacation ownership industry can be differentiated by the quality level of the accommodations, range of services and ancillary offerings, and price. Our brands operate in the upper upscale and luxury tiers of the vacation ownership segment of the industry and the upper upscale and luxury tiers of the whole ownership segment (also referred to as the residential segment) of the industry.

Our competitors in the vacation ownership industry range from small vacation ownership companies to large branded hospitality companies that operate or license vacation ownership businesses. In North America, we typically compete with companies that sell upper upscale tier vacation ownership products under a lodging or entertainment brand umbrella, such as Hilton Grand Vacations Club, and Disney Vacation Club, as well as numerous regional vacation ownership operators. Our luxury vacation ownership products compete with vacation ownership products offered by Four Seasons, Exclusive Resorts, Timbers Resorts and several other smaller independent companies. In addition, the vacation ownership industry competes generally with other vacation rental options (such as hotels, resorts and condominium rentals) offered by the lodging industry as well as alternative lodging marketplaces such as Airbnb and HomeAway, which offer rentals of homes and condominiums. Innovations that impact the industry may also lead to new products and services that could disrupt our business model and create new and stronger competitors.

Outside North America, we operate vacation ownership resorts in two primary regions, Asia Pacific and Europe. In both regions, we are one of the largest lodging-branded vacation ownership companies operating in the upper upscale tier, with regional operators dominating the competitive landscape. Where possible, our vacation ownership properties in these regions are co-located with Marriott International branded hotels. In Asia Pacific, our owner base is derived primarily from the Asia Pacific region and secondarily from the Europe and North America regions. In Europe, our owner base is derived primarily from the North America, Europe and Middle East regions.

Recent and potential future consolidation in the highly fragmented vacation ownership industry may increase competition. Consolidation may create competitors that enjoy significant advantages resulting from, among other things, a lower cost of, and greater access to, capital and enhanced operating efficiencies.

Our Interval International exchange business principally competes for developer and consumer market share with Wyndham Destinations, Inc.’s subsidiary, RCI. Our subsidiary, Trading Places International, and several third parties operate in this industry with a significantly more limited scope of available accommodations. This business also faces increasing competition from points‑based vacation clubs and large resort developers, which operate their own internal exchange systems to facilitate exchanges for owners of vacation ownership interests at their resorts as they increase in size and scope. Increased consolidation in the industry enhances this competition. In addition, vacation clubs and resort developers may have direct exchange relationships with other developers.

We believe that developers and owners associations generally choose to affiliate with an exchange network based on the quality of resorts participating in the network; the level of service provided to members; the range and level of support services; the flexibility of the exchange program; the demographics of the membership base; the costs for annual membership and exchanges; and the continuity of management and its strategic relationships within the industry.

### Regulation

Our business is heavily regulated. We are subject to a wide variety of complex international, national, federal, state and local laws, regulations and policies in jurisdictions around the world. We have proactively worked with ARDA to encourage the enactment of responsible consumer-protection legislation and state regulation that enhances the reputation and respectability of the overall vacation ownership industry. We believe that, over time, our vacation ownership products and services helped improve the public perception of the vacation ownership industry.

Some laws, regulations and policies may impact multiple areas of our business, such as securities, anti-discrimination, anti-fraud, data protection and security and anti-corruption and bribery laws and regulations or government economic sanctions, including applicable regulations of the Consumer Financial Protection Bureau, the U.S. Department of the Treasury’s Office of Foreign Asset Control and the U.S. Foreign Corrupt Practices Act (“FCPA”). The FCPA and similar anti-corruption and bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or generating business. The collection, use and protection of personal data of our customers, as well as the sharing of our customer data with affiliates and third parties, are governed by privacy laws and regulations enacted in the United States, such as the recently enacted California Consumer Privacy Act (“CCPA”) which became effective January 1, 2020, and in other jurisdictions around the world, such as Europe’s General Data Protection Regulation (the “GDPR”). Other laws, regulations and policies primarily affect one of four areas of our business: real estate development activities; marketing and sales activities; lending activities; and resort management activities.

#### Real Estate Development Regulation

Our real estate development activities are regulated under a number of different timeshare, condominium and land sales disclosure statutes in many jurisdictions. We are generally subject to laws and regulations typically applicable to real estate development, subdivision, and construction activities, such as laws relating to zoning, land use restrictions, environmental regulation, accessibility, title transfers, title insurance, and taxation. In the United States, these include, with respect to some of our products, the Fair Housing Act and the Americans with Disabilities Act. In addition, we are subject to laws in some jurisdictions that impose liability on property developers for construction defects discovered or repairs made by future owners of property developed by the developer.

#### Marketing and Sales Regulation

Our marketing and sales activities are closely regulated pursuant to laws and regulations enacted specifically for the vacation ownership and land sales industries, as well as a wide variety of laws and regulations that govern our marketing and sales activities in the jurisdictions in which we carry out such activities. These laws and regulations include the USA PATRIOT Act, Foreign Investment In Real Property Tax Act, the Federal Interstate Land Sales Full Disclosure Act and fair housing statutes, U.S. Federal Trade Commission (the “FTC”) and state “Little FTC Acts” and other laws and regulations governing unfair, deceptive or abusive acts or practices including unfair or deceptive trade practices and unfair competition, state attorney general regulations, anti-fraud laws, prize, gift and sweepstakes laws, real estate, title agency or insurance, travel insurance and other licensing or registration laws and regulations, anti-money laundering, consumer information privacy and security, breach notification, information sharing and telemarketing laws, home solicitation sales laws, tour operator laws, lodging certificate and seller of travel laws, securities laws, and other consumer protection laws.

Many jurisdictions, including many jurisdictions in the United States, Asia Pacific and Europe, require that we file detailed registration or offering statements with regulatory authorities disclosing certain information regarding the vacation ownership interests and other real estate interests we market and sell, such as information concerning the interests being offered, any projects, resorts or programs to which the interests relate, applicable condominium or vacation ownership plans, evidence of title, details regarding our business, the purchaser’s rights and obligations with respect to such interests, and a description of the manner in which we intend to offer and advertise such interests. Regulation outside the United States includes jurisdictions in which our clubs and resorts operate, such as the European Union, Singapore and Mexico, among others. Among other things, the European and Singaporean regulations: (1) require delivery of specified disclosure (some of which must be provided in a specific format or language) to purchasers; (2) require a specified “cooling off” rescission period after a purchase contract is signed; and (3) prohibit any advance payments during the “cooling off” rescission period.

We must obtain the approval of numerous governmental authorities for our marketing and sales activities. Changes in circumstances or applicable law may necessitate the application for or modification of existing approvals. Currently, we are permitted to market and sell vacation ownership products in all 50 states and the District of Columbia in the United States and numerous countries in North and South America, the Caribbean, Europe, Asia and the Middle East. Our Marriott Vacation Club Destinations, Australia points-based program is subject to regulation as a “managed investment scheme” by the Australian Securities & Investments Commission. In some countries our vacation ownership products are marketed by third party brokers.

Laws in many jurisdictions in which we sell vacation ownership interests grant the purchaser of a vacation ownership interest the right to cancel a purchase contract during a specified rescission period following the later of the date the contract was signed or the date the purchaser received the last of the documents required to be provided by us.

In recent years, regulators in many jurisdictions have increased regulations and enforcement actions related to telemarketing operations, including requiring adherence to the federal Telephone Consumer Protection Act (the “TCPA”) and similar “do not call” legislation. These measures have significantly increased the costs and reduced the efficiencies associated with telemarketing. While we continue to be subject to telemarketing risks and potential liability, we believe that our exposure to adverse effects from telemarketing legislation and enforcement is mitigated in some instances by the use of permission-based marketing, under which we obtain the permission of prospective purchasers to contact them in the future. We participate in various programs and follow certain procedures that we believe help reduce the possibility that we contact individuals who have requested to be placed on federal or state “do not call” lists, including subscribing to the federal and certain state “do not call” lists, and maintaining an internal “do not call” list.

#### Lending Regulation

Our lending activities are subject to a number of laws and regulations including those of applicable supervisory, regulatory and enforcement agencies such as, in the United States, the Consumer Financial Protection Bureau, the FTC, and the Financial Crimes Enforcement Network. These laws and regulations, some of which contain exceptions applicable to the timeshare industry or may not apply to some of our products, may include, among others, the Real Estate Settlement Procedures Act and Regulation X, the Truth In Lending Act and Regulation Z, the Federal Trade Commission Act, the Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting Act, the Fair Housing Act and implementing regulations, the Fair Debt Collection Practices Act, the Electronic Funds Transfer Act and Regulation E, unfair, deceptive or abusive acts or practices regulations and the Consumer Protection Act, the USA PATRIOT Act, the Right to Financial Privacy Act, the Gramm-Leach-Bliley Act, the Servicemembers Civil Relief Act and the Bank Secrecy Act. Our lending activities are also subject to the laws and regulations of other jurisdictions, including, among others, laws and regulations related to consumer loans, retail installment contracts, mortgage lending, usury, fair debt collection practices, consumer debt collection practices, mortgage disclosure, lender or mortgage loan originator licensing and registration and anti-money laundering.

#### Resort Management Regulation

Our resort management activities are subject to laws and regulations regarding community association management, public lodging, food and beverage services, labor, employment, health care, health and safety, accessibility, discrimination, immigration, gaming, and the environment (including climate change). In addition, many jurisdictions in which we manage our resorts have statutory provisions that limit the duration of the initial and renewal terms of our management agreements for property owners’ associations and/or permit the property owners’ association for a resort to terminate our management agreement under certain circumstances (for example, upon a super-majority vote of the owners), even if we are not in default under the agreement.

### Environmental Compliance and Awareness

The properties we manage or develop are subject to national, state and local laws and regulations that govern the discharge of materials into the environment or otherwise relate to protecting the environment. These laws and regulations include requirements that address health and safety; the use, management and disposal of hazardous substances and wastes; and emission or discharge of wastes or other materials. We believe that our management and development of properties comply, in all material respects, with environmental laws and regulations. Our compliance with such provisions also has not had a material impact on our capital expenditures, earnings or competitive position, nor do we anticipate that such compliance will have a material impact in the future.

We take our commitment to protecting the environment seriously. We have collaborated with Audubon International to further the “greening” of our Marriott Vacation Club resorts in the U.S. through the Audubon Green Leaf Eco-Rating Program for Hotels. The Audubon partnership is just one of several programs incorporated into our green initiatives. We have more than 20 years of energy conservation experience that we have put to use in implementing our environmental strategy across all of our segments. This strategy includes further reducing energy and water consumption, expanding our portfolio of green resorts, including LEED (Leadership in Energy & Environmental Design) certification, educating and inspiring associates and guests to support the environment, and embracing innovation.

### Human Capital

We recognize that our industry leadership depends in critical part on our continued ability to recruit, motivate, and retain the talented personnel that make up our global workforce. We maintain a set of programs and initiatives designed to attract, develop, retain and engage our associates that is focused on:

- ensuring competitive, fair, and transparent compensation and benefits offerings;
- supporting the overall well-being of our associates from a physical, emotional, and social perspective;
- creating opportunities for associate growth, development, recognition, training, and education; and
- promoting an inclusive and diverse workplace, where all individuals are respected regardless of their age, race, notional origin, gender, religion, disability, or sexual orientation.

As of December 31, 2019, we had a global workforce consisting of over 22,000 associates. We believe our relations with our associates are very good.

### Available Information

Our investor relations website address is www.marriottvacationsworldwide.com/investor-relations. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and any and all amendments thereto are available free of charge through our investor relations website as soon as reasonably practicable after they are filed or furnished to the Securities and Exchange Commission (the “SEC”). These materials are also accessible on the SEC’s website at www.sec.gov.

### Information About Our Executive Officers

Set forth below is certain information with respect to our executive officers. The information set forth below is as of February 25, 2020, except where indicated.

| Name and Title | Age | Business Experience |
| --- | ---: | --- |
| Stephen P. Weisz President and Chief Executive Officer | 69 | Stephen P. Weisz has served as our President since 1996 and as our Chief Executive Officer since 2011; he has also been a member of our Board of Directors since 2011. Mr. Weisz joined Marriott International in 1972. Over his 39-year career with Marriott International, he held a number of leadership positions in the Lodging division, including Senior Vice President of Sales and Marketing and Executive Vice President-Lodging Brands. Mr. Weisz is a past Chairman of the Board of Directors of the American Resort Development Association and also a past Chairman of the Board of Trustees of Children’s Miracle Network. |
| R. Lee Cunningham Executive Vice President and Chief Operating Officer - Vacation Ownership | 60 | R. Lee Cunningham has served as our Executive Vice President and Chief Operating Officer - Vacation Ownership since September 2018. From December 2012 to August 2018 he served as our Executive Vice President and Chief Operating Officer. From 2007 to December 2012, he served as our Executive Vice President and Chief Operating Officer – North America and Caribbean. Mr. Cunningham joined our company in 1997 as Vice President of Revenue Management and Owner Service Operations. Mr. Cunningham joined Marriott International in 1982. |
| Clifford M. Delorey Executive Vice President and Chief Resort Experience Officer | 59 | Clifford M. Delorey has served as our Executive Vice President and Chief Resort Experience Officer since October 2012. From May 2011 to October 2012, Mr. Delorey served as Vice President of Operations for the Middle East and Africa region for Marriott International. From April 2006 to May 2011, he served as our Vice President of Operations for the East region. Mr. Delorey joined Marriott International in 1981. |
| John E. Geller, Jr. Executive Vice President and Chief Financial and Administrative Officer | 52 | John E. Geller, Jr. has served as our Executive Vice President and Chief Financial and Administrative Officer since January 2018. From 2009 to December 2017, he served as our Executive Vice President and Chief Financial Officer. Mr. Geller joined Marriott International in 2005 as Senior Vice President and Chief Audit Executive and Information Security Officer. |
| James H Hunter, IV Executive Vice President and General Counsel | 57 | James H Hunter, IV has served as our Executive Vice President and General Counsel since November 2011. Prior to that time, he had served as Senior Vice President and General Counsel since 2006. Mr. Hunter joined Marriott International in 1994. |

20

| Name and Title | Age | Business Experience |
| --- | ---: | --- |
| Lizabeth Kane-Hanan Executive Vice President and Chief Development and Product Officer | 53 | Lizabeth Kane-Hanan has served as our Executive Vice President and Chief Development and Product Officer since September 2018. From November 2011 to August 2018, she served as our Executive Vice President and Chief Growth and Inventory Officer. Prior to that time, she had served as our Senior Vice President, Resort Development and Planning, Inventory and Revenue Management and Product Innovation since 2009. Ms. Kane-Hanan joined our company in 2000. |
| Jeanette Marbert President, Exchange and Third-Party Management | 63 | Jeanette Marbert has served as our President, Exchange and Third-Party Management since October 2018. She served as President and Chief Executive Officer for the Exchange and Rental Segment of ILG, Inc. from November 2017 until September 2018 and as Executive Vice President from June 2009 until November 2017. She was Chief Operating Officer of ILG, Inc. from August 2008 to November 2017 and served as a Director of ILG, Inc. from February 2015 to May 2016. Ms. Marbert joined Interval International in 1984. |
| Brian E. Miller Executive Vice President and Chief Marketing, Sales and Service Officer | 56 | Brian E. Miller has served as our Executive Vice President and Chief Marketing, Sales and Service Officer since October 2018. From November 2011 to September 2018, he served as our Executive Vice President and Chief Sales and Marketing Officer. Prior to that time, he had served as our Senior Vice President, Sales and Marketing and Service Operations since 2007. Mr. Miller joined our company in 1991. |
| Dwight D. Smith Executive Vice President and Chief Information Officer | 59 | Dwight D. Smith has served as our Executive Vice President and Chief Information Officer since December 2011. Prior to that time, he served as our Senior Vice President and Chief Information Officer since 2006. Mr. Smith joined Marriott International in 1988. |
| Ovidio Vitas Executive Vice President and Chief Brand and Digital Strategy Officer | 43 | Ovidio Vitas has served as our Executive Vice President and Chief Brand and Digital Strategy Officer since February 2019. From September 2018 to February 2019, he served as our Senior Vice President and Chief Brand and Digital Strategy Officer. He joined our company in 2015. From November 2013 to May 2015, Mr. Vitas served as Director, Global Brand Communications at Reebok International Ltd. |
| Michael E. Yonker Executive Vice President and Chief Human Resources Officer | 61 | Michael E. Yonker has served as our Executive Vice President and Chief Human Resources Officer since December 2011. Prior to that time, he served as our Chief Human Resources Officer since 2010. Mr. Yonker joined Marriott International in 1983. |

## Risk factors

As filed, 103,954 characters.

This section describes circumstances or events that could have a negative effect on our financial results or operations or that could change, for the worse, existing trends in our businesses. The occurrence of one or more of the circumstances or events described below could have a material adverse effect on our financial condition, results of operations and cash flows and/or on the trading prices of our common stock. The risks and uncertainties described in this Annual Report are not the only ones facing us. Additional risks and uncertainties that currently are not known to us or that we currently believe are immaterial also may adversely affect our businesses and operations.

### Risks related to our business and industry

***Contraction in the global economy or low levels of economic growth could impact our financial results and growth.***

Our business and the vacation ownership industry are particularly affected by negative trends in the general economy, and the recovery period in our industry may lag behind overall economic improvement. Demand for vacation ownership industry products and services is linked to a number of factors relating to general global, national and regional economic conditions, including perceived and actual economic conditions, exchange rates, availability of credit and business and personal discretionary spending levels. Weakened consumer confidence and limited availability of consumer credit can cause demand for our vacation ownership products to decline, which may reduce our revenue and profitability. Because a significant portion of our expenses, including personnel costs, interest, property taxes and insurance, are relatively fixed, we may not be able to adjust spending quickly enough to offset revenue decreases. Adverse economic conditions may also cause purchaser defaults on our vacation ownership notes receivable to increase. In addition, adverse global and national economic and political events, as well as significant terrorist attacks, are likely to have a dampening effect on the economy in general, which could negatively affect our financial performance and our stock price.

***The sale of vacation ownership interests in the secondary market by existing owners could cause our sales revenues and profits to decline.***

Existing owners have offered, and are expected to continue to offer, their VOIs for sale on the secondary market. The prices at which these interests are sold are typically less than the prices at which we would sell the interests. As a result, these sales can create pricing pressure on our sale of vacation ownership products, which could cause our sales revenues and profits to decline. In addition, if the secondary market for VOIs becomes more organized and liquid than it currently is, the resulting availability of VOIs (particularly where the VOIs are available for sale at lower prices than the prices at which we would sell them) could adversely affect our sales and our sales revenues. Further, unlawful or deceptive third-party VOI resale schemes involving interests in our resorts could damage our reputation and brand value and adversely impact our sales revenues.

Development of a more robust secondary market may also cause the volume of VOI inventory that we are able to repurchase to decline, which could adversely impact our development margin, as we utilize this lower cost inventory source to supplement our inventory needs and reduce our cost of vacation ownership products.

***Our ability to develop, acquire and repurchase vacation ownership inventory may be impaired if we or third parties with whom we do business, including vacation property developers, are unable to access capital when necessary.***

The availability of funds for new investments, primarily developing, acquiring or repurchasing vacation ownership inventory, depends in part on liquidity factors and capital markets over which we can exert little, if any, control. We have historically securitized in the ABS market the majority of the U.S. dollar denominated consumer loans that we originate, completing transactions at least once each year for the past several years. Instability in the financial markets could impact the timing and volume of any securitizations we undertake, as well as the financial terms of such securitizations. Any future deterioration in the financial markets could preclude, delay or increase the cost to us of future note securitizations. Such deterioration could also impact our ability to renew our Warehouse Credit Facility, which we must do in order to access funds under that facility after December 2021, on terms favorable to us, or at all. Further, any indebtedness we incur, including indebtedness under the Revolving Corporate Credit Facility or the Warehouse Credit Facility, may adversely affect our ability to obtain additional financing. If we are unable to access these sources of funds on acceptable terms, our ability to acquire additional vacation ownership inventory, repurchase VOIs that our owners propose to sell to third-parties, or make other investments in our business could be impaired. In addition, a slowdown in sales of VOIs decreases the sources of new members for our exchange networks, and developers may seek to extend or adjust payment terms with us.

Inability to obtain financing on acceptable terms, or at all, previously caused and may in the future cause insolvency of developers whose resorts are in our exchange networks. This in turn could reduce or stop the flow of new members from their resorts and also could adversely affect the operations and desirability of exchange with those resorts if the developer’s insolvency impacts the management of the resorts. In some cases, a developer in bankruptcy could terminate its existing exchange relationship with us.

***Our reliance on capital efficient transactions to satisfy a portion of our future needs for Vacation Ownership segment inventory and additional on-site sales locations may impact our ability to have inventory available for sale when needed.***

We have entered into capital efficient transactions in which third parties are responsible for delivering completed units which we expect to purchase at pre-agreed prices in the future. As we continue to execute our strategy to deploy capital efficiently, we will seek to enter into additional transactions to source inventory using similar or new transaction structures. These structures may expose us to additional risk as we will not control development activities or timing of development completion. If third parties with whom we enter into capital efficient transactions do not fulfill their obligations to us, or if they exercise their right to sell inventory to a third party other than us, the inventory we expect to acquire may not be delivered on time or at all, or may not otherwise be within agreed upon specifications. If our capital efficient transaction counterparties do not perform as expected and we do not purchase the expected inventory or obtain inventory from alternative sources on a timely basis, we may not be able to achieve sales forecasts. In addition, we anticipate opening new on-site sales locations in connection with some or all of our new resort locations. If third parties with whom we enter into transactions do not deliver these sales locations as expected, our future sales growth could be negatively impacted.

In addition, if developers or other third parties are not able to obtain or maintain financing necessary for their operations, we may not be able to enter into capital efficient transactions with third parties. If we are not able to enter into such transactions, we may need to increase inventory investments, which would decrease our financial flexibility.

***We may not be able to integrate Legacy-ILG’s businesses successfully and we may not realize many of the anticipated benefits of the combination.***

Achieving the anticipated benefits of the acquisition of ILG is subject to a number of uncertainties, including whether ILG’s business can be integrated with ours in an efficient and effective manner. The integration process could take longer or be more costly than anticipated and could result in the loss of valuable employees, the disruption of ongoing businesses, processes and systems or inconsistencies in standards, controls, procedures, practices, policies and compensation arrangements, any of which could adversely affect our ability to achieve the anticipated benefits of the combination. We may have difficulty addressing possible differences in corporate cultures and management philosophies. Failure to achieve the anticipated benefits could result in increased costs or decreases in the amount of expected net income and could adversely affect our future business, financial condition, operating results and prospects.

***Our future results will suffer if we do not effectively manage our expanded operations which include the external exchange business.***

The size of our business increased significantly as a result of the ILG Acquisition. Our future success depends, in part, upon our ability to manage this expanded business, including ILG’s external exchange business, which poses substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. We may not be successful or we may not realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the ILG Acquisition.

***Insufficient availability of exchange inventory may adversely affect our profits.***

Our exchange networks’ transaction levels are influenced by the supply of inventory in the system and the demand for such available inventory. The availability of exchange inventory in the Interval International network is dependent on it being deposited into the system, directly by a member in support of a current or future exchange request, or by a developer on behalf of its owners to support their anticipated exchanges.

A number of factors may impact the supply and demand of inventory. For example, economic conditions may negatively impact our members’ desire to travel, often resulting in an increase in the number of deposits made as a means of preserving the inventory’s value for exchange at a later date when the member is ready to travel, while reducing the demand for inventory which is then available for exchange. Also, destination-specific factors such as regional health and safety concerns, the occurrence or threat of natural disasters and weather may decrease our members’ desire to travel or exchange to a given destination, resulting in an increased supply of, but a decreased demand for, inventory from this destination. Also, inventory may not be as available because owners are choosing to travel to their home resort/vacation club system or otherwise not depositing with the Interval International network. In these instances, the demand for exchange and Getaway inventory may be greater than the inventory available. Where the supply and demand of inventory do not keep pace, transactions may decrease or we may elect to purchase additional inventory to fulfill the demand, both of which could negatively affect our profits and margin.

***Purchaser defaults on the vacation ownership notes receivable our business generates could reduce our revenues, cash flows and profits.***

In connection with our vacation ownership business, we provide loans to purchasers to finance their purchase of VOIs. Accordingly, we are subject to the risk that purchasers of our VOIs may default on the financing that we provide. The risk of purchaser defaults may increase due to man-made or natural disasters, which cause financial hardship for purchasers. The risk of purchaser defaults may also increase if we do not evaluate accurately the creditworthiness of the customers to whom we extend financing or due to the influence of timeshare relief firms. Purchaser defaults have caused, and may continue to cause us to foreclose on vacation ownership notes receivable and reclaim ownership of the financed interests, both for loans that we have not securitized and in our role as servicer for the vacation ownership notes receivable we have securitized through the

ABS market or the Warehouse Credit Facility. If default rates for our borrowers increase, we have been required, and may in the future be required to increase our reserve on vacation ownership notes receivable.

If default rates increase beyond current projections and result in higher than expected foreclosure activity, our results of operations could be adversely affected. Purchaser defaults could impact our ability to secure ABS or warehouse credit facility financing on terms that are acceptable to us, or at all. In addition, the transactions in which we have securitized vacation ownership notes receivable contain certain portfolio performance requirements related to default and delinquency rates, which, if not met, would result in loss or disruption of cash flow until portfolio performance sufficiently improves to satisfy the requirements. In addition, we may not be able to resell foreclosed or revoked interests in a timely manner or for an attractive price which could result in an adverse impact on our results from operations. If the reclaimed interests have declined in value, we may incur impairment losses that reduce our profits. Also, if a purchaser of a VOI defaults on the related loan during the early part of the amortization period, we may not have recovered the marketing, selling and general and administrative costs associated with the sale of that VOI. If we are unable to recover any of the principal amount of the loan from a defaulting purchaser, or if the allowances for losses from such defaults are inadequate, the revenues and profits that we derive from the vacation ownership business could be reduced.

***Our operations outside of the United States make us susceptible to the risks of doing business internationally, which could lower our revenues, increase our costs, reduce our profits or disrupt our business.***

We conduct business globally. International properties and operations expose us to a number of additional challenges and risks, including the following, any of which could reduce our revenues or profits, increase our costs, or disrupt our business:

- complex and changing laws, regulations and policies of governments that may impact our operations, including foreign ownership restrictions, import and export controls, and trade restrictions;
- increases in anti-American sentiment and the identification of our brands as American brands;
- U.S. laws that affect the activities of U.S. companies abroad;
- the presence and acceptance of varying levels of business corruption in international markets and the effect of various anticorruption and other laws;
- tax impacts and legal restrictions associated with the repatriation of our non-U.S. earnings;
- the difficulties involved in managing an organization doing business in many different countries;
- uncertainties as to the enforceability of contract and intellectual property rights under local laws;
- changes in government policy, political or civil unrest, acts of terrorism or the threat of international boycotts or U.S. anti-boycott legislation;
- changes in foreign currency exchange rates or currency restructurings and hyperinflation or deflation in the countries in which we operate;
- forced nationalization of resort properties by local, state or national governments; and
- other exposure to local economic risks.

We also derive revenue from sales to customers from outside the United States that are transacted in United States dollars. As a result, our revenues and profits have been, and may in the future be, negatively affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the markets in which our customers reside. Any hedging transactions we enter into to mitigate currency exchange risks may not be effective or could have a negative effect on our results of operations.

***A failure to keep pace with developments in technology could impair our operations or competitive position.***

Our business model and competitive conditions in the vacation ownership industry demand the use of sophisticated technology and systems, including those used for our sales, reservation, inventory management, exchange, and property management systems, and technologies we make available to our owners and members. We must refine, update and/or replace these technologies and systems with more advanced systems or upgrades on a regular basis. If we cannot do so as quickly as our competitors or within budgeted costs and time frames, our business could suffer. Projects to refine, update and/or replace these technologies and systems may be extremely complex and require significant internal and external resources. If these resources are not available, our business and operations may be adversely affected. We also may not achieve the benefits that we anticipate from any new technology or system, and a failure to do so could result in higher than anticipated costs or could harm our operating results.

***Failure to maintain the integrity of internal or customer data, or to protect our systems from cyber-attacks and similar incidents, could result in faulty business decisions or operational inefficiencies, damage our reputation and/or subject us to costs, fines or lawsuits.***

We collect and retain large volumes of internal and customer data, including social security numbers, credit card numbers and other personally identifiable information of our customers in various internal information systems and information systems of our service providers. We also maintain personally identifiable information about our employees. The integrity and protection of that customer, employee and company data is critical to us. We could make faulty decisions if that data is inaccurate or incomplete. Our customers and employees also have a high expectation that we and our service providers will adequately protect their personal information. The regulatory environment as well as the requirements imposed on us by the payment card industry surrounding information, security and privacy is also increasingly demanding, in both the United States and other jurisdictions in which we operate. Our systems may be unable to satisfy changing regulatory and payment card industry requirements and employee and customer expectations, or may require significant additional investments or time in order to do so.

Our information systems and records, including those we maintain with our service providers, may be subject to security breaches, cyber-attack or cyber-intrusion, system failures, viruses, operator error or inadvertent releases of data. Unauthorized parties may also attempt to gain access to our systems or facilities through fraud, trickery or other means of deceiving our associates, owners, customers or other users of our systems. Data breaches and intrusions have increased in recent years as the number, intensity and sophistication of attempted attacks and intrusions have increased. We must continuously monitor and enhance our information security controls to prevent, detect, and/or contain unauthorized activity, access, misuse and malicious software. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or implement adequate preventive measures. Further, even if such measures are implemented and appropriate training is conducted in support of such measures, human errors compromising the efficacy of such measures may still occur. As a result, current or future security measures may not prevent any or all breaches, and we may be required to expend significant capital and other resources to protect against, detect and remedy any potential or existing breaches and their consequences.

Like other companies, we have experienced cyber security threats to our data and systems, our company sensitive information, and our information technology infrastructure, including malware and computer virus attacks, unauthorized access, systems failures and temporary disruptions. For example, in June 2018, we identified forged and fraudulently induced electronic payment disbursements we made to third parties in an aggregate amount of $10 million resulting from unauthorized third-party access to our email system. During 2018, we recovered $6 million of these funds, and during 2019, we received an additional $3 million from our insurance company as final settlement of our claim. In addition, our licensor, Marriott International, announced in November 2018 that it had experienced a data breach that included our customers’ data. A significant cyber-attack or theft, loss, or fraudulent use of customer, employee or company data maintained by us or by a service provider or licensor could adversely impact our reputation and could result in remedial and other expenses, fines or litigation. A breach in the security of our information systems or those of our service providers or licensors could lead to an interruption in the operation of our systems, resulting in operational inefficiencies and a loss of profits.

Routinely, we partner with and use third-party service providers and products that host, manage, or control sensitive data. The policies, contracts and other controls we rely on to cause contractors and subcontractors to maintain reasonable security to ensure that our data is protected from unauthorized use, alteration, access or disclosure may not have the intended results. The failure by the various third-party vendors and service providers with which we do business, to comply with applicable privacy policies or federal, state or similar international laws and regulations or any compromise of security that results in the unauthorized release of personally identifiable information or other user data could damage the reputation of our businesses, discourage potential users from trying our products and services, breach certain agreements under which we have obligations with respect to network security, and/or result in fines and/or proceedings by governmental agencies, service providers and/or consumers. Any one or all of the foregoing could materially adversely affect our business, financial condition and results of operations.

***A failure to keep pace with developments in social media could impair our competitive position.***

The proliferation and global reach of social media continues to expand rapidly and could cause us to suffer reputational harm. The continuing evolution of social media presents new challenges and requires us to keep pace with new developments, technology and trends. Negative posts or comments about us, the properties we manage or our brands on any social networking or user-generated review website, including travel and vacation property websites, could affect consumer opinions of us and our products, and we cannot guarantee that we will timely or adequately redress such instances.

***Inadequate or failed technologies could lead to interruptions in our operations, which may materially adversely affect our business, financial position, results of operations or cash flows.***

Our operations depend on our ability to maintain existing systems and implement new technologies, which includes allocating sufficient resources to periodically upgrade our information technology systems, and to protect our equipment and the information stored in our databases against both manmade and natural disasters, as well as power losses, computer and telecommunications failures, technological breakdowns, unauthorized intrusions, cyber-attacks, acts of war or terrorism and other events. System interruption, delays, loss of critical data and any lack of integration and redundancy in our information technology systems and infrastructure may adversely affect our ability to provide services, operate websites, process and fulfill transactions, respond to customer inquiries and generally maintain cost-efficient operations. Our backup systems only relate to certain aspects of our operations; these systems are not fully redundant and disaster recovery planning is not sufficient for all eventualities. In addition, we may not have adequate insurance coverage to compensate for losses from a major interruption. If our information technology systems are disrupted, subject to a cyber-attack or other unauthorized intrusion, become obsolete or do not adequately support our strategic, operational or compliance needs, our business, financial position, results of operations or cash flows may be adversely affected. In addition to financial consequences, disruptions to our information technology systems may materially impact our disclosure controls and procedures and internal control over financial reporting in future periods.

***Spanish court rulings invalidating timeshare contracts have increased our exposure to litigation and such litigation may materially adversely affect our business and financial condition.***

A series of Spanish court rulings over the past several years invalidating timeshare contracts have increased our exposure to litigation and such litigation may materially adversely affect our business and financial condition. These rulings have invalidated certain timeshare contracts entered into after January 1999 related to certain resorts in Spain if the timeshare structure of those resorts did not meet requirements prescribed by Spanish timeshare laws enacted in 1998, even if the structure was lawful prior to 1998 and adapted to the 1998 laws pursuant to mechanisms specified in the 1998 laws. These rulings have led to an increase in lawsuits by owners seeking to invalidate timeshare contracts in Spain, including a number of such lawsuits filed by owners at certain of our resorts in Spain, some of which have been decided in favor of the owners. If additional owners at our resorts in Spain file similar lawsuits, this may: result in the invalidation of those owners’ timeshare contracts entered into after January 1999; cause us to incur material litigation and other costs, including judgment or settlement payments; and materially adversely affect the results of operation of our Vacation Ownership segment, as well as our business and financial condition. The increased ability for owners of Spanish timeshares to void their contracts is negatively impacting other developers with resorts there which may lead to a significant decrease in the number of resorts located in Spain in the Interval International network and the loss of members that own VOIs at those resorts. Participants in the vacation ownership industry disagree with these rulings and are seeking to introduce legislation that will implement a more balanced approach. However, this new legislation may not be enacted. The timeshare laws, regulations and policies in Spain may continue to change or be subject to different interpretations in the future, including in ways that could negatively impact our business.

***The industries in which our businesses operate are competitive, which may impact our ability to compete successfully.***

Our businesses will be adversely impacted if they cannot compete effectively in their respective industries, each of which is highly competitive. A number of highly competitive companies participate in the vacation ownership industry, including several that are affiliated with branded hotel companies. We believe that competition in the vacation ownership industry is driven primarily by the quality, number and location of vacation ownership resorts, trust in the brand, pricing of product offerings and the availability of program benefits, such as exchange programs and access to affiliated hotel networks. Our brands compete with the vacation ownership brands of major hotel chains in national and international venues, as well as with the vacation rental options (such as hotels, resorts and condominium rentals) offered by the lodging industry.

Innovations that impact the industry may also lead to new products and services that could disrupt our business model and create new and stronger competitors. Under the license agreements with Marriott International and The Ritz-Carlton Hotel Company, if other international hotel operators offer new products and services as part of their respective hotel businesses that may directly compete with our vacation ownership products and services in the future, then Marriott International and The Ritz-Carlton Hotel Company may also offer such new products and services, and use their respective trademarks in connection with such offers. If Marriott International or The Ritz-Carlton Hotel Company offer new vacation ownership products and services under their trademarks, our vacation ownership products and services may compete directly with those of Marriott International or The Ritz-Carlton Hotel Company, and we may not be able to distinguish our vacation ownership products and services from those offered by Marriott International and The Ritz-Carlton Hotel Company. Our ability to remain competitive and to attract and retain owners depends on our success in distinguishing the quality and value of our products and services from those offered by others. If we cannot compete successfully in these areas, this could limit our operating margins, diminish our market share and reduce our earnings.

Our principal exchange network administered by Interval International included nearly 3,200 resorts located in over 80 nations participated as of December 31, 2019. Interval International’s primary competitor, RCI, has a greater number of affiliated resorts than we have. Through the resources of its corporate affiliates, particularly, Wyndham Vacation Ownership, Inc., engaged in vacation ownership sales, RCI may have greater access to a significant segment of new vacation ownership purchasers and a broader platform for participating in industry consolidation. We believe that developers will continue to create, operate, and expand internal exchange and vacation club systems, which decreases their reliance on external vacation ownership exchange programs, including those we offer, and adversely impacts the supply of resort accommodations available through our external exchange networks. The effects on our business are more pronounced as the proportion of vacation club corporate members in the Interval International network increases.

Our businesses also compete for leisure travelers with other leisure lodging operators, including both independent and branded properties as well as with alternative lodging marketplaces such as Airbnb and HomeAway, which operate websites that market available furnished, privately-owned residential properties in locations throughout the world, including homes and condominiums, which can be rented on a nightly, weekly or monthly basis. Competitive pressures may cause us to reduce our fee structure or potentially modify our business models, which could adversely affect our business, financial condition and results of operations.

***Our Vacation Ownership business is dependent on our ability to identify and effectively market the product to prospective purchasers.***

The identification of prospective purchasers, and the marketing of our products to them, are essential to our success. We incur significant expenses associated with marketing programs in advance of closing sales of VOIs. If our marketing efforts are not successful and we are unable to convert prospects to a sufficient number of sales, we may be unable to recover the expense of our marketing programs and grow our business. This could adversely affect our financial position, results of operations and liquidity.

***If our license agreements with Marriott International or Hyatt are terminated, or if our right to use their trademarks at any properties that do not meet applicable brand standards is terminated, our reputation could be harmed and our ability to market and sell our products at these properties could be impaired.***

Our success depends, in part, on the maintenance of our relationships with Marriott International and Hyatt. These relationships are governed by a number of agreements, including long-term license agreements that expire between 2090 and 2096, subject to renewal. However, if we breach our obligations under one of the license agreements, the applicable licensor may be entitled to terminate the license agreement and our rights to use their brands in connection with our businesses. In addition, if any of our properties does not meet applicable brand standards, these companies can terminate our right to use the related trademarks at the subject properties.

The termination of our license agreements with Marriott International or its affiliates would materially harm our business and results of operations and materially impair our ability to market and sell our products and maintain our competitive position, and could have a material adverse effect on our financial position, results of operations or cash flows. Our inability to rely on the strength of the Marriott, Ritz-Carlton, Sheraton and/or Westin brands to attract qualified prospects in the marketplace would likely cause our revenue and profits to decline and our marketing and sales expenses to increase. In addition, we would not be able to use the brand websites as channels through which to rent available inventory, which would cause our rental revenue to decline.

An important component of our direct marketing activities is focused on offering points to members of the loyalty programs associated with the Marriott, Ritz-Carlton, Sheraton, Westin and Hyatt brands. The agreements that we entered into with Marriott International and Hyatt that allow us to offer these points would also terminate upon termination of the license agreements with the applicable licensor, and we would not be able to offer such points to owners and potential owners, which would impair our ability to sell our products and would reduce the flexibility and options available in connection with our products.

***Our ability to expand our business and remain competitive could be harmed if the licensors who license their trademarks to us do not consent to the use of their trademarks at new resorts we acquire or develop in the future.***

Under the terms of our license agreements with Marriott International and Hyatt, we must obtain the consent of the applicable licensor to use the applicable licensed trademarks in connection with resorts, residences or other accommodations that we acquire or develop in the future. If these licensors do not permit us to use their trademarks in connection with our development or acquisition plans, our ability to expand our business and remain competitive may be materially adversely affected. The requirement to obtain consent to expansion plans, or the need to identify and secure alternative expansion opportunities because we cannot obtain such consent, may delay implementation of our expansion plans and cause us to incur additional expense.

***Our Vacation Ownership business depends on the quality and reputation of the brands associated with our portfolio, and any deterioration in the quality or reputation of these brands could adversely affect our market share, reputation, business, financial condition and results of operations.***

We offer vacation ownership products and services under the Marriott, Sheraton, Westin, The Ritz-Carlton, and Hyatt brands. As a result, our success depends in part on the continued success of Marriott International and Hyatt and their respective brands. Consequently, if market recognition or the positive perception of Marriott International and/or Hyatt is reduced or compromised, the goodwill associated with these brands may be adversely affected, which may adversely affect our business, financial condition or results of operations. Additionally, the positioning and offerings of any of these brands and/or the related customer loyalty programs, could change in a manner that adversely affects our business.

***If a branded hotel property with which one of our resorts is co-located ceases to be operated by and/or affiliated with the same brand as our resort or a related brand, our business could be harmed.***

Approximately a quarter of our Vacation Ownership segment resorts are co-located with same-branded hotel properties. If a branded hotel property with which one of our resorts is co-located ceases to be operated by or affiliated with the same brand as our resort, we could lose the benefits derived from co-location of our resorts, such as the sharing of amenities, infrastructure and staff, integration of services, and other cost efficiencies. Our owners could lose access to the more varied and elaborate amenities that are generally available at the larger campus of an integrated vacation ownership and hotel resort. We expect our overhead and operating costs for such resorts would increase. We would also lose our on-site access to hotel customers, including brand customer loyalty program members, at such resorts, which is a cost-effective marketing channel for our vacation ownership products, and our sales may decline.

***Our Exchange & Third-Party Management business depends on relationships with developers, members and other vacation property owners and any adverse changes in these relationships could adversely affect our business, financial condition and results of operations.***

Our Interval International business is dependent upon vacation ownership developers for new members and upon members and participants to renew their existing memberships and otherwise engage in transactions. Developers and members also supply resort accommodations for use in exchanges and Getaways. Our vacation rental business is dependent upon vacation property and hotel owners for vacation properties to rent to vacationers. The Interval International network has established relationships with numerous developers pursuant to exclusive multi-year affiliation agreements and we believe that relationships with these entities are generally strong, but these historical relationships may not continue in the future. During each year, the affiliation agreements for several of the Interval International’s new member-producing developers are scheduled to renew. The non-renewal of an affiliation agreement will adversely affect our ability to secure new members for our programs from the non-renewing resort or developer, and will result in the loss of existing Interval International members (and their vacation interests) at the end of their current membership, and related revenue to the extent that we do not secure membership renewals directly from such members. For corporate member relationships, where the developer renews Interval International membership fees for all of its active owners, this has a greater effect.

In addition, we may be unable to negotiate new affiliation agreements with resort developers or secure renewals with existing members in our Interval International network, and our failure to do so would result in decreases in the number of new and/or existing members, the supply of resort accommodations available through our exchange networks and related revenue. The loss or renegotiation on less favorable terms of several of our largest affiliation agreements could materially impact our financial condition and results of operations.

Our ability to maintain affiliation agreements with resort developers is also impacted by consolidation in the vacation ownership industry. If resort developers who have affiliation agreements choose not to renew at the end of the current term or may only continue on terms less favorable to us than the existing agreements. Consolidation can also lead to larger competitors with greater resources that compete with our vacation ownership business for customers, projects and talent.

Similarly, the failure of our third party management businesses to maintain existing or negotiate new management agreements with hotel and vacation property owners or owners associations, as a result of the sale of property to third parties, contract dispute or otherwise, or the failure of vacationers to book vacation rentals through these businesses would result in a decrease in related revenue, which would have an adverse effect on our business, financial condition and results of operations.

***If we are not able to maintain relationships with third parties that support our marketing activities or our travel benefits, our business could be harmed.***

Many of our marketing activities require us to maintain relationships with third parties. For example, we market to our licensors’ existing customer loyalty program members and travelers who are staying in locations where we have resorts. We also market to guests in Marriott International hotels that are located near one of our sales locations and have marketing partnerships with North American Marriott International reservation centers. In addition, we operate other local marketing venues in various high-traffic areas. If we are not able to maintain these marketing arrangements with these third parties on terms that are favorable to us or at all, our sales may decline, which could adversely affect our financial conditions and result of operations.

In addition, we depend on third parties to make certain benefits available to members of the Interval International network and we may not be able to provide these benefits to members if these third-parties won't make these benefits available. The loss of such benefits could result in a decrease in the number of Interval International members, which could materially adversely effect on our business, financial condition and results of operations.

### Our business may be adversely affected by factors that disrupt or deter travel.

The success of our business and our profitability depend, in substantial part, upon the health of the worldwide vacation ownership, vacation rental and travel industries, and may be adversely affected by a number of factors that can disrupt or deter travel. A substantial amount of our sales activity occurs at our resorts, and sales volume is impacted by the number of prospective owners who visit our resorts. In the past, fear of exposure to contagious and other diseases, such as the Ebola virus, H1N1 Flu, Avian Flu, the Zika virus and Severe Acute Respiratory Syndrome, or natural or man-made disasters, such as earthquakes, tsunamis, hurricanes, floods, fires, volcanic eruptions, sinkholes, radiation releases, gas leaks and oil spills, has deterred travelers from scheduling sales tours at our resorts or caused them to cancel travel plans. This may occur again in the future, including, for example, due to fear of exposure to coronavirus. Damage to infrastructure, whether caused by natural or man-made disasters or other causes, that impedes travel also has caused, and may in the future cause travelers to delay or cancel plans to tour or visit our resorts. Actual or threatened war, civil unrest and terrorist activity, as well as heightened travel security measures instituted in response to the same, could also interrupt or deter travel plans. In addition, demand for vacation options such as our vacation ownership products may decrease if the cost of travel, including the cost of transportation and fuel, increases, airlift to vacation destinations decreases, or if general economic conditions decline. Changes in the desirability of the destinations where our branded, managed or exchange resorts are located and changes in vacation and travel patterns may adversely affect our cash flows, revenue and profits. For example, hurricanes in 2017 caused the Westin St. John Resort Villas; the Hyatt Residence Club Dorado, Hacienda del Mar and a number of other Interval International network resorts on affected islands to close for a prolonged period.

### Third-party reservation channels may negatively affect our rental revenues.

Some of our rental customers book their stays at our resorts through third-party internet travel intermediaries, such as expedia.com, orbitz.com and booking.com, as well as lesser-known and newly emerging online travel service providers. If the percentage of bookings through these intermediaries increases, they may be able to obtain higher commissions, reduced room rates or other significant contract concessions from us. Moreover, some of these internet travel intermediaries are attempting to commoditize lodging by increasing the importance of price and general indicators of quality (such as “three-star property”) at the expense of brand identification. These intermediaries also generally employ aggressive marketing strategies, including expending significant resources for online and television advertising campaigns to drive consumers to their websites. Additionally, consumers can book stays at our resorts through other distribution channels, including travel agents, travel membership associations and meeting procurement firms. Over time, consumers may develop loyalties to these third-party reservation systems rather than to our booking channels. Our business and profitability could be adversely affected if customer loyalties change significantly, diverting bookings away from our resorts.

***Our business is subject to extensive regulation, and any failure to comply with applicable laws and regulations could have a material adverse effect on our business.***

Our business is heavily regulated. We are subject to a wide variety of complex international, national, federal, state and local laws, regulations and policies in jurisdictions around the world, including those specific to the vacation ownership industry, as well as those applicable to businesses generally. For example, the vacation ownership industry is subject to extensive regulations in various jurisdictions in the United States and elsewhere, which generally require vacation ownership resort developers to follow certain procedures in connection with the development, sale and marketing of vacation interests, including the filing of offering statements with relevant governmental authorities for approval and the delivery to prospective purchasers of certain information relating to the terms of the purchase and use, including rescission rights. The preparation of VOI registrations requires time and cost, and in many jurisdictions the exact date of registration approval cannot be accurately predicted. Separately, some laws, regulations and policies impact multiple areas of our business, such as securities, anti-discrimination, anti-fraud, data protection and security and anti-corruption and bribery laws and regulations or government economic sanctions, including applicable regulations of the Consumer Financial Protection Bureau, the U.S. Department of the Treasury’s Office of Foreign Assets Control and the U.S. Foreign Corrupt Practices Act. Other laws, regulations and policies primarily affect our real estate development activities; marketing and sales activities; lending activities; or resort management activities. Additionally, our businesses are subject to laws and regulations associated with hotel and resort management, including relating to the preparation and sale of food and beverages, liquor service and health, safety and accessibility of managed premises.

We may not be successful in maintaining compliance with all laws, regulations and policies to which we are currently subject, and the cost of compliance with such laws, regulations and policies could be significant. While we believe that our operations and practices have been structured in a manner to materially comply with applicable laws, regulations and policies, the relevant regulatory authorities may take a contrary position. The laws, regulations and policies to which we are subject may change or be subject to different interpretation in the future, including in ways that could decrease demand for the services offered by our businesses, increase costs, subject us to additional liabilities and negatively impact our business, including by decreasing demand for the services offered by our businesses, increasing costs and/or subjecting us to additional liabilities. Failure to comply with current or future applicable laws, regulations and policies could have a material adverse effect on our business. For example, if we do not comply with applicable laws, governmental authorities in the jurisdictions where the violations occurred may revoke or refuse to renew licenses or registrations we must have in order to operate our business. Data protection laws, such as Europe’s 2016 General Data Protection Regulation (“GDPR”), which became effective on May 25, 2018, and California’s Consumer Protection Act, which became effective on January 2, 2020, impose additional data protection requirements and penalties for non-compliance including administrative fines. Failure to comply with applicable laws could also render sales contracts for our products void or voidable, subject us to fines or other sanctions and increase our exposure to litigation, including claims against us by individuals alleging our failure to comply with laws, regulations or policies to which we are subject. Adverse action by governmental authorities alleging our failure to comply with laws, regulations or policies, or litigation by individuals alleging such failures, could adversely affect our business, financial condition and reputation.

***Negative public perception regarding our industry could have an adverse effect on our operations.***

Negative public perception regarding our industry resulting from, among other things, consumer complaints regarding sales and marketing practices, consumer financing arrangements, and restrictions on exit, could result in increased regulatory scrutiny, which could result in more onerous laws, regulations, guidelines and enforcement interpretations in jurisdictions in which we operate. These actions may cause operational delays or restrictions, increased operating costs, additional regulatory burdens and increased risk of litigation. For example, the Australian Securities & Investments Commission (“ASIC”), which regulates timeshare offerings as financial products, enacted regulations effective January 1, 2020 that place restrictions on sales commission-based compensation structures. ASIC has announced additional regulations on the timeshare industry to be effective later in 2020.

***Changes in tax regulations or their interpretation could reduce our profits or increase our costs.***

Jurisdictions in which we do business may at any time review tax and other revenue raising laws, regulations and policies, and any resulting changes could impose new restrictions, costs or prohibitions on our current practices and reduce our profits. In particular, governments may revise tax laws, regulations or official interpretations in ways that could have a significant impact on us, including modifications that could reduce the profits that we can effectively realize from our non-U.S. operations, or that could require costly changes to those operations, or the way that we structure them. For example, the effective tax rates of most U.S. corporations reflect the fact that income earned and reinvested outside the United States is generally taxed at local rates, which are often much lower than U.S. tax rates. In addition, interpretation of tax regulations requires us to exercise our judgment and taxing authorities or our independent registered public accounting firm may reach conclusions about the application of such regulations that differ from our conclusions. If changes in tax laws, regulations or interpretations were to significantly increase the tax rates on non-U.S. income, our effective tax rate could increase, our profits could be reduced, and if such increases were a result of our status as a U.S. corporation, we could be placed at a disadvantage to our non-U.S. competitors if those competitors remain subject to lower local tax rates.

On December 22, 2017, President Trump signed into law H.R. 1, originally known as the “Tax Cuts and Jobs Act,” which significantly reforms the Internal Revenue Code of 1986, as amended (the “Code”). The new legislation, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest, allows for the expensing of capital expenditures, and shifts from a “worldwide” system of taxation in which U.S. companies are taxed on their global income to a territorial system in which U.S. companies are only taxed on income earned in the United States. During 2018, the Department of the Treasury issued certain guidance in the form of notices and proposed regulations with respect to several provisions of the new legislation. We expect that additional regulations or other guidance may be issued with respect to the Tax Cut and Jobs Act. We continue to examine the impact this tax reform legislation may have on our business. The impact of certain provisions of this tax reform on our financial condition and results of operations could be adverse and such impact could be material. In addition, foreign governments and U.S. state and local jurisdictions may enact tax laws in response to the Tax Cuts and Jobs Act that could result in further changes to global taxation and materially affect our financial position and results of operations.

In October 2015, the Organization for Economic Co-Operation and Development (“OECD”) released a final package of suggested measures to be implemented by member nations in response to a 2013 action plan calling for a coordinated multi-jurisdictional approach to “base erosion and profit shifting” by multinational companies. Multiple member jurisdictions, including countries in which we operate, have begun implementing recommended changes such as country by country reporting. These standards require multinationals to disclose certain financial and economic indicators across geographies and are expected to result in increased global tax audit activity. Additional legislative changes are anticipated in upcoming years. Certain countries have adopted unilateral changes increasing the risk of double taxation. Any changes to U.S. or international tax laws or interpretation of current or existing law could impact the tax treatment of our earnings and adversely affect our profitability.

We are also subject to audit in various jurisdictions, and these jurisdictions may assess additional taxes against us. Developments in an audit, litigation, or the relevant laws, regulations, administrative practices, principles, and interpretations could have a material effect on our operating results or cash flows in the period or periods for which that development occurs, as well as for prior and subsequent periods. The final outcome of tax audits, investigations, and any related litigation could be materially different from our historical tax provisions and accruals.

***Changes in privacy laws could adversely affect our ability to market our products effectively.***

We rely on a variety of direct marketing techniques, including telemarketing, email marketing and postal mailings. Adoption of new laws in any of the jurisdictions in which we operate, domestically or internationally, regulating marketing and solicitation or data protection, or changes to existing laws, such as the Telemarketing Sales Rule, the CAN-SPAM Act and the GDPR, could adversely affect the continuing effectiveness of telemarketing, email and postal mailing techniques and could force us to make further changes in our marketing strategy. If this occurs, we may not be able to develop adequate alternative marketing strategies, which could impact the amount and timing of our sales of VOIs and other products. We also obtain access to potential customers from travel service providers or other companies with whom we have relationships and market to some individuals on these lists directly or by including our marketing message in the other companies’ marketing materials. If access to these lists was prohibited or otherwise restricted, our ability to develop new customers and introduce our products to them could be impaired.

***Our points-based product forms expose us to an increased risk of temporary inventory depletion.***

Selling VOIs in a system of resorts under a points-based business model increases the risk of temporary inventory depletion. Currently, our VOI sales are made primarily through a limited number of trust entities that issue VOIs. This structure can lead to a temporary depletion of inventory available for sale caused by: (1) delayed delivery of inventory under construction by us or third parties; (2) delayed receipt of required governmental registrations of inventory for sale; and (3) significant unanticipated increases in sales pace. If the inventory available for sale for a particular trust were to be depleted before new inventory is added and available for sale, we would be required to temporarily suspend sales until inventory is replenished. Our efforts to avoid the risk of temporary inventory depletion by maintaining a surplus supply of completed inventory based on our forecasted sales pace, and by employing other mitigation strategies such as accelerating completion of resorts under construction, acquiring VOIs on the secondary market, or reducing sales pace by adjusting prices or sales incentives, may not be successful. A decline in VOI inventory could decrease our financing revenues generated from purchasers of VOIs and fee revenues generated by providing club, management, exchange, sales and marketing services. In addition, any temporary suspension of sales due to lack of inventory could reduce our cash flow and have a negative impact on our results of operations.

### Our development activities expose us to project cost and completion risks.

Our ongoing development of new vacation ownership properties and new phases of existing vacation ownership properties presents a number of risks. Our profits may be adversely affected if construction costs escalate faster than the pace at which we can increase the price of VOIs. Construction delays, zoning and other local approvals, cost overruns, lender financial defaults, or natural or manmade disasters, such as earthquakes, tsunamis, hurricanes, floods, fires, volcanic eruptions, radiation releases and oil spills, may increase overall project costs or result in project cancellations. In addition, any liability or alleged liability associated with latent defects in projects we have constructed or that we construct in the future may adversely affect our business, financial condition and reputation.

***The maintenance and refurbishment of vacation ownership properties, and the continued financial viability of property owners’ associations, depends on maintenance fees paid by the owners of VOIs.***

The maintenance fees that are levied on owners of our VOIs by property owners’ association boards are used to maintain and refurbish the vacation ownership properties. Property owners’ association boards may not levy sufficient maintenance fees, or owners of VOIs may fail to pay their maintenance fees for reasons such as financial hardship or because of damage to their VOIs from natural disasters such as hurricanes. Many of the third-party properties that we manage do not receive subsidies or resale services for foreclosed inventory from the developer. Once a property owners’ association begins to experience a high default rate, if it is unable to foreclose and resell units to paying owners, the situation worsens as the maintenance fees assessed to remaining owners continually increase to cover expenses. In these circumstances, not only could our management fee revenue be adversely affected, but the vacation ownership properties could fall into disrepair. If the property owners’ associations that we manage are unable to levy and collect sufficient maintenance fees to cover the costs to operate and maintain the resort properties, such properties may be forced to close or file for bankruptcy, which may result in termination of our management agreements.

For branded resorts, the maintenance fees are used to keep the properties in compliance with applicable brand standards. If a resort fails to comply with applicable brand standards, the applicable licensor could terminate our rights under the applicable license agreement to use its trademarks at the non-compliant resort, which would result in the loss of management fees, decreased customer satisfaction and impairment of our ability to market and sell our products at the non-compliant locations.

***If maintenance fees at our resorts are required to be increased, our products could become less attractive and our business could be harmed.***

The maintenance fees that are levied on owners of our VOIs by property owners’ association boards are subject to increase as the costs to maintain and refurbish the vacation ownership properties and to keep the properties in compliance with brand standards increase. A similar situation may arise with respect to fees imposed on owners of VOIs with respect to new properties added to our portfolio. Increased maintenance fees could make our products less desirable, which could have a negative impact on sales of our products and could also cause an increase in defaults with respect to our vacation ownership notes receivable portfolio.

***Disagreements with the owners of VOIs and property owners’ associations may result in litigation and the loss of management contracts.***

The nature of our relationships with our owners and our responsibilities in managing our vacation ownership properties will from time to time give rise to disagreements with the owners of VOIs and property owners’ associations. Owners of our VOIs have also disagreed, and may in the future disagree, with changes we make to our products or programs. We seek to expeditiously resolve any disagreements in order to develop and maintain positive relations with current and potential owners and property owners’ associations, but cannot always do so. Failure to resolve such disagreements has resulted in litigation, and could do so again in the future. If any such litigation results in a significant adverse judgment, settlement or court order, we could suffer significant losses, our profits could be reduced, our reputation could be harmed and our future ability to operate our business could be constrained. Disagreements with property owners’ associations have in the past and could in the future result in the loss of management contracts.

***The expiration, termination or renegotiation of our management contracts could adversely affect our cash flows, revenues and profits.***

We enter into a management agreement with the property owners’ association or other governing body at each of the resorts we manage and, when a trust holds interests in resorts, with the trust’s governing body. Any of these management contracts may expire at the end of its then-current term (following notice by a party of non-renewal) or be terminated, or the contract terms may be renegotiated in a manner adverse to us. Upon non-renewal or termination of our management agreement for a particular resort, we lose the management fee revenue associated with the resort. If a management agreement is terminated or not renewed on favorable terms, our cash flows, revenues and profits could be adversely affected.

***Concentration of some of our resorts, sales centers and exchange destinations in particular geographic areas exposes our business to the effects of regional events and occurrences in these areas.***

Some of our Vacation Ownership resorts and sales centers are concentrated in particular geographic areas, such as Florida, South Carolina, and Hawaii. Therefore, our business is susceptible to the effects of natural or manmade disasters in these areas, including earthquakes, windstorms, tornadoes, hurricanes, typhoons, tsunamis, volcanic eruptions, floods, drought, fires, oil spills and nuclear incidents. We have been required to close properties in these markets in the past in order to repair and renovate damage caused by disasters. Depending on the severity of disasters in the future, the resulting damage could require closure of all or substantially all of our properties in one or more of these markets for a period of time necessary to complete repairs and renovations. We cannot guarantee that the amount of insurance maintained for these properties would cover all damages caused by any such an event, including the loss of sales of VOIs at sales centers that are not fully operational.

Our business is also susceptible to the effects of adverse economic developments in these areas, such as regional economic downturns, significant increases in the number of our competitors’ products in these markets and potentially higher labor, real estate, tax or other costs in the geographic markets in which we are concentrated. As a result of this geographic concentration of properties, we face a greater risk of a negative effect on our revenues in the event these areas are affected by extreme weather, manmade disasters or adverse economic and competitive conditions.

Our ongoing ability to successfully process exchange vacations for members, as well as our ability to find purchasers and vacationers for accommodations marketed or managed by us, is largely dependent on the continued desirability of the key vacation destinations in which these properties are concentrated. In addition, the same events that affect demand to one or more of these areas could significantly reduce the number of accommodations available for exchanges, Getaways or rental to vacationers, as well as the need for vacation rental and property management services generally. Any significant shift in travel demand for one or more of these key destinations or any adverse impact on transportation to them, including the factors described above, could have a material adverse effect on our business, financial condition and results of operations.

### We face possible risks associated with the physical effects of climate change.

We are subject to risks associated with the physical effects of climate change, which could include more frequent or severe storms, droughts, hurricanes and flooding, any of which could have a material adverse effect on our resorts, operations, and business. To the extent climate change causes changes in weather patterns, our affiliated properties could experience increases in storm intensity and rising sea levels causing damage to our resorts. Over time, these conditions could result in declining demand for our products or our inability to operate the affected resorts at all. Climate change may also have indirect effects on our business by increasing the cost (or making unavailable) property insurance on terms we find acceptable, as well as increasing the cost of maintenance, renovations, energy, water, and snow removal at our properties. We cannot predict with certainty whether or how climate change will impact our resorts and at what rate, and therefore there can be no assurance that climate change will not have a material adverse effect on us.

***Damage to, or other potential losses involving, properties that we own or manage may not be covered by insurance.***

Market forces beyond our control may limit the scope of the insurance coverage we can obtain or our ability to obtain coverage at reasonable rates. Certain types of losses, generally of a catastrophic nature, such as earthquakes, hurricanes and floods, or terrorist acts, may be uninsurable or the price of coverage for such losses may be too expensive to justify obtaining insurance. As a result, the cost of our insurance may increase and our coverage levels may decrease. In addition, in the event of a substantial loss, the insurance coverage we carry may not be sufficient to pay the full market value or replacement cost of our lost investment or that of owners of VOIs or in some cases may not provide a recovery for any part of a loss due to deductible limits, policy limits, coverage limits or other factors. As a result, we could lose some or all of the capital we have invested in a property, as well as the anticipated future revenue from the property, and we could remain obligated under guarantees or other financial obligations related to the property. In addition, we could lose the management contract for the property and, to the extent such property operates under a licensed brand, the property may lose operating rights under the associated brand.

***Our pursuit of new business opportunities to grow our business may not be successful.***

One of our strategic initiatives is to selectively pursue new business opportunities, such as the continued enhancement of our exchange programs, new management affiliations and acquisitions of existing vacation ownership and related businesses. In addition, in order to support our strategic objectives, we have introduced new products and services and we expect to continue to do so in the future. There are substantial risks and uncertainties associated with these efforts, particularly in connection with opportunities in locations where the markets for vacation ownership products are not fully developed. We may invest significant time and resources in developing and marketing new businesses, products or services. Initial timetables for the introduction and development of new businesses, products or services may not be achieved and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives and shifting market preferences, may also impact the successful implementation of new businesses and the market acceptance of new products and services. Furthermore, any new business could strain our system of internal controls and diminish its effectiveness. Failure to successfully manage these risks in the development and implementation of new businesses or new products and services could have a material adverse effect on our business, results of operations and financial condition. Additionally, our results of operations from new products and services that we may wish to introduce could have different revenue recognition under GAAP than our strategic objectives.

***We are subject to certain requirements under applicable environmental laws and regulations and may be subject to potential liabilities.***

The resorts that we manage and the assets at vacation ownership resorts that are owned by us are all subject to certain requirements and potential liabilities under foreign, national, state, and local laws and regulations that govern the discharge of materials into the environment or otherwise relate to protection of the environment or health and safety. The costs of complying with these requirements are generally covered by the property owners’ associations that operate the affected resort property and are our responsibility for assets we own. To the extent that we hold interests in a particular resort, we would be responsible for their share of losses sustained by such resort as a result of a violation of any such environmental laws and regulations.

***The growth of our business and the execution of our business strategies depend on the services of our senior management and our associates.***

We believe that our future growth depends, in part, on the continued services of our senior management team, including our President and Chief Executive Officer, Stephen P. Weisz, and on our ability to successfully implement succession plans for members of our senior management team. The loss of any members of our senior management team, or the failure to identify successors for such positions, could adversely affect our strategic and customer relationships and impede our ability to execute our business strategies.

In addition, insufficient numbers of talented associates could constrain our ability to maintain and expand our business. We compete with other companies both within and outside of our industry for talented personnel. If we cannot recruit, train, develop or retain sufficient numbers of talented associates, we could experience increased associate turnover, decreased guest satisfaction, low morale, inefficiency or internal control failures. We may not be able to locate suitable replacements for any key employees who leave our company, or offer employment to potential replacements on reasonable terms.

***Goodwill, acquired mortgages receivable and other intangible and long-lived assets associated with businesses we acquire and/or VOI inventory may become impaired which could adversely affect our business, financial condition and results of operations.***

The performance of the businesses that we have acquired or will acquire may not meet the financial projections anticipated at acquisition or may be impacted by one or more unfavorable events or circumstances. This could negatively affect the value of goodwill, acquired mortgages receivable and other intangible assets, as well as long-lived assets, and may require us to test the applicable reporting unit and/or asset for impairment. If following the test, we determine that we should record an impairment charge, our business, financial condition and results of operations may be adversely affected. Additionally, we carry our acquired VOI inventory at estimated fair value, less costs to sell. If the estimates or assumptions used in our evaluation of impairment or fair value change, we may be required to record impairment losses on certain of those assets, which could adversely affect our results of operations.

***Our use of different estimates and assumptions in the application of our accounting policies could result in material changes to our reported financial condition and results of operations, and changes in accounting standards or their interpretation could significantly impact our reported results of operations.***

Our accounting policies are critical to the manner in which we present our results of operations and financial condition. Many of these policies, including policies relating to the recognition of revenue and determination of cost of sales, are highly complex and involve many assumptions, estimates and judgments. We are required to review these assumptions, estimates and judgments regularly and revise them when necessary. Our actual results of operations vary from period to period based on revisions to these estimates. In addition, the regulatory bodies that establish accounting and reporting standards, including the SEC and the Financial Accounting Standards Board, periodically revise or issue new financial accounting and reporting standards that govern the preparation of our consolidated financial statements. Changes to these standards or their interpretation could significantly impact our reported results in future periods. See Footnote 2 “Summary of Significant Accounting Policies” to our Financial Statements for more information regarding changes in accounting standards that we recently adopted or expect to adopt in the future.

***We are subject to risks related to corporate social responsibility and reputation.***

Many factors influence our reputation and the value of our brands, including the perception held by our owners and prospective owners, business partners, other key stakeholders, and the communities in which we do business. Our business faces increasing scrutiny related to environmental, social, and governance activities and risk of damage to our reputation and the value of our brands if we or our licensors fail to act responsibly in a number of areas, such as diversity and inclusion, environmental stewardship and sustainability, supply chain management, workplace conduct, human rights, philanthropy and support for local communities. Any harm to our or our licensors’ reputation could impact employee engagement and retention and the willingness of customers and partners to do business with us, which could have a material adverse effect on our business, results of operations and cash flows.

### Risks related to our indebtedness and ownership of our common stock

***Our indebtedness may limit our ability to invest in the ongoing needs of our business. If we are unable to comply with the covenants in our Corporate Credit Facility and our indentures, our liquidity and results of operations could be harmed.***

In connection with the completion of the ILG Acquisition, we significantly increased our level of indebtedness. As of December 31, 2019, we had approximately $2,267 million of total corporate indebtedness outstanding, including (i) $923 million of gross secured indebtedness under the Corporate Credit Facility, (ii) $750 million of 6.500% Senior Notes due 2026 (the “2026 Notes”), (iii) $350 million 4.750% Senior Notes due 2028 (the “2028 Notes”), and (iv) $230 million of 1.50% Convertible Notes due 2022 (the “Convertible Notes”). An additional $567 million was available for borrowing under the Revolving Corporate Credit Facility (reflecting $3 million of outstanding letters of credit) as of December 31, 2019.

The credit agreement that governs the Corporate Credit Facility and the indentures that govern the various senior notes impose significant operating and financial restrictions on us, which among other things limit our ability and the ability of certain of our subsidiaries to incur debt, pay dividends and make other restricted payments, make loans and investments, incur liens, sell assets, enter into affiliate transactions, enter into agreements restricting certain subsidiaries’ ability to pay dividends and consolidate, merge or sell all or substantially all of their assets. All of these covenants and restrictions limit how we conduct our business. In addition, we are required to maintain a specified leverage ratio under the terms of the Corporate Credit Facility.

Failure to comply with the restrictive covenants described above as well as others contained in our debt instruments from time to time could result in an event of default, which, if not cured or waived, could result in an acceleration of our obligations under the Corporate Credit Facility or the indentures. If our obligation to repay debt under the Corporate Credit Facility or the indentures were to be accelerated, we may not have sufficient cash to repay this debt, which would immediately and materially harm our business, results of operations and financial condition.

***Our level of indebtedness could restrict our future operations and impact our ability to meet our payment obligations.***

Our ability to make scheduled cash payments on and to refinance our indebtedness as well as to fund planned capital expenditures will depend on our ability to generate significant operating cash flow in the future, which, to a significant extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We may not be able to maintain a sufficient level of cash flow from operating activities to permit us to pay the principal, premium, if any, and interest on our indebtedness.

Our increased level of debt, together with the covenants included in the agreements governing such indebtedness, among other things:

- requires us to dedicate a portion of our cash flow from operations to servicing and repayment of debt;
- reduces funds available for strategic initiatives and opportunities, dividends, share repurchases, working capital and other general corporate needs;
- limits our ability to incur certain kinds or amounts of additional indebtedness, which could restrict our flexibility to react to changes in our businesses, industries and economic conditions and increase borrowing costs;
- creates competitive disadvantages relative to other companies with lower debt levels; and
- increases our vulnerability to the impact of adverse economic and industry conditions.

In addition, our credit ratings will impact the cost and availability of future borrowings and, accordingly, our cost of capital. Downgrades in our ratings could adversely affect our businesses, cash flows, financial condition, operating results and share and debt prices, as well as our obligations with respect to our capital efficient inventory acquisitions.

***We may incur substantially more debt. This could exacerbate further the risks associated with our leverage.***

We and our subsidiaries may incur substantial additional indebtedness in the future, including secured indebtedness. As of December 31, 2019, we had approximately $4,158 million of total gross indebtedness outstanding. In the future, we could increase the amount available for borrowing under the Corporate Credit Facility by up to an amount equal to (i) the greater of $750 million and 100% of our Consolidated EBITDA (as defined in the Corporate Credit Facility) plus (ii) voluntary prepayments of loans and voluntary permanent commitment reductions under the Corporate Credit Facility and certain other reductions of debt plus (iii) additional amounts as long as the incurrence of such additional amounts would not exceed certain leverage ratios, in each case subject to securing additional commitments and certain other conditions.

The indentures that govern our various senior notes and our credit agreement for the Corporate Credit Facility permit us to incur significant additional indebtedness. In addition, the indentures governing the senior notes allow us to issue additional notes under certain circumstances, which will also be guaranteed by the guarantors. Furthermore, such agreements and instruments will not prohibit us from incurring obligations that do not constitute indebtedness as defined therein. To the extent that we and our subsidiaries incur additional indebtedness or such other obligations, the risks associated with our substantial indebtedness described above, including our potential inability to service our debt, will increase. In addition, any indebtedness we incur, including indebtedness under the Revolving Corporate Credit Facility or the Warehouse Credit Facility, may adversely affect our ability to obtain additional financing. If we are unable to access these sources of funds on acceptable terms, our ability to acquire additional vacation ownership inventory, repurchase VOIs, or make other investments in our business could be impaired.

***If the default rates or other credit metrics underlying our vacation ownership notes receivable deteriorate, our vacation ownership notes receivable securitization program and VOI financing program could be adversely affected.***

Our vacation ownership notes receivable portfolio performance and securitization program could be adversely affected if a particular vacation ownership notes receivable pool fails to meet certain ratios, which could occur if the default rates or other credit metrics of the underlying vacation ownership notes receivable deteriorate. Default rates may deteriorate due to many different reasons, including those beyond our control, such as financial hardship of purchasers. In addition, if we offer loans to our customers with terms longer than those generally offered in the industry, our ability to securitize those loans may be adversely impacted. Our ability to sell securities backed by our vacation ownership notes receivable depends on the continued ability and willingness of capital market participants to invest in such securities. Volatility in the credit markets may impact the timing and volume of the vacation ownership notes receivable that we are able to securitize. ABS issued in our securitization programs could be downgraded by credit agencies in the future. If a downgrade occurs, our ability to complete other securitization transactions on acceptable terms or at all could be jeopardized, and we could be forced to rely on other potentially more expensive and less attractive funding sources, to the extent available. Similarly, if other operators of vacation ownership products experience significant financial difficulties, or if the vacation ownership industry, as a whole, contracts, we could experience difficulty in securing funding on acceptable terms. The occurrence of any of the foregoing would decrease our profitability and liquidity, which might require us to adjust our business operations, including by reducing or suspending our provision of financing to purchasers of VOIs. Sales of VOIs may decline if we reduce or suspend the provision of financing to purchasers, which may adversely affect our cash flows, revenues and profits.

***The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results.***

Although holders of the Convertible Notes are generally not permitted to convert the Convertible Notes until June 15, 2022, in the event the conditional conversion feature of the Convertible Notes is triggered due to the trading price of the Convertible Notes or our common stock, holders of the Convertible Notes will be entitled to convert the Convertible Notes at any time during specified periods at their option. See Footnote 14 “Debt,” to our Financial Statements for additional information. If one or more holders elect to convert their Convertible Notes, we may elect to settle all or a portion of our conversion obligation through the payment of cash, which could adversely affect our liquidity.

***The accounting method for convertible debt securities that may be settled in cash, such as the Convertible Notes, may have a material effect on our reported financial results.***

Under Accounting Standards Codification (“ASC”) Topic 470-20, Debt with Conversion and Other Options (“ASC 470-20”), an entity must separately account for the liability and equity components of certain convertible debt instruments (such as the Convertible Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the Convertible Notes is that the equity component is required to be included in the additional paid-in capital section of shareholders’ equity on our consolidated balance sheet, and the value of the equity component has been treated as original issue discount for purposes of accounting for the debt component of the Convertible Notes. As a result, we will be required to record a greater amount of non-cash interest expense in current periods presented as a result of the amortization of the discounted carrying value of the Convertible Notes to their face amount over the term of the Convertible Notes. We will report lower net income (or greater net loss) in our financial results because ASC 470-20 requires interest to include both the current period’s amortization of the debt discount and the instrument’s coupon interest, which could adversely affect our reported or future financial results, the market price of our common stock and the trading price of the Convertible Notes.

In addition, under certain circumstances, convertible debt instruments (such as the Convertible Notes) that may be settled entirely or partly in cash may be accounted for utilizing the treasury stock method if we have the ability and intent to settle in cash, the effect of which is that the shares issuable upon conversion of the Convertible Notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of the Convertible Notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. In order to continue to account for the Convertible Notes under the treasury stock method, we must be able to continue to demonstrate the ability or intent to settle the Convertible Notes in cash, and the accounting standards in the future must continue to permit the use of the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares issuable upon conversion of the Convertible Notes, then our diluted earnings per share would be adversely affected.

***The Convertible Note Hedges and Warrants may affect the value of our common stock.***

In connection with the Convertible Notes, we entered into privately negotiated convertible note hedges (the “Convertible Note Hedges”) with affiliates of two of the initial purchasers of the Convertible Notes. The Convertible Note Hedges cover, subject to customary anti-dilution adjustments substantially similar to those applicable to the Convertible Notes, the same number of shares of common stock that initially underlay the Convertible Notes. The Convertible Note Hedges are expected generally to reduce potential dilution to our common stock and/or offset cash payments we are required to make in excess of the principal amount, in each case, upon any conversion of Convertible Notes. Concurrently with our entry into the Convertible Note Hedges, we entered into warrant transactions (the “Warrants”) with the hedge counterparties relating to the same number of shares of common stock. The Warrants could separately have a dilutive effect on our shares of common stock to the extent that the market price per share exceeds the applicable strike price of the Warrants on one or more of the applicable expiration dates.

In connection with establishing their initial hedges of the Convertible Note Hedges and the Warrants, the hedge counterparties and/or their respective affiliates advised us that they expected to purchase shares of our common stock in secondary market transactions and/or enter into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the Convertible Notes. The hedge counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock in the secondary market. The effect, if any, of these activities on the market price of our common stock or the Convertible Notes will depend in part on market conditions and cannot be ascertained at this time, but any of these activities could cause or prevent an increase or a decline in the market price of our common stock or the Convertible Notes.

### We are subject to counterparty risk with respect to the Convertible Note Hedges.

The counterparties to the Convertible Note Hedges are financial institutions, and we are subject to the risk that one or more of the hedge counterparties may default under the Convertible Note Hedges. Our exposure to the credit risk of the hedge counterparties is not secured by any collateral. If any of the hedge counterparties become subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under our transactions with such counterparties. Our exposure will depend on many factors but, generally, the increase in our exposure will be correlated to the increase in the market price and in the volatility of our common stock. In addition, upon a default by a hedge counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the hedge counterparties.

***We may be adversely affected by changes in LIBOR reporting practices or the method by which LIBOR is determined.***

As of December 31, 2019, approximately $939 million of our gross aggregate consolidated indebtedness was indexed to the London Interbank Offered Rate (“LIBOR”). In addition, as of December 31, 2019, we were party to $550 million of derivative instruments indexed to LIBOR. Central banks around the world, including the Federal Reserve, have commissioned working groups of market participants and official sector representatives with the goal of finding suitable replacements for LIBOR based on observable market transactions. It is expected that a transition away from the widespread use of LIBOR to alternative rates will occur over the course of the next few years. The U.K. Financial Conduct Authority, which regulates LIBOR, has announced that it has commitments from panel banks to continue to contribute to LIBOR through the end of 2021, but that it will not use its powers to compel contributions beyond such date. Accordingly, there is considerable uncertainty regarding the publication of such rates beyond 2021. The Federal Reserve Bank of New York and various other authorities have commenced the publication of reforms and actions relating to alternatives to U.S. dollar LIBOR. Although the full impact of such reforms and actions, together with any transition away from LIBOR, including the potential or actual discontinuance of LIBOR publication, remains unclear, these changes may have a material adverse impact on the availability of financing, including LIBOR-based loans, and on our financing costs.

***Our share repurchase program may not enhance long-term shareholder value and could increase the volatility of the market price of our common stock and diminish our cash reserves.***

The share repurchase program authorized by our Board of Directors does not obligate us to repurchase any specific dollar amount, or to acquire any specific number, of shares of our common stock. The timing and amount of repurchases, if any, will depend upon several factors, including market conditions, business conditions, statutory and contractual restrictions, the trading price of our common stock and the nature of other investment opportunities available to us. The repurchase program may be limited, suspended or discontinued at any time without prior notice. In addition, repurchases of our common stock pursuant to our share repurchase program could affect our stock price and increase its volatility. The existence of a share repurchase program could cause our stock price to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our stock. Additionally, our share repurchase program could diminish our cash reserves, which may impact our ability to finance future growth, pursue possible future strategic opportunities and acquisitions, and discharge liabilities. Our share repurchases may not enhance shareholder value because the market price of our common stock may decline below the prices at which we repurchased shares of stock and short-term stock price fluctuations could reduce the program’s effectiveness.

### Our ability to pay dividends on our stock is limited.

We intend to pay a regular quarterly dividend to our shareholders. However, we may not declare or pay such dividends in the future at any particular rate or at all. All decisions regarding our payment of dividends will be made by our Board of Directors from time to time and will be subject to an evaluation of our financial condition, results of operations and capital requirements, as well as applicable law, regulatory constraints, industry practice, contractual restraints and other business considerations that our Board of Directors considers relevant. In addition, our Corporate Credit Facility and the indentures governing the 2026 Notes and the 2028 Notes contain restrictions on our ability and/ or the ability of our subsidiaries to pay dividends, and the terms of agreements governing debt that we may incur in the future may also limit or prohibit dividend payments. The payment of certain cash dividends may also result in an adjustment to the conversion rate of the Convertible Notes in a manner adverse to us. We may not have sufficient surplus under Delaware law to be able to pay any dividends, which may result from extraordinary cash expenses, actual expenses exceeding contemplated costs, funding of capital expenditures or increases in reserves.

***Anti-takeover provisions in our organizational documents and Delaware law and in certain agreements to which we are party could delay or prevent a change in control.***

Provisions of our Charter and Bylaws may delay or prevent a merger or acquisition that a shareholder may consider favorable. For example, our Charter and Bylaws provide for a classified board, require advance notice for shareholder proposals and nominations, place limitations on convening shareholder meetings and authorize our Board of Directors to issue one or more series of preferred stock. These provisions may also discourage acquisition proposals or delay or prevent a change in control, which could harm our stock price. Delaware law also imposes some restrictions on mergers and other business combinations between any holder of 15 percent or more of our outstanding common stock and us.

In addition, provisions in our agreements with Marriott International may delay or prevent a merger or acquisition that a shareholder may consider favorable. Further, our license agreements with Marriott International and Hyatt include terms that may delay or prevent a change in control.

Further, a change in control could result in an acceleration of our obligations under the Corporate Credit Facility or the indentures that govern our senior notes. The threat of our debt being accelerated in connection with a change in control could make it more difficult for us to attract potential buyers or to consummate a change in control transaction that would otherwise be beneficial to our stockholders.

### Risks related to the Vistana Spin-Off

***The ILG Acquisition could result in material liability if it causes the Vistana Spin-Off to be taxable.***

In order to preserve the tax-free treatment of the spin-off of Vistana in 2016 to Starwood and its shareholders in connection with its acquisition by ILG (the “Vistana Spin-Off”), the Tax Matters Agreement entered into in connection with the Vistana Spin-Off (the “Tax Matters Agreement”) generally restricts ILG and Vistana from taking or failing to take any action that would cause the Vistana Spin-Off to become taxable. Failure to adhere to these restrictions, including in certain circumstances that may be outside of our control, could result in tax being imposed on Starwood or on Starwood shareholders for which we could bear responsibility and for which we could be obligated to indemnify Starwood. In addition, even if we are not responsible for tax liabilities of Starwood under the Tax Matters Agreement, Vistana nonetheless could be liable under applicable tax law for such liabilities if Starwood were to fail to pay such taxes. In particular, under the Tax Matters Agreement, for the two-year period following the Vistana Spin-Off, Vistana and ILG were prohibited from:

- entering into any transaction or series of transactions (or any agreement, understanding or arrangement to enter into a transaction or series of transactions) as a result of which one or more persons would (directly or indirectly)

acquire, or have the right to acquire a number of shares of Vistana or ILG stock that would, when combined with any other direct or indirect changes in ownership of Vistana or ILG stock pertinent for purposes of Section 355(e) of the Code (including the Vistana acquisition), comprise 50% or more (by vote or value) of the stock of Vistana or ILG;

- selling, transferring or otherwise disposing of assets (or agreeing to sell, transfer or otherwise dispose of assets) that, in the aggregate, constitute more than 25% of the consolidated gross assets, valued as of the distribution date of the Vistana Spin-Off, of Vistana or collectively of Vistana and its subsidiaries that were its subsidiaries immediately after the effective time of the Vistana acquisition; and
- merging or consolidating, with any other person (other than pursuant to the Vistana acquisition).

These restrictions relate to the fact that even if the Vistana Spin-Off were otherwise to qualify as a tax free reorganization under Sections 368(a)(1)(D) and 355 of the Code, the Vistana Spin-Off would be taxable to Starwood (but not to Starwood shareholders) pursuant to Section 355(e) of the Code if there is a 50% or greater change in ownership of Vistana, directly or indirectly, as part of a plan or series of related transactions that includes the Vistana Spin-Off. For this purpose, any direct or indirect acquisitions of Vistana stock within the period beginning two years before the Vistana Spin-Off and ending two years after the Vistana Spin-Off are presumed to be part of such a plan, although Starwood may, depending on the facts and circumstances, be able to rebut that presumption. The Vistana acquisition was not expected to violate this rule because Starwood shareholders held more than 50% by vote and value of the stock of ILG (and, thus, indirectly, of Vistana) immediately following the Vistana acquisition. However, the ILG Acquisition resulted in further dilution of indirect ownership of Vistana by its former shareholders below 50%, and the IRS might assert that the ILG Acquisition is part of a plan or series of related transactions that includes the Vistana Spin-Off and the Vistana Acquisition. If such assertion were sustained, the Vistana Spin-Off would be subject to the application of Section 355(e) of the Code, and we would be liable to indemnify Starwood (or Marriott International) for any resulting tax liability pursuant to the Tax Matters Agreement.

***In addition, if the Vistana Spin-Off is determined to be taxable, in certain circumstances both Starwood and its shareholders could incur significant tax liabilities, and we would be obligated to indemnify Starwood (or Marriott International) for any resulting tax liability.***

The Tax Matters Agreement permits Vistana to take an otherwise prohibited action described above if Vistana provides Starwood with a tax opinion or Starwood receives a ruling from the IRS that, in each case, is reasonably satisfactory to Starwood to the effect that such action will not affect the tax-free status of the Vistana Spin-Off (or Starwood waives the requirement to obtain such an opinion or ruling). Prior to the signing of the merger agreement with ILG, Starwood agreed in writing to waive those provisions of the Tax Matters Agreement that relate to the signing of the merger agreement and in connection with the consummation of the ILG Acquisition. Such waiver will not relieve us of our obligation to indemnify Starwood (or Marriott International) if the ILG Acquisition causes the Vistana Spin-Off to be taxable.

We received an opinion from our tax advisor, KPMG LLP, to the effect that entering into the ILG Acquisition will not affect the tax-free status of the Vistana Spin-Off. Such opinion is not binding on the IRS or any court, and the IRS may assert that the ILG Acquisition caused the Vistana Spin-Off to violate Section 355(e) of the Code and such assertion may ultimately be sustained by any court.

## Properties

As filed, 980 characters.

As of December 31, 2019, our vacation ownership portfolio consisted of over 100 properties in the United States and twelve other countries and territories. These properties are described in Part I, Item 1, “Business,” of this Annual Report. Except as indicated in Part I, Item 1, “Business,” we own all unsold inventory at these properties. We also own, manage or lease golf courses, fitness, spa and sports facilities, undeveloped and partially developed land and other common area assets at some of our resorts, including resort lobbies and food and beverage outlets.

In addition, we own or lease our regional offices and sales centers, both in the United States and internationally. We lease our corporate headquarters in Orlando, Florida under leases that begin to expire in 2021. In January 2020, we entered into a lease agreement for our new global headquarters in Orlando. The new office building will be developed by a third-party and is expected to be completed in 2021.

## Legal proceedings

As filed, 697 characters.

Currently, and from time to time, we are subject to claims in legal proceedings arising in the normal course of business, including, among others, the legal actions discussed under “Loss Contingencies” in Footnote 11 “Contingencies and Commitments” to our Financial Statements. While management presently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, cash flows, or overall trends in results of operations, legal proceedings are inherently uncertain, and unfavorable rulings could, individually or in aggregate, have a material adverse effect on our business, financial condition, or operating results.

## Management's discussion and analysis

As filed, 91,883 characters.

### Forward-Looking Statements

*You should read the following discussion of our results of operations and financial condition together with our audited historical consolidated financial statements and accompanying notes that we have included elsewhere in this Annual Report, as well as the discussion in the section of this Annual Report entitled “Business.” This discussion contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on our current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those we discuss in the sections of this Annual Report entitled “Risk Factors” and “Special Note About Forward-Looking Statements.”*

*Our consolidated financial statements, which we discuss below, reflect our historical financial condition, results of operations and cash flows. The financial information discussed below and included in this Annual Report may not, however, necessarily reflect what our financial condition, results of operations and cash flows may be in the future.*

*Our discussion and analysis of fiscal year 2019 to fiscal year 2018 is included herein. Our discussion and analysis of fiscal year 2018 to fiscal year 2017 has been omitted from this Form 10-K and can be found in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which was filed with the Securities and Exchange Commission on March 1, 2019.*

### 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.

On September 1, 2018, we completed the ILG Acquisition for approximately $4.2 billion in aggregate consideration. See additional details on the ILG Acquisition in Footnote 3 “Acquisitions and Dispositions” to our Financial Statements.

Corporate and other represents that portion of our results that are not allocable to our segments, including those relating to property owners’ associations consolidated under the voting interest model (“Consolidated Property Owners’ Associations”).

#### Hurricane Activity

In 2017, over 20 Legacy-MVW properties and two Legacy-ILG properties were negatively impacted by one or both of Hurricane Irma and Hurricane Maria (collectively, the “2017 Hurricanes”). All of the Legacy-MVW properties reopened prior to the end of 2018. The Legacy-ILG property in St. John partially reopened in the first quarter of 2019 and the Legacy-ILG resort in Puerto Rico is expected to open in 2020.

We received $29 million and $9 million of net insurance proceeds in 2018 and 2019, respectively, related to the settlement of Legacy-MVW business interruption insurance claims arising from the 2017 Hurricanes. We have submitted most of the insurance claims for our Legacy-ILG business interruption losses as well as Legacy-MVW and Legacy-ILG property damage experienced by both us and associated property owners’ associations from these 2017 Hurricanes. In 2018, we received an initial $25 million advance of insurance proceeds related to the business interruption losses at the Legacy-ILG St. John property and we received the final payment of $38 million in 2019. In 2019, we received $7 million of insurance proceeds related to the business interruption losses at the other Legacy-ILG properties and also received advances of $108 million of insurance proceeds related to the Legacy-ILG property damage experienced by the related property owners’ associations. Repairs are underway at the Legacy-ILG resort in Puerto Rico and the related insurance claim is expected to be submitted in 2020 upon the completion of construction. However, we cannot quantify the extent of any additional payments under such claims at this time as the claims would not be higher than our deductible.

During the third quarter of 2018, our Legacy-MVW properties in South Carolina and Florida were negatively impacted by Hurricane Florence and Hurricane Michael, respectively (collectively, the “2018 Hurricanes”). We expect to submit insurance claims for our business interruption losses as well as property damage experienced by both us and associated property owners’ associations from these 2018 Hurricanes. However, we cannot quantify the extent of any payments under such claims at this time.

During the third quarter of 2019, several properties in our Vacation Ownership segment were negatively impacted by Hurricane Dorian. The physical damage resulting from the hurricane to the resorts and sales centers operated by the Company was minimal. We do not expect to submit insurance claims for our business interruption losses, or for property damage experienced by us or associated property owners’ associations, from this hurricane.

#### Significant Accounting Policies Used in Describing Results of Operations

#### Sale of Vacation Ownership Products

We recognize revenues from the sale of 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 Legacy-MVW transactions and upon expiration of the statutory rescission period for Legacy-ILG 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.

As a result of the revenue recognition requirements included in Accounting Standards Codification (“ASC”) Topic 606, “*Revenue from Contracts with Customers” (“*ASC 606”), there may be timing differences between the date of the contract with the customer and when revenue is recognized. When comparing results year-over-year, this timing difference may generate significant variances, which we refer to as the impact of revenue reportability.

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 received a down payment of typically 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 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 margin. Development margin percentage is calculated by dividing development margin by revenues from the sale of vacation ownership products.

#### Management and Exchange

Our management and exchange revenues include revenues generated from fees we earn for managing each of our vacation ownership resorts, providing property management, property owners’ association management and related services to third-party vacation ownership resorts and fees we earn for providing rental services and related hotel, condominium resort, and property 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:

|  | Fiscal Years 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| Average FICO score | 736 | 738 | 743 |

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 approximately ten years. Included within our vacation ownership notes receivable are originated vacation ownership notes receivable and vacation ownership notes receivable acquired in connection with the ILG Acquisition.

Acquired vacation ownership notes receivable are accounted for using the expected cash flow method of recognizing discount accretion based on the expected cash flows. At acquisition, we recorded these vacation ownership notes receivable at a preliminary estimate of fair value, including a credit discount which is accreted as an adjustment to yield over the estimated life of the vacation ownership notes receivable. Our acquired vacation ownership notes receivable are remeasured at each reporting date based on expected future cash flows which takes into consideration an estimated measure of anticipated defaults and early repayments. See Footnote 6 “Vacation Ownership Notes Receivable” to our Financial Statements for further information regarding the accounting for acquired vacation ownership notes receivable.

The interest income earned from the originated 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. Financing expenses include costs in support of the financing, servicing and securitization processes. The amount of interest income earned in a period depends on the amount of outstanding vacation ownership notes receivable, which, for originated vacation ownership notes receivable, 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 closed in the period divided by contract sales volume of all contracts closed in the period. We do not include resales contract sales in the financing propensity calculation. Financing propensity was 63 percent in 2019 and 62 percent in 2018. We expect to continue to offer financing incentive programs in 2019 and that interest income will continue to increase as new originations of vacation ownership notes receivable outpace the decline in principal of existing vacation ownership notes receivable.

In the event of a default, we generally have the right to foreclose on or revoke the underlying VOI. We return VOIs that we reacquire through foreclosure or revocation back to inventory. As discussed above, for originated vacation ownership notes receivable, we record a reserve at the time of sale and classify the reserve as a reduction to revenues from the sale of vacation ownership products on our Income Statements. Historical default rates, which represent defaults as a percentage of each year’s beginning gross vacation ownership notes receivable balance, were as follows:

|  | Fiscal Years 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| Historical default rates | 4.5% | 3.8% | 3.6% |

Financing expenses include consumer financing interest expense, which represents interest expense associated with the securitization of our 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 the MVCD program when the points are redeemed for rental stays at one of our resorts or in the Explorer Collection. 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 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 to members of the Interval International network and certain other membership programs. The offering of Getaways allows us to monetize excess availability of resort accommodations within the applicable exchange network. Resort accommodations available as Getaways typically result from seasonal oversupply or underutilized space, as well as resort accommodations we source specifically for Getaways.

Rental expenses include:

- Maintenance fees on unsold inventory;
- Costs to provide alternative usage options, including Marriott Bonvoy points and offerings available as part of the Explorer Collection, 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, credit card expenses and reservation services); and
- Costs to secure resort accommodations for use in Getaways.

Rental metrics, including the average daily transient rate or the number of transient keys rented, may not be comparable between periods given fluctuation in available occupancy by location, unit size (such as two bedroom, one bedroom or studio unit), owner use and exchange behavior. In addition, rental metrics may not correlate with rental revenues due to the requirement to report certain rental revenues net of rental expenses in accordance with ASC 978 (as discussed above). Further, as our ability to rent certain luxury and other inventory is often limited on a site-by-site basis, rental operations may not generate adequate rental revenues to cover associated costs. Our Vacation Ownership segment units are either “full villas” or “lock-off” villas. Lock-off villas are units that can be separated into a master unit and a guest room. Full villas are “non-lock-off” villas because they cannot be separated. A “key” is the lowest increment for reporting occupancy statistics based upon the mix of non-lock-off and lock-off villas. Lock-off villas represent two keys and non-lock-off villas represent one key. The “transient keys” metric represents the blended mix of inventory available for rent and includes all of the combined inventory configurations available in our resort system.

#### Cost Reimbursements

Cost reimbursements include direct and indirect costs that are reimbursed to us by customers under management contracts. All costs, with the exception of taxes assessed by a governmental authority, reimbursed to us by customers 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.

#### Other Items

We measure operating performance using the following key metrics:

- Contract sales from the sale of vacation ownership products;
- Total contract sales include contract sales from the sale of vacation ownership products including joint ventures
- Consolidated contract sales exclude contracts sales from the sale of vacation ownership products for joint ventures
- Development margin percentage;
- Volume per guest (“VPG”), which we calculate by dividing consolidated vacation ownership contract sales, excluding fractional sales, telesales, resales, joint venture sales and other sales that are not attributed to a tour at a sales location, by the number of tours at sales locations in a given period (which we refer to as “tour flow”). 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;
- Average revenue per member, which we calculate by dividing membership fee revenue, transaction revenue and other member revenue for the Interval International network by the monthly weighted average number of Interval International network active members during the applicable period; and
- Total active members, which is the number of Interval International network active members at the end of the applicable period.

### CONSOLIDATED RESULTS

*($ in millions)*

| REVENUES | Fiscal Years 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| Sale of vacation ownership products | $1,390 | $990 | $757 |
| Management and exchange | 954 | 499 | 279 |
| Rental | 628 | 371 | 262 |
| Financing | 275 | 183 | 135 |
| Cost reimbursements | 1,108 | 925 | 750 |
| **TOTAL REVENUES** | 4,355 | 2,968 | 2,183 |
| **EXPENSES** |  |  |  |
| Cost of vacation ownership products | 356 | 260 | 194 |
| Marketing and sales | 762 | 527 | 388 |
| Management and exchange | 506 | 259 | 147 |
| Rental | 416 | 281 | 221 |
| Financing | 96 | 65 | 43 |
| General and administrative | 300 | 198 | 106 |
| Depreciation and amortization | 141 | 62 | 21 |
| Litigation charges | 7 | 46 | 4 |
| Royalty fee | 106 | 78 | 63 |
| Impairment | 99 | — | — |
| Cost reimbursements | 1,108 | 925 | 750 |
| **TOTAL EXPENSES** | 3,897 | 2,701 | 1,937 |
| Gains and other income, net | 16 | 21 | 6 |
| Interest expense | (132) | (54) | (10) |
| ILG acquisition-related costs | (118) | (127) | (1) |
| Other | 1 | (4) | (1) |
| **INCOME BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS** | 225 | 103 | 240 |
| Provision for income taxes | (83) | (51) | (5) |
| **NET INCOME** | 142 | 52 | 235 |
| Net (income) loss attributable to noncontrolling interests | (4) | 3 | — |
| **NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS** | $138 | $55 | $235 |

47

### Operating Statistics

*(Contract sales $ in millions)*

| Vacation Ownership | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change |  | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Total contract sales | $1,569 | $1,089 | $826 | $480 | $50 | 6% | $263 | $76 | 9% |
| Consolidated contract sales | $1,524 | $1,073 | $826 | $451 | $50 | 6% | $247 | $76 | 9% |
| **Exchange & Third-Party Management** |  |  |  |  |  |  |  |  |  |
| Total active members at end of period (000's) | 1,670 | 1,802 | — | (132) |  |  | 1,802 |  |  |
| Average revenue per member(1) | $168.73 | $37.37 | $— | NM |  |  | $37.37 |  |  |

(1) Only includes members of the Interval International exchange network.

NM Not meaningful

### Revenues

The following table presents our revenues for 2019, 2018, and 2017. The results for 2018 only include Legacy-ILG for the months of September through December 2018, following the ILG Acquisition on September 1, 2018.

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change |  | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Vacation Ownership | $3,869 | $2,803 | $2,183 | $1,066 | $117 | 5% | $620 | $217 | 10% |
| Exchange & Third-Party Management | 454 | 161 | — | 293 | — | —% | 161 | — | —% |
| Total Segment Revenues | 4,323 | 2,964 | 2,183 | 1,359 | 117 |  | 781 | 217 |  |
| Consolidated Property Owners’ Associations | 32 | 4 | — | 28 | — | —% | 4 | — | —% |
| Total Revenues | $4,355 | $2,968 | $2,183 | $1,387 | $117 | 5% | $785 | $217 | 10% |

### 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 attributable to common shareholders, before interest expense (excluding consumer financing interest expense associated with term loan securitization transactions), income taxes, depreciation and amortization. Adjusted EBITDA reflects additional adjustments for certain items described below, and excludes share-based compensation expense to address considerable variability among companies in recording compensation expense because companies use share-based payment awards differently, both in the type and quantity of awards granted. For purposes of our EBITDA and Adjusted EBITDA calculations, we do not adjust for consumer financing interest expense associated with term loan securitization transactions because we consider it to be an operating expense of our business. We consider Adjusted EBITDA to be an indicator of operating performance, which we use to measure our ability to service debt, fund capital expenditures and expand our business. We also use Adjusted EBITDA, as do analysts, lenders, investors and others, because this measure excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company’s capital structure, debt levels and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provision for income taxes can vary considerably among companies. EBITDA and Adjusted EBITDA also exclude depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies. We evaluate Adjusted EBITDA 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 our comparison 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 attributable to common shareholders, which is the most directly comparable GAAP financial measure.

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Net income attributable to common shareholders | $138 | $55 | $235 | $83 | $(50) | $(180) | $(178) |
| Interest expense | 132 | 54 | 10 | 78 | 77 | 44 | 42 |
| Tax provision | 83 | 51 | 5 | 32 | (39) | 46 | 40 |
| Depreciation and amortization | 141 | 62 | 21 | 79 | 5 | 41 | 3 |
| EBITDA | 494 | 222 | 271 | 272 | (7) | (49) | (93) |
| Share-based compensation expense | 37 | 35 | 16 | 2 | 4 | 19 | 5 |
| Certain items | 227 | 162 | 7 | 65 | 71 | 155 | 114 |
| Adjusted EBITDA | $758 | $419 | $294 | $339 | $68 | $125 | $26 |

#### 2019 Compared to 2018

Certain items for 2019 consisted of $119 million of acquisition costs (including $118 million of ILG acquisition-related costs and $1 million of other acquisition costs), $99 million of asset impairment charges, $17 million of unfavorable purchase price adjustments, $7 million of litigation charges, and $1 million of other severance costs, partially offset by $16 million of miscellaneous gains and other income. The $16 million of miscellaneous gains and other income included $19 million of gains and other income related to the disposition of excess land parcels in Cancun, Mexico and Avon, Colorado, $9 million of gains and other income related to net insurance proceeds from the final settlement of Legacy-MVW business interruption insurance claims arising from the 2017 Hurricanes, and $3 million of gains and other income resulting from the recovery of a portion of the fraudulently induced electronic payment disbursements made to third parties, partially offset by $15 million of integration related tax matters and other miscellaneous expenses. These exclusions increased EBITDA by $227 million.

Certain items for 2018 consisted of $127 million of ILG acquisition-related costs, $46 million of litigation charges, $8 million of losses and other expense, $6 million of unfavorable purchase accounting adjustments and $4 million of costs associated with the then anticipated capital efficient acquisitions of operating properties in San Francisco, California and New York, partially offset by $29 million of net insurance proceeds related to the settlement of Legacy-MVW business interruption insurance claims arising from Hurricanes Irma and Maria. These exclusions increased EBITDA by $162 million.

### Segment Adjusted EBITDA

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Vacation Ownership | $800 | $511 | $383 | $289 | 79 | $128 | $42 |
| Exchange & Third-Party Management | 230 | 77 | — | 153 | — | 77 | — |
| Segment adjusted EBITDA | 1,030 | 588 | 383 | 442 | 79 | 205 | 42 |
| General and administrative | (274) | (171) | (89) | (103) | (11) | (82) | (16) |
| Consolidated property owners’ associations | 2 | 2 | — | — | — | 2 | — |
| Adjusted EBITDA | $758 | $419 | $294 | $339 | $68 | $125 | $26 |

The following tables present Adjusted EBITDA for our reportable segments reconciled to segment financial results.

### Vacation Ownership

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Segment adjusted EBITDA | $800 | $511 | $383 | $289 | $79 | $128 | $42 |
| Depreciation and amortization | (68) | (37) | (17) | (31) | (1) | (20) | (3) |
| Share-based compensation expense | (8) | (7) | (3) | (1) | (1) | (4) | (2) |
| Certain items | (95) | (24) | (2) | (71) | (57) | (22) | (18) |
| Segment financial results | $629 | $443 | $361 | $186 | $20 | $82 | $19 |

#### 2019 Compared to 2018

Certain items in the Vacation Ownership segment for 2019 consisted of $99 million of asset impairment charges, $17 million of unfavorable purchase accounting adjustments, $6 million of litigation charges, and $1 million of acquisition costs, partially offset by $28 million of gains and other income. These exclusions decreased segment financial results by $95 million.

Certain items in the Vacation Ownership segment for 2018 consisted of $46 million of litigation charges, $4 million of costs associated with the then anticipated capital efficient vacation ownership acquisitions of operating properties in San Francisco, California and New York, $2 million of unfavorable purchase accounting adjustments and $1 million of miscellaneous losses and other expense, partially offset by $29 million of net insurance proceeds related to the settlement of Legacy-MVW business interruption insurance claims arising from the 2017 Hurricanes. These exclusions decreased segment financial results by $24 million.

### Exchange & Third-Party Management

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 | Change 2018 vs. 2017 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Segment adjusted EBITDA | $230 | $77 | $— | $153 | $77 |
| Depreciation and amortization | (47) | (16) | — | (31) | (16) |
| Share-based compensation expense | (3) | (1) | — | (2) | (1) |
| Certain items | — | (3) | — | 3 | (3) |
| Segment financial results | $180 | $57 | $— | $123 | $57 |

50

#### 2019 Compared to 2018

Certain items in the Exchange & Third-Party Management segment for 2019 consisted of $1 million of miscellaneous gains and other income offset by $1 million of unfavorable purchase accounting adjustments.

Certain items in the Exchange & Third-Party Management segment for 2018 consisted of $4 million of unfavorable purchase accounting adjustments, partially offset by $1 million of miscellaneous gains and other income. These items decreased segment financial results by $3 million.

### BUSINESS SEGMENTS

Our business is grouped into two reportable business segments: Vacation Ownership and Exchange & Third-Party Management. See Footnote 18 “Business Segments” to our Financial Statements for further information on our segments.

### VACATION OWNERSHIP

*($ in millions)*

| REVENUES | Fiscal Years 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| Sale of vacation ownership products | $1,390 | $990 | $757 |
| Resort management and other services | 509 | 359 | 279 |
| Rental | 562 | 352 | 262 |
| Financing | 271 | 182 | 135 |
| Cost reimbursements | 1,137 | 920 | 750 |
| **TOTAL REVENUES** | 3,869 | 2,803 | 2,183 |
| **EXPENSES** |  |  |  |
| Cost of vacation ownership products | 356 | 260 | 194 |
| Marketing and sales | 718 | 513 | 388 |
| Resort management and other services | 267 | 190 | 147 |
| Rental | 418 | 277 | 221 |
| Financing | 94 | 64 | 43 |
| Depreciation and amortization | 68 | 37 | 17 |
| Litigation charges | 6 | 46 | 4 |
| Royalty fee | 106 | 78 | 63 |
| Impairment | 99 | — | — |
| Cost reimbursements | 1,137 | 920 | 750 |
| **TOTAL EXPENSES** | 3,269 | 2,385 | 1,827 |
| Gains and other income, net | 28 | 28 | 6 |
| Other | 1 | (4) | (1) |
| **SEGMENT FINANCIAL RESULTS BEFORE NONCONTROLLING INTERESTS** | 629 | 442 | 361 |
| Net loss attributable to noncontrolling interests | — | 1 | — |
| **SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS** | $629 | $443 | $361 |

### Contract Sales

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change |  | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Total consolidated contract sales | 1,524 | 1,073 | 826 | 451 | 50 | 6% | 247 | 76 | 9% |
| Joint venture contract sales | 45 | 16 | — | 29 | — | NM | 16 | — | NM |
| Total contract sales | $1,569 | $1,089 | $826 | $480 | $50 | 6% | $263 | $76 | 9% |

51

#### 2019 Compared to 2018

Total contract sales increased $480 million, driven largely by the ILG Acquisition during the 2018 third quarter. Excluding the impact of the ILG Acquisition, total contract sales increased $50 million or 6 percent.

The $50 million increase in Legacy-MVW contract sales reflected a 5 percent increase in the number of tours and a 2 percent increase in VPG to $3,574 in 2019 from $3,521 in 2018. The increase in the number of tours was due to increases in both owner tours and first time buyer tours. In addition, the increase in the number of total tours reflected the continued ramp up of newer sales locations as well as an increase in tours from existing sales locations. The increase in VPG resulted from a slight increase in closing efficiency and higher pricing.

### Sale of Vacation Ownership Products

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change |  | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Total contract sales | $1,569 | $1,089 | $826 | $480 | $50 | 6% | $263 | $76 | 9% |
| Less resales contract sales | (30) | (30) | (23) | — | — |  | (7) | (7) |  |
| Less joint venture contract sales | (45) | (16) | — | (29) | — |  | (16) | — |  |
| Consolidated contract sales, net of resales | 1,494 | 1,043 | 803 | 451 | 50 |  | 240 | 69 |  |
| Plus: |  |  |  |  |  |  |  |  |  |
| Settlement revenue | 44 | 26 | 15 | 18 | 1 |  | 11 | 2 |  |
| Resales revenue | 14 | 12 | 8 | 2 | 2 |  | 4 | 4 |  |
| Revenue recognition adjustments: |  |  |  |  |  |  |  |  |  |
| Reportability | (8) | 11 | 20 | (19) | (19) |  | (9) | (6) |  |
| Sales reserve | (112) | (64) | (52) | (48) | (13) |  | (12) | — |  |
| Other(1) | (42) | (38) | (37) | (4) | 1 |  | (1) | 5 |  |
| Sale of vacation ownership products | $1,390 | $990 | $757 | $400 | $22 | 3% | $233 | $74 | 10% |

(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.

#### 2019 Compared to 2018

Excluding the impact of the ILG Acquisition, sale of vacation ownership products revenue increased $22 million, driven by the increase in contract sales in 2019, partially offset by an unfavorable year-over-year change in revenue reportability and a higher sales reserve. Revenue reportability had a negative impact in 2019 due to an increase in unclosed contracts during the year while 2018 was positively impacted by a decrease in unclosed contracts during the year. The higher Legacy-MVW sales reserve reflected a higher required reserve due to higher default activity as compared to the prior year.

### Development Margin

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change |  | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Sale of vacation ownership products | $1,390 | $990 | $757 | $400 | $22 | 3% | $233 | $74 | 10% |
| Cost of vacation ownership products | (356) | (260) | (194) | (96) | 4 | 2% | (66) | (22) | (11%) |
| Marketing and sales | (718) | (513) | (388) | (205) | (2) | (1%) | (125) | (43) | (11%) |
| Development margin | $316 | $217 | $175 | $99 | $24 | 13% | $42 | $9 | 5% |
| Development margin percentage | 22.7% | 21.9% | 23.1% | 0.8 pts |  |  | (1.2 pts) |  |  |

#### 2019 Compared to 2018

Excluding the impact of the ILG Acquisition, development margin increased $24 million or 13 percent. The increase in Legacy-MVW development margin reflected $10 million from higher vacation ownership contract sales volume net of the sales reserve and direct variable expenses (i.e., cost of vacation ownership products and marketing and sales), $25 million from more efficient marketing and sales spend, and $12 million from a favorable mix of lower cost inventory being sold, partially offset by a $13 million decline due to unfavorable revenue reportability compared to 2018 and $10 million due to a higher sales reserve rate from higher delinquency and default activity.

The increase in the development margin percentage reflected a 2.2 percentage point improvement from Legacy-MVW results, partially offset by a negative 1.4 percentage point impact from the inclusion of Legacy-ILG results post acquisition. The Legacy-MVW results included a 3.0 percentage point improvement in marketing and sales costs due to leveraging fixed costs on the increase in contract sales and a 1.4 percentage point increase due to a favorable mix of lower cost vacation ownership real estate inventory being sold, partially offset by a 1.2 percentage point decline due to the unfavorable revenue reportability and a 1.0 percentage point decline related to higher sales reserve activity.

### Resort Management and Other Services Revenues, Expenses and Margin

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change |  | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Management fee revenues | $146 | $114 | $89 | $32 | $2 | 2% | $25 | $10 | 11% |
| Ancillary revenues | 243 | 160 | 118 | 83 | 5 | 4% | 42 | 9 | 8% |
| Other management and exchange revenues | 120 | 85 | 72 | 35 | 7 | 9% | 13 | 2 | 3% |
| Resort management and other services revenues | 509 | 359 | 279 | 150 | 14 | 5% | 80 | 21 | 8% |
| Resort management and other services expenses | (267) | (190) | (147) | (77) | (3) | (2%) | (43) | (6) | (4%) |
| Resort management and other services margin | $242 | $169 | $132 | $73 | $11 | 7% | $37 | $15 | 12% |
| Resort management and other services margin percentage | 47.5% | 47.1% | 47.4% | 0.4 pts |  |  | (0.3 pts) |  |  |

#### 2019 Compared to 2018

Excluding the impact of the ILG Acquisition, resort management and other services revenues reflected $2 million of higher management fees resulting from the cumulative increase in the number of vacation ownership products sold and higher operating costs across the system, $5 million of higher ancillary revenues from food and beverage and golf offerings at our resorts and $7 million of higher annual club dues and other revenues earned in connection with the MVCD program due to the cumulative increase in owners enrolled in the program as well as an increase in the average club dues charged to enrolled owners, partially offset by $3 million of lower refurbishment and other revenues due to a decrease in the number of refurbishment projects completed in 2019.

Excluding the impact of the ILG Acquisition, the increase in the resort management and other services margin reflected the increases in revenue, partially offset by $3 million of higher ancillary and other expenses primarily from food and beverage and golf offerings at our resorts in support of the higher revenues mentioned above.

### Rental Revenues, Expenses and Margin

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change |  | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Rental revenues | $562 | $352 | $262 | $210 | $36 | 13% | $90 | $22 | 8% |
| Rental expenses | (418) | (277) | (221) | (141) | (18) | 8% | (56) | (8) | (4%) |
| Rental margin | $144 | $75 | $41 | $69 | $18 | 35% | $34 | $14 | 34% |
| Rental margin percentage | 25.5% | 21.5% | 15.4% | 4.0 pts |  |  | 6.1 pts |  |  |

*(Transient keys in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change |  | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Transient keys rented(1) | 2.4 | 1.6 | 1.3 | 0.8 | 0.1 | 4% | 0.3 | — | 1% |
| Average transient key rate | $228.38 | $222.10 | $216.29 | $6.28 | $3.65 | 2% | $5.81 | $5.24 | 2% |
| Resort occupancy | 88.1% | 88.5% | 88.7% | (0.4 pts) | 0.9 pts |  | (0.2 pts) | 2.1 pts |  |

(1) Transient keys rented exclude those obtained through the use of plus points and preview stays.

#### 2019 Compared to 2018

Excluding the impact of the ILG Acquisition, rental revenue increased $36 million due to a 4 percent increase in transient keys rented ($14 million), higher plus points revenue ($9 million), a 2 percent higher average transient rate ($5 million), and higher other revenues ($8 million).

Excluding the impact of the ILG Acquisition, the increase in rental margin reflected the higher rental revenues net of direct variable expenses (such as housekeeping) and the $9 million increase in plus points revenue, partially offset by higher expenses incurred due to owners choosing alternative usage options and higher unsold maintenance fees.

### Financing Revenues, Expenses and Margin

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change |  | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest income | $264 | $175 | $128 | $89 | $32 | 23% | $47 | $13 | 10% |
| Other financing revenues | 7 | 7 | 7 | — | — | —% | — | — | —% |
| Financing revenues | 271 | 182 | 135 | 89 | 32 | 22% | 47 | 13 | 10% |
| Financing expenses | (39) | (24) | (18) | (15) | (1) | (10%) | (6) | (1) | (9%) |
| Consumer financing interest expense | (55) | (40) | (25) | (15) | (7) | (21%) | (15) | (6) | (26%) |
| Financing margin | $177 | $118 | $92 | $59 | $24 | 25% | $26 | $6 | 5% |
| Financing propensity | 63% | 62% | 64% |  |  |  |  |  |  |

#### 2019 Compared to 2018

Excluding the impact of the ILG Acquisition, financing revenues increased $32 million due to an increase in the average gross vacation ownership notes receivable balance and lower financing program incentive costs.

Excluding the impact of the ILG Acquisition, the increase in financing margin reflected the higher financing revenues, partially offset by higher consumer financing interest expense and higher other expenses. The higher consumer financing interest expense was due to a higher average outstanding debt balance and a higher average interest rate on the outstanding debt balance due to the higher interest rate applicable to our most recently completed securitizations of vacation ownership notes receivable. The higher other expenses were due to an increase in variable expenses associated with the increase in the average gross vacation ownership notes receivable balance.

### Depreciation and Amortization

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change |  | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Depreciation and amortization | $68 | $37 | $17 | $31 | $1 | 8% | $20 | $3 | 11% |

### Litigation Charges

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change |  | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | --- |
| Litigation charges | $6 | $46 | $4 | $(40) | $(40) | (87%) | $42 | $42 | NM |

#### 2019 Compared to 2018

In 2019, we incurred $6 million of litigation charges, including approximately $4 million related to projects in Europe and approximately $1 million related to projects in California.

In 2018, we incurred $46 million of litigation charges, including $28 million related to a previously managed project in Hawaii, $11 million related to a project in San Francisco, $5 million related to a project in Lake Tahoe, $1 million related to an Asia Pacific tax matter and $1 million related to projects in Europe.

### Royalty Fee

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change |  | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Royalty fee | $106 | $78 | $63 | $28 | $— | —% | $15 | $1 | 2% |

#### 2019 Compared to 2018

Excluding the impact of the ILG Acquisition, Legacy-MVW royalty fee expense remained flat year-over-year due to an increase in the mix of sales of pre-owned inventory, which carry a lower royalty fee as compared to initial sales of our inventory (one percent versus two percent), offset by an increase in the dollar volume of closings and an increase in the fixed portion of the royalty fee. The prior year period benefited from a contractual decrease in the fixed portion of the royalty fee owed to Marriott International as a result of amendments to our license agreements with Marriott International entered into during the first quarter of 2018. This decrease in the fixed portion of the royalty fee terminated upon completion of the ILG Acquisition.

### Impairment

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change |  | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Impairment | $99 | $— | $— | $99 | $99 | 100% | $— | $— | —% |

As a result of the ILG Acquisition, we performed a comprehensive review to evaluate the strategic fit of the land holdings and operating hotels in our Vacation Ownership segment. A key focus of our comprehensive review was to evaluate opportunities to reduce holdings in markets where we have excess supply so that future inventory spend can be focused on markets that create incremental cost-effective sales locations in areas of high customer demand. We evaluated each asset in the context of its current and anticipated product form, our inventory needs and our operating strategy. During the third quarter of 2019, we completed our evaluation and identified several assets for disposition which we believe will generate cash proceeds equivalent to their estimated fair value of $160 million to $220 million over the next several years.

As a result of the change in our development strategy, we recorded a non-cash impairment charge of $72 million, of which $61 million related to land and land improvements associated with future phases of three existing resorts, primarily attributable to the fact that the book values of these assets include the historical allocations of common costs incurred when we built the infrastructure of these resorts, $9 million related to a land parcel held for future development and $2 million related to an ancillary business, as the book values of these assets were in excess of the estimated fair values of these assets. We also reviewed the remainder of the assets identified for disposition and determined that no other impairment charges were necessary.

During the second quarter of 2019, we entered into a contract to sell land and land improvements associated with a future phase of an existing resort located in Orlando, Florida for $10 million, which was less than the carrying value of the land and land improvements. As a result, we recorded a non-cash impairment charge of $26 million. The impairment is primarily attributable to the fact that the book value of the assets to be sold exceeds the sales price because the book value includes allocations of common costs incurred when we built the infrastructure for the resort, including future phases. This contract was subsequently terminated.

During 2019, we also recorded a non-cash impairment charge of $1 million related to an ancillary asset located at a Vacation Ownership segment property in Europe.

### Cost Reimbursements

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change |  | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Cost reimbursements | $1,137 | $920 | $750 | $217 | $13 | 2% | $170 | $87 | 12% |

#### 2019 Compared to 2018

Excluding the impact of the ILG Acquisition, cost reimbursements increased $13 million, or 2 percent, over 2018, reflecting $23 million due to additional managed unit weeks in 2019, partially offset by $8 million of lower costs and a $2 million impact from foreign exchange rates at our Legacy-MVW Vacation Ownership resorts in Europe and Asia. The lower costs were due to less refurbishment activity in 2019 and non-recurring hurricane remediation related costs in 2018, partially offset by inflationary wage and operating cost increases.

### Other

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change |  | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |  |
| --- | ---: | ---: | ---: | ---: | ---: | --- | ---: | ---: | --- |
| Other | $1 | $(4) | $(1) | $5 | $4 | NM | $(3) | $(3) | NM |

#### 2019 Compared to 2018

In 2018, we incurred $4 million of acquisition costs associated with operating properties in San Francisco and New York.

### Gains and Other Income, Net

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change |  | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | --- |
| Gains and other income, net | $28 | $28 | $6 | $— | $(1) | (6%) | $22 | $24 | NM |

#### 2019 Compared to 2018

In 2019, we recorded $28 million of gains and other income, including $19 million of net gains related to the disposition of excess land in Cancun, Mexico and Avon, Colorado, and $9 million of gains and other income related to net insurance proceeds from the settlement of Legacy-MVW business interruption insurance claims arising from the 2017 Hurricanes.

In 2018, we recorded $28 million of gains and other income, including $29 million of net insurance proceeds related to the settlement of Legacy-MVW business interruption insurance claims arising from the 2017 Hurricanes and a $1 million favorable true up of previously recorded Legacy-MVW costs associated with the 2017 Hurricanes, partially offset by $2 million of Legacy-ILG non-operating foreign exchange losses.

### EXCHANGE & THIRD-PARTY MANAGEMENT

Our Exchange & Third-Party Management segment offers access to vacation accommodations and other travel-related transactions and services to leisure travelers by providing vacation exchange and management services, including vacation rentals and other services. We provide these services through a variety of brands including Interval International, Trading Places International, Vacation Resorts International and Aqua-Aston. These brands were acquired as part of our acquisition of ILG on September 1, 2018 and, consequently, are only included in our results for the periods subsequent to that date.

*($ in millions)*

| REVENUES | Fiscal Years 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| Management and exchange | $298 | $109 | $— |
| Rental | 61 | 18 | — |
| Financing | 4 | 1 | — |
| Cost reimbursements | 91 | 33 | — |
| **TOTAL REVENUES** | 454 | 161 | — |
| **EXPENSES** |  |  |  |
| Marketing and sales | 44 | 14 | — |
| Management and exchange | 64 | 31 | — |
| Rental | 27 | 9 | — |
| Financing | 2 | 1 | — |
| Depreciation and amortization | 47 | 16 | — |
| Cost reimbursements | 91 | 33 | — |
| **TOTAL EXPENSES** | 275 | 104 | — |
| Gains and other income, net | 1 | 1 | — |
| **SEGMENT FINANCIAL RESULTS BEFORE NONCONTROLLING INTERESTS** | 180 | 58 | — |
| Net income attributable to noncontrolling interests | — | (1) | — |
| **SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS** | $180 | $57 | $— |

57

### 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, ILG acquisition-related costs, and provision for income taxes. In addition, Corporate and Other includes the Consolidated Property Owners’ Associations revenues and expenses.

*($ in millions)*

| REVENUES | Fiscal Years 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| Management and exchange | $147 | $31 | $— |
| Rental | 5 | 1 | — |
| Cost reimbursements | (120) | (28) | — |
| **TOTAL REVENUES** | 32 | 4 | — |
| **EXPENSES** |  |  |  |
| Management and exchange | 175 | 38 | — |
| Rental | (29) | (5) | — |
| General and administrative | 300 | 198 | 106 |
| Depreciation and amortization | 26 | 9 | 4 |
| Litigation charges | 1 | — | — |
| Cost reimbursements | (120) | (28) | — |
| **TOTAL EXPENSES** | 353 | 212 | 110 |
| Losses and other expense, net | (13) | (8) | — |
| Interest expense | (132) | (54) | (10) |
| ILG acquisition-related costs | (118) | (127) | (1) |
| **FINANCIAL RESULTS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS** | (584) | (397) | (121) |
| Provision for income taxes | (83) | (51) | (5) |
| **FINANCIAL RESULTS BEFORE NONCONTROLLING INTERESTS** | (667) | (448) | (126) |
| Net (income) loss attributable to noncontrolling interests | (4) | 3 | — |
| **FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS** | $(671) | $(445) | $(126) |

58

### Consolidated Property Owners’ Associations

The following table illustrates the impact of the Consolidated Property Owners’ Associations of the acquired Legacy-ILG vacation ownership properties under the voting interest model, which represents the portion related to individual or third-party VOI owners.

*($ in millions)*

| REVENUES | Fiscal Years 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| Resort management and other services | $147 | $31 | $— |
| Rental | 5 | 1 | — |
| Cost reimbursements | (120) | (28) | — |
| **TOTAL REVENUES** | 32 | 4 | — |
| **EXPENSES** |  |  |  |
| Resort management and other services | 175 | 38 | — |
| Rental | (29) | (5) | — |
| Cost reimbursements | (120) | (28) | — |
| **TOTAL EXPENSES** | 26 | 5 | — |
| **FINANCIAL RESULTS BEFORE NONCONTROLLING INTERESTS** | 6 | (1) | — |
| Net (income) loss attributable to noncontrolling interests | (4) | 3 | — |
| **FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS** | $2 | $2 | $— |

### General and Administrative

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change |  | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| General and administrative | $300 | $198 | $106 | $102 | $15 | 12% | $92 | $15 | 14% |

#### 2019 Compared to 2018

Excluding the impact of the ILG Acquisition, general and administrative expenses increased $15 million due to higher legal and technology costs as well as higher personnel related and other expenses. The higher personnel related and other expenses included annual merit, bonus and inflationary cost increases.

### Depreciation and Amortization

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change |  | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Depreciation and amortization | $26 | $9 | $4 | $17 | $4 | 88% | $5 | $— | —% |

### Gains (Losses) and Other Income (Expense), net

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change |  | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | --- |
| Losses and other expense, net | $(13) | $(8) | $— | $(5) | $(11) | 163% | $(8) | $(6) | NM |

#### 2019 Compared to 2018

In 2019, we recorded $13 million of losses and other expense primarily related to $10 million of integration related tax matters, $3 million of miscellaneous losses and other expense, and $2 million of losses and other expense resulting from foreign currency translation, partially offset by $3 million of gains and other income resulting from the recovery of a portion of the fraudulently induced electronic payment disbursements made in the second quarter of 2018.

In 2018, we recorded $4 million of losses and other expenses primarily resulting from fraudulently induced electronic payment disbursements made to third parties, $2 million of other expenses primarily associated with such fraudulently induced electronic payment disbursements and $2 million of Legacy-ILG miscellaneous losses and other expense. See Footnote 11 “Contingencies and Commitments” to our Financial Statements for additional information regarding the fraudulently induced electronic payment disbursements made to third parties in 2018.

### Interest Expense

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change |  | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | --- |
| Interest expense | $(132) | $(54) | $(10) | $(78) | $(77) | (149%) | $(44) | $(42) | NM |

#### 2019 Compared to 2018

Interest expense increased $78 million due to $73 million of interest expense associated with the new debt issued in the third quarter of 2018 in connection with the ILG Acquisition, $4 million of higher interest expense associated with the Warehouse Credit Facility due to higher usage in 2019, and $4 million of higher interest expense associated with assumed Legacy-ILG debt that was redeemed during the fourth quarter of 2019, as discussed in Footnote 14 “Debt” to our Financial Statements.

### ILG Acquisition-Related Costs

ILG acquisition-related costs include transaction costs, employee termination costs and integration costs. Transaction costs represent costs related to the planning and execution of the ILG Acquisition, primarily for financial advisory, legal, and other professional service fees, as well as certain tax related accruals. Employee termination costs represent charges for employee severance, retention, and other termination related benefits. Acquisition and integration costs primarily represent integration employee salaries and share-based compensation, fees paid to change management consultants, and technology-related costs.

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 Change | Change Excluding Legacy-ILG Impact Change |  | Change 2018 vs. 2017 | Change Excluding Legacy-ILG Impact |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | --- |
| ILG acquisition-related costs | $(118) | $(127) | $(1) | $9 | $(1) | (1%) | $(126) | $(94) | NM |

### Income Tax

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 | Change 2019 vs. 2018 |  | Change 2018 vs. 2017 |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | --- |
| Provision for income taxes | $(83) | $(51) | $(5) | $(32) | (61%) | $(46) | NM |

#### 2019 Compared to 2018

For the year ended December 31, 2019, the provision for income taxes increased $32 million, compared with the same period in 2018. The increase was primarily driven by increases in U.S. and foreign earnings as a result of the ILG Acquisition.

### Liquidity and Capital Resources

Our capital needs are supported by cash on hand ($287 million at the end of 2019), cash generated from operations, our ability to raise capital through securitizations in the ABS market and, to the extent necessary, funds available 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. At the end of 2019, we had $4.2 billion of total gross debt outstanding, which included $1.9 billion of non-recourse securitized debt, $1.1 billion of gross senior unsecured notes, $0.9 billion of gross secured indebtedness under the Corporate Credit Facility, and $0.2 billion of Convertible Notes.

At the end of 2019, we had $846 million of real estate inventory on hand, comprised of $777 million of finished goods and $69 million of work-in-progress. In addition, we had $55 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 for sale as vacation ownership products.

Our vacation ownership product offerings allow us to utilize our real estate inventory efficiently. The majority of our sales are of points-based products, which permits us to sell vacation ownership products at most of our sales locations, including those where little or no weeks-based inventory remains available for sale. Because we no longer need specific resort-based inventory at each sales location, we need to have only a few resorts under development at any given time and can leverage successful sales locations at completed resorts. This allows us to maintain long-term sales locations and reduces the need to develop and staff on-site sales locations at smaller projects in the future. We believe our points-based programs enable us to closely align the timing of our real estate inventory acquisitions with the pace of sales of vacation ownership products. We expect to standardize our sales inventory acquisition policies across our portfolio of vacation ownership brands acquired as part of the ILG Acquisition.

We are selectively pursuing growth opportunities in North America and Asia Pacific by targeting high-quality inventory that allows us to add desirable new destinations to our system with new on-site sales locations through transactions that limit our up-front capital investment and allow us to purchase finished inventory closer to the time it is needed for sale. These capital efficient vacation ownership deal structures may consist of the development of new inventory, or the conversion of previously built units by third parties, just prior to sale.

Our Exchange & Third-Party Management segment includes exchange networks, membership programs and third-party property management services that were acquired as part of the ILG Acquisition. These networks, programs and services generate revenue that is generally fee-based and derived from membership, exchange and rental transactions, property and association management, and other related products and services. This segment is expected to be less capital intensive than our Vacation Ownership segment and is expected to be funded with cash generated from segment operations.

The following table summarizes the changes in cash, cash equivalents and restricted cash:

*($ in millions)*

| Cash, cash equivalents and restricted cash provided by (used in): | Fiscal Years 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| Operating activities | $382 | $97 | $142 |
| Investing activities | 37 | (1,407) | (38) |
| Financing activities | (331) | 1,433 | 171 |
| Effect of change in exchange rates on cash, cash equivalents and restricted cash | (1) | — | 3 |
| Net change in cash, cash equivalents and restricted cash | $87 | $123 | $278 |

#### 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 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 property owners’ associations and certain annual compensation-related outflows. In addition, our cash from operations varies due to the timing of our owners’ repayment of vacation ownership notes receivable, the closing or recording of sales contracts for vacation ownership products, financing propensity and cash outlays for real estate inventory acquisition and development.

In 2019, we generated $382 million of cash flows from operating activities compared to $97 million in 2018. Excluding the impact of changes in net income and adjustments for non-cash items, the change in cash flows from operations reflected higher originations of vacation ownership notes receivable driven by higher contract sales and slightly higher financing propensity, higher inventory spending, lower ILG acquisition-related costs, and timing of certain annual compensation-related outflows partially offset by higher collections due to an increasing portfolio of outstanding vacation ownership notes receivable. The impact of changes in operating cash flows in 2019 also included $118 million of ILG acquisition-related costs, partially offset by business interruption insurance proceeds of $6 million for Legacy-MVW losses and $38 million for Legacy-ILG losses.

In 2018, we generated $97 million of cash flows from operating activities compared to $142 million in 2017. Excluding the impact of changes in net income and adjustments for non-cash items, the change in cash flows from operations reflected higher originations driven by higher contract sales and higher real estate inventory spending, partially offset by higher collections due to an increasing portfolio of outstanding vacation ownership notes receivable. The impact of changes in operating cash flows in 2018 also included $127 million of ILG acquisition-related costs, partially offset by business interruption insurance proceeds of $32 million for Legacy-MVW and $25 million for Legacy-ILG.

In addition to net income and adjustments for non-cash items, the following operating activities are key drivers of our cash flow from operating activities:

#### Inventory Spending Less Than Cost of Sales

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| Inventory spending | $(228) | $(212) | $(121) |
| Purchase of vacation ownership units for future transfer to inventory | (20) | — | (34) |
| Inventory costs | 292 | 221 | 167 |
| Inventory spending less than cost of sales | $44 | $9 | $12 |

We measure our real estate inventory capital efficiency by comparing the cash outflow for real estate inventory spending (a cash item) to the amount of real estate inventory costs charged to expense on our Income Statements related to sale of vacation ownership products (a non-cash item). Given the significant level of completed real estate inventory on hand, as well as the capital efficiency resulting from our points programs and capital efficient transactions, our spending for real estate inventory remained below the amount of real estate inventory costs in 2019, 2018, and 2017.

Our inventory spending in 2019 included a payment to satisfy our commitment to purchase 78 vacation ownership units located in San Francisco, California for $48 million. Purchase of vacation ownership units for future transfer to inventory for 2019 included a $20 million advance payment to satisfy a portion of our commitment to purchase 57 vacation ownership units located in New York.

Our inventory spending in 2018 included payments to satisfy our then remaining commitments to purchase vacation ownership units located at our resort in Marco Island, Florida. During 2018, we acquired 92 completed vacation ownership units for $83 million and 20 completed vacation ownership units for $24 million in two separate transactions.

See Footnote 3 “Acquisitions and Dispositions” and Footnote 11 “Contingencies and Commitments” to our Financial Statements for additional information regarding the transactions discussed above.

Through our existing vacation ownership interest repurchase program, we proactively buy back previously sold vacation ownership interests at lower costs than would be required to develop new inventory. By repurchasing inventory in desirable locations, we expect to be able to stabilize the future cost of vacation ownership products.

#### Vacation Ownership Notes Receivable Collections Less Than Originations

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| Vacation ownership notes receivable collections — non-securitized | $61 | $115 | $76 |
| Vacation ownership notes receivable collections — securitized | 432 | 271 | 194 |
| Vacation ownership notes receivable originations | (817) | (630) | (466) |
| Vacation ownership notes receivable collections less than originations | $(324) | $(244) | $(196) |

Vacation ownership notes receivable collections include principal from non-securitized and securitized vacation ownership notes receivable. Vacation ownership notes receivable collections increased in 2019 compared to 2018 due to an increase in the portfolio of outstanding vacation ownership notes receivable, including full-year collections on the portfolio acquired in 2018 as part of the ILG Acquisition. Vacation ownership notes receivable originations in 2019 increased due to higher vacation ownership contract sales combined with a slight increase in financing propensity to 63 percent compared to 62 percent for 2018.

#### Cash from Investing Activities

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| Acquisition of a business, net of cash and restricted cash acquired | $— | $(1,393) | $— |
| Disposition of subsidiary shares to noncontrolling interest holder | — | 40 | — |
| Proceeds from collection of notes receivable | 38 | — | — |
| Capital expenditures for property and equipment (excluding inventory) | (46) | (40) | (26) |
| Purchase of company owned life insurance | (6) | (14) | (12) |
| Dispositions, net | 51 | — | — |
| Net cash, cash equivalents and restricted cash provided by (used in) investing activities | $37 | $(1,407) | $(38) |

#### Acquisition of a Business, Net of Cash and Restricted Cash Acquired

Cash outflows of $1.4 billion in 2018 were due to the ILG Acquisition. See Footnote 3 “Acquisitions and Dispositions” to our Financial Statements for more information.

#### Disposition of Subsidiary Shares to Noncontrolling Interest

As part of the ILG Acquisition, we acquired a 75.5 percent interest in VRI Europe Limited (“VRI Europe”), a joint venture comprised of a European vacation ownership resort management business, which was consolidated by MVW under the voting interest model. During the fourth quarter of 2018, we sold our interest in VRI Europe to an affiliate of the noncontrolling interest holder for our book value of $63 million, of which $40 million in cash proceeds was received in 2018. In addition, we recorded total receivables of $23 million relating to this transaction, which was received in 2019 and is included in the Proceeds from collection of notes receivable line on our Cash Flows as discussed below.

#### Proceeds from Collection of Notes Receivable

During 2019, we collected $23 million of notes receivable related to the disposition of our interest in VRI Europe during the fourth quarter of 2018. In addition, we also collected a $15 million note receivable acquired in the ILG Acquisition.

#### Capital Expenditures for Property and Equipment

Capital expenditures for property and equipment relate to spending for technology development, buildings and equipment used at sales locations and ancillary offerings, such as food and beverage offerings, at locations where such offerings are provided. Additionally, it includes spending related to maintenance of buildings and equipment used in common areas at some of our resorts.

In 2019, capital expenditures for property and equipment of $46 million included $32 million to support business operations (including $19 million for ancillary and other operations assets and $13 million for sales locations) and $14 million for technology spending.

In 2018, capital expenditures for property and equipment of $40 million included $29 million to support business operations (including $19 million for ancillary and other operations assets and $10 million for sales locations) and $11 million for technology spending.

#### Purchase of Company Owned Life Insurance

To support our ability to meet a portion of our obligations under the Marriott Vacations Worldwide Corporation Deferred Compensation Plan (the “Deferred Compensation Plan”), we acquired company owned insurance policies on the lives of certain participants in the Deferred Compensation Plan, the proceeds of which are intended to be aligned with the investment alternatives elected by plan participants as discussed in Footnote 2 “Summary of Significant Accounting Policies” to our Financial Statements. During 2019 and 2018, we paid $6 million and $14 million, respectively, to acquire these policies.

#### Dispositions, net

Dispositions of $51 million during 2019 related to our dispositions of excess land parcels in Cancun, Mexico and Avon, Colorado as part of our strategic decision to reduce holdings in markets where we have excess supply. See discussion included in Footnote 3 “Acquisitions and Dispositions” to our Financial Statements for additional information.

We did not have any significant dispositions of property and assets in 2018.

#### Cash from Financing Activities

*($ in millions)*

|  | Fiscal Years 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: |
| Borrowings from securitization transactions | $1,026 | $539 | $400 |
| Repayment of debt related to securitization transactions | (880) | (382) | (293) |
| Proceeds from debt | 935 | 1,690 | 318 |
| Repayments of debt | (820) | (215) | (88) |
| Finance lease payment | (12) | — | — |
| Purchase of convertible note hedges | — | — | (33) |
| Proceeds from issuance of warrants | — | — | 20 |
| Debt issuance costs | (20) | (34) | (15) |
| Repurchase of common stock | (465) | (96) | (88) |
| Payment of dividends | (81) | (51) | (38) |
| Payment of withholding taxes on vesting of restricted stock units | (15) | (18) | (11) |
| Other, net | 1 | — | (1) |
| Net cash, cash equivalents and restricted cash (used in) provided by financing activities | $(331) | $1,433 | $171 |

#### Borrowings from / Repayment of Debt Related to Securitization Transactions

We reflect proceeds from securitizations of vacation ownership notes receivable, including draw downs on the Warehouse Credit Facility, as “Borrowings from securitization transactions.” We reflect repayments of bonds associated with vacation ownership notes receivable securitizations and repayments on the Warehouse Credit Facility (including vacation ownership notes receivable repurchases) as “Repayment of debt related to securitization transactions.”

We account for our securitizations of vacation ownership notes receivable as secured borrowings and therefore do not recognize a gain or loss as a result of the transaction. The results of operations for the securitization entities are consolidated within our results of operations as these entities are variable interest entities for which we are the primary beneficiary.

During the second quarter of 2019, we completed the securitization of a pool of $459 million of vacation ownership notes receivable. In connection with the securitization, investors purchased in a private placement, $450 million in vacation ownership loan backed notes from MVW 2019-1 LLC (the “2019-1 LLC”). Three classes of vacation ownership loan backed notes were issued by the 2019-1 LLC: $350 million of Class A Notes, $67 million of Class B Notes and $33 million of Class C Notes. The Class A Notes have an interest rate of 2.89 percent, the Class B Notes have an interest rate of 3.00 percent and the Class C Notes have an interest rate of 3.33 percent, for an overall weighted average interest rate of 2.94 percent.

We completed two securitization transactions during the fourth quarter of 2019. In October 2019, we completed the securitization of a pool of $315 million of vacation ownership notes receivable. In connection with the securitization, investors purchased in a private placement $309 million in vacation ownership loan backed notes from MVW 2019-2 LLC (the “2019-2 LLC”). Three classes of vacation ownership loan backed notes were issued by the 2019-2 LLC: $232 million of Class A Notes, $54 million of Class B Notes and $23 million of Class C Notes. The Class A Notes have an interest rate of 2.22 percent, the Class B Notes have an interest rate of 2.44 percent and the Class C Notes have an interest rate of 2.68 percent, for an overall weighted average interest rate of 2.29 percent.

Additionally, in December 2019, we completed the securitization of a pool of $90 million of primarily Asia-Pacific vacation ownership notes receivable that we previously classified as not eligible for securitization. In connection with the securitization, an investor purchased in a private placement $65 million in vacation ownership loan backed notes from Vacanza 2019-A LLC with an interest rate of 4.42%. The securitized loans previously were classified as not eligible for securitization using criteria applicable to then current securitization transactions in the ABS market because they did not meet certain representation criteria required in such securitizations, or because of other factors that may have reflected investor demand in a securitization transaction.

#### Proceeds from / Repayments of Debt

#### Borrowings from / Repayment of Revolving Corporate Credit Facility

During 2019, we borrowed $585 million under our Revolving Corporate Credit Facility to facilitate the funding of our short-term working capital needs, of which $555 million was repaid during 2019. As of December 31, 2019, $30 million was outstanding under our Revolving Corporate Credit Facility.

During 2018, we borrowed $40 million under our Revolving Corporate Credit Facility to facilitate the funding of our short-term working capital needs, all of which was repaid as of December 31, 2018.

See Footnote 14 “Debt” to our Financial Statements for additional information regarding our Revolving Corporate Credit Facility.

#### Proceeds from Senior Unsecured Debt and Term Loan

During 2019, we issued $350 million of senior unsecured notes, the 2028 Notes, under an indenture dated October 1, 2019 with The Bank of New York Mellon Trust, as trustee. The net proceeds from the 2028 Notes were used (i) to redeem all of the outstanding IAC Notes, (ii) to redeem all of the outstanding Exchange Notes, (iii) to repay a portion of the outstanding borrowings under our Revolving Corporate Credit Facility, (iv) to pay transaction expenses and fees in connection with each of the foregoing and (v) for general corporate purposes.

During 2018, in connection with the ILG Acquisition, we issued $750 million of senior unsecured notes, the 2026 Notes, and borrowed $900 million under a Term Loan, which was included as part of our Corporate Credit Facility.

See Footnote 14 “Debt” to our Financial Statements for additional information on these transactions.

#### Repayments of Non-interest Bearing Note Payable

During 2019, we paid the last installment of $31 million on a non-interest bearing note payable related to the acquisition of 112 completed vacation ownership units located on the Big Island of Hawaii in 2017. During 2018, we paid $33 million on this non-interest bearing note payable.

#### Debt Issuance Costs

In 2019, we incurred $20 million of debt issuance costs, which included $12 million associated with the 2019 vacation ownership notes receivable securitizations, $5 million associated with the issuance of Senior Unsecured Notes, $2 million associated with the amendment and extension of the Warehouse Credit Facility, and $1 million related to the amendment of the Revolving Corporate Credit Facility.

In 2018, we incurred $34 million of debt issuance costs, which included $13 million associated with the Term Loan, $9 million associated with the issuance of Senior Unsecured Notes, $6 million associated with the 2018 vacation ownership notes receivable securitizations, $4 million related to the current $600 million Revolving Corporate Credit Facility, $1 million associated with the amendment and extension of the Warehouse Credit Facility and $1 million associated with the issuance of the Exchange Notes.

#### 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, 2018 | 11,687,774 | $793 | $67.85 |
| For the year ended December 31, 2019 | 4,731,176 | 465 | 98.24 |
| As of December 31, 2019 | 16,418,950 | $1,258 | $76.60 |

See Footnote 15 “Shareholders' Equity” to our Financial Statements for further information related to our share repurchase program.

#### Payment of Dividends to Common Shareholders

We distributed cash dividends to holders of common stock for the year ended December 31, 2019 as follows:

| Declaration Date | Shareholder Record Date | Distribution Date | Dividend per Share |
| --- | --- | --- | ---: |
| December 6, 2018 | December 20, 2018 | January 3, 2019 | $0.45 |
| February 15, 2019 | February 28, 2019 | March 14, 2019 | $0.45 |
| May 9, 2019 | May 23, 2019 | June 6, 2019 | $0.45 |
| September 5, 2019 | September 19, 2019 | October 3, 2019 | $0.45 |

On December 9, 2019, our Board of Directors declared a quarterly dividend of $0.54 per share that was paid on January 6, 2020 to shareholders of record as of December 23, 2019. On February 14, 2020, subsequent to the end of 2019, our Board of Directors declared a quarterly dividend of $0.54 per share to be paid on March 12, 2020 to shareholders of record as of February 27, 2020.

We currently expect to pay quarterly cash 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 dividend payments. The payment of certain cash dividends may also result in an adjustment to the conversion rate of the Convertible Notes in a manner adverse to us. Accordingly, there can be no assurance that we will pay dividends in the future at the same rate or at all.

#### Contractual Obligations and Off-Balance Sheet Arrangements

The following table summarizes our contractual obligations as of December 31, 2019:

*($ in millions)*

| Contractual Obligations | Total | Payments Due by Period Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | More Than 5 Years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Debt(1) | $5,180 | $375 | $977 | $741 | $3,087 |
| Purchase obligations(2) | 466 | 232 | 196 | 38 | — |
| Operating lease obligations | 230 | 34 | 44 | 36 | 116 |
| Finance lease obligations(3) | 14 | 11 | 3 | — | — |
| Other long-term obligations(4) | 43 | 23 | 14 | 3 | 3 |
| Total contractual obligations | $5,933 | $675 | $1,234 | $818 | $3,206 |

(1) Includes principal as well as interest payments and excludes unamortized debt discount and issuance costs.

(2) 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.

(3) Includes interest.

(4) Primarily relates to future guaranteed purchases of rental inventory, operational support services, marketing related benefits, membership fulfillment benefits and other commitments.

In the normal course of our resort management business, we enter into purchase commitments on behalf of property 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.

#### Leases That Have Not Yet Commenced

Subsequent to the end of 2019, we entered into a finance lease arrangement for a new corporate office building in Orlando, Florida. The new Orlando corporate office building is expected to be completed in 2021, 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 $129 million for the aforementioned period.

### Recent Accounting Pronouncements

See Footnote 2 “Summary of Significant Accounting Policies,” to our Financial Statements for information regarding accounting standards adopted in 2019 and other new accounting standards that were issued but not effective as of December 31, 2019.

### Critical Accounting Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. Management considers an accounting estimate to be critical if: (1) it requires assumptions to be made that are uncertain at the time the estimate is made; and (2) changes in the estimate, or different estimates that could have been selected, could have a material effect on our results of operations or financial condition.

While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information presently available. Actual results may differ significantly. Additionally, changes in our assumptions, estimates or assessments as a result of unforeseen events or otherwise could have a material impact on our consolidated financial position or results of operations.

See Footnote 2 “Summary of Significant Accounting Policies,” to our Financial Statements for further information on accounting policies that we believe to be critical, including our policies on:

*Revenue recognition*, including how we recognize revenue under Accounting Standards Codification (“ASC”) Topic 606, “*Revenue from Contracts with Customers” (“*ASC 606”);

*Purchase price allocations of business combinations*, which is also discussed in Footnote 3 “Acquisitions and Dispositions” to our Financial Statements;

*Inventories and cost of vacation ownership products,* which requires estimation of future revenues, including incremental revenues from future price increases or from the sale of reacquired inventory resulting from defaulted vacation ownership notes receivable, and development costs to apply a relative sales value method specific to the vacation ownership industry and how we evaluate the fair value of our vacation ownership inventory;

*Valuation of right-of-use assets and lease liabilities*, including determination of lease term which may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option, as further described in Footnote 2 “Summary of Significant Accounting Policies” to our Financial Statements;

*Valuation of property and equipment*, including when we record impairment losses;

*Valuation of goodwill and intangible assets*, including when we record impairment losses;

*Accounting for acquired vacation ownership notes receivable*, which is also discussed in Footnote 6 “Vacation Ownership Notes Receivable” to our Financial Statements;

*Loss contingencies*, including information on how we account for loss contingencies; and

*Income taxes*, including information on how we determine our current year amounts payable or refundable, as well as our estimate of deferred tax assets and liabilities.

## Market risk

As filed, 3,263 characters.

#### Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risk from changes in interest rates, currency exchange rates, and debt prices. We manage our exposure to these risks by monitoring available financing alternatives, through pricing policies that may take into account currency exchange rates, and by entering into derivative arrangements.

We are exposed to interest rate risk through borrowings on our Warehouse Credit Facility and our Corporate Credit Facility, which includes our Revolving Corporate Credit Facility and our Term Loan, as these facilities bear interest at variable rates. All other interest bearing debt, including securitized debt, incurs interest at fixed rates. Changes in interest rates also impact the fair value of our fixed-rate notes receivable and our fixed-rate debt.

The following table sets forth the scheduled maturities and the total fair value as of year-end 2019 for our financial instruments that are impacted by market risks:

*($ in millions)*

*Assets – Maturities represent expected principal receipts; fair values represent assets*

|  | Average Interest Rate 2020 | Maturities by Period 2021 | 2022 | 2023 | 2024 | Thereafter | Total Carrying Value | Total Fair Value |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Originated vacation ownership notes receivable — non-securitized | 12.5% | $45 | $36 | $34 | $32 | $33 | $236 | $416 | $426 |
| Originated vacation ownership notes receivable — securitized | 12.6% | $135 | $139 | $142 | $143 | $143 | $676 | $1,378 | $1,399 |
| Acquired vacation ownership notes receivable — non-securitized | 13.4% | $7 | $6 | $7 | $7 | $7 | $33 | $67 | $67 |
| Acquired vacation ownership notes receivable — securitized | 13.5% | $48 | $45 | $45 | $45 | $43 | $146 | $372 | $372 |
| **Liabilities – Maturities represent expected principal payments; fair values represent liabilities** |  |  |  |  |  |  |  |  |  |
| Securitized debt | 2.9% | $(189) | $(195) | $(199) | $(216) | $(202) | $(890) | $(1,891) | $(1,924) |
| Senior Unsecured Notes |  |  |  |  |  |  |  |  |  |
| 2026 Notes | 6.5% | $— | $— | $— | $— | $— | $(750) | $(750) | $(824) |
| 2028 Notes | 4.8% | $— | $— | $— | $— | $— | $(350) | $(350) | $(358) |
| Term Loan | 3.5% | $(9) | $(9) | $(9) | $(9) | $(9) | $(848) | $(893) | $(899) |
| Revolving Corporate Credit Facility | 3.7% | $— | $— | $— | $(30) | $— | $— | $(30) | $(27) |
| Convertible Notes | 4.7% | $— | $— | $(230) | $— | $— | $— | $(230) | $(247) |

We are exposed to currency exchange rate risk through investments in foreign subsidiaries that transact business in a currency other than the U.S. dollar and through the revaluation of assets and liabilities denominated in a currency other than the functional currency.

We use derivative instruments as part of our overall strategy to manage our exposure to market risks associated with fluctuations in interest rates and currency exchange rates. As a matter of policy, we only enter into transactions that we believe will be highly effective at offsetting the underlying risk and we do not use derivatives for trading or speculative purposes. However, we cannot assure you that these transactions will be as effective as we anticipate.

## Controls and procedures

As filed, 3,028 characters.

#### Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report, we evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act), and management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which by their nature, can provide only reasonable assurance about management’s control objectives. Our disclosure controls and procedures have been designed to provide reasonable assurance of achieving the desired control objectives. However, you should note that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Based upon the foregoing evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2019, our disclosure controls and procedures were effective and operating to provide reasonable assurance that we record, process, summarize and report the information we are required to disclose in the reports that we file or submit under the Exchange Act within the time periods specified in the rules and forms of the SEC, and to provide reasonable assurance that we accumulate and communicate such information to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions about required disclosure.

#### Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). We have set forth management’s annual report on internal control over financial reporting and the independent registered public accounting firm’s report on the effectiveness of our internal control over financial reporting in Part II, Item 8 of this Annual Report, and we incorporate those reports by reference.

#### Changes in Internal Control Over Financial Reporting

We made no changes in our internal control over financial reporting during the fourth quarter of 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, other than changes in control over financial reporting to integrate the business we acquired in the ILG Acquisition, which included the acquisition of our Exchange & Third-Party Management segment. In the fourth quarter of 2019, we migrated a portion of the Exchange & Third-Party Management segment to our existing general ledger system; the remainder of the Exchange & Third-Party Management segment was migrated subsequent to the end of the fourth quarter of 2019.

Filed Mar 2, 2020.
Source: SEC EDGAR, the filing index for accession 0001524358-20-000011. Last ingested by Listed: Oct 24, 2026, 15:13 ET. No prices; not investment advice.