Table of Contents
UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_________ to ________

Commission file number 001-37794

Hilton Grand Vacations Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

81-2545345

Delaware

81-2545345
(State or Other Jurisdiction of

(I.R.S. Employer


Incorporation or Organization)

(I.R.S. Employer
Identification No.)

6355 MetroWest Boulevard, Suite 180,

Orlando, Florida

32835

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s Telephone Number, Including Area Code (407) 613-3100

(Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareHGVNew York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes x No

o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No

o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer

x

Accelerated Filer

o

Non-Accelerated Filer

(Do not check if a smaller reporting company)

o

Smaller Reporting Company

o

Emerging Growth Company

o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, as of October 27, 2017November 4, 2022 was 99,088,973.

115,057,769.


Table of Contents
HILTON GRAND VACATIONS INC.

FORM 10-Q TABLE OF CONTENTS

2

19

33

34

35

35

37

37

37

37

Item 6.

38




Table of Contents
PART I FINANCIALFINANCIAL INFORMATION

Item 1.

Item 1.    Financial Statements

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

 

September 30,

 

 

December 31,

 

 

2017

 

 

2016

 

September 30,
2022
December 31,
2021

 

(unaudited)

 

 

 

 

 

(unaudited)

ASSETS

 

 

 

 

 

 

 

 

ASSETS

Cash and cash equivalents

 

$

226

 

 

$

48

 

Cash and cash equivalents$425 $432 

Restricted cash

 

 

58

 

 

 

103

 

Restricted cash319 263 

Accounts receivable, net of allowance for doubtful accounts of $10 and $6

 

 

104

 

 

 

123

 

Accounts receivable, net of allowance for doubtful accounts of $40 and $39Accounts receivable, net of allowance for doubtful accounts of $40 and $39398 302 

Timeshare financing receivables, net

 

 

1,055

 

 

 

1,025

 

Timeshare financing receivables, net1,743 1,747 

Inventory

 

 

475

 

 

 

513

 

Inventory1,145 1,240 

Property and equipment, net

 

 

266

 

 

 

256

 

Property and equipment, net776 756 

Investment in unconsolidated affiliate

 

 

41

 

 

 

 

Operating lease right-of-use assets, netOperating lease right-of-use assets, net56 70 
Investments in unconsolidated affiliatesInvestments in unconsolidated affiliates69 59 
GoodwillGoodwill1,416 1,377 

Intangible assets, net

 

 

72

 

 

 

70

 

Intangible assets, net1,318 1,441 
Land and infrastructure held for saleLand and infrastructure held for sale— 41 

Other assets

 

 

51

 

 

 

42

 

Other assets381 280 

TOTAL ASSETS (variable interest entities - $500 and $258)

 

$

2,348

 

 

$

2,180

 

TOTAL ASSETS (variable interest entities - $974 and $1,100)TOTAL ASSETS (variable interest entities - $974 and $1,100)$8,046 $8,008 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY  

Liabilities:

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses and other

 

$

324

 

 

$

231

 

Accounts payable, accrued expenses and other$978 $673 

Advanced deposits

 

 

102

 

 

 

103

 

Advanced deposits138 112 

Debt

 

 

484

 

 

 

490

 

Non-recourse debt

 

 

612

 

 

 

694

 

Debt, netDebt, net2,612 2,913 
Non-recourse debt, netNon-recourse debt, net1,161 1,328 
Operating lease liabilitiesOperating lease liabilities74 87 

Deferred revenues

 

 

119

 

 

 

106

 

Deferred revenues223 237 

Deferred income tax liabilities

 

 

374

 

 

 

389

 

Deferred income tax liabilities703 670 

Total liabilities (variable interest entities - $484 and $245)

 

 

2,015

 

 

 

2,013

 

Commitments and contingencies - see Note 15

 

 

 

 

 

 

 

 

Total liabilities (variable interest entities - $1,171 and $1,199)Total liabilities (variable interest entities - $1,171 and $1,199)5,889 6,020 
Commitments and contingencies - see Note 21Commitments and contingencies - see Note 21  

Equity:

 

 

 

 

 

 

 

 

Equity:  

Preferred stock, $0.01 par value; 300,000,000 authorized shares, none issued or

outstanding as of September 30, 2017 and December 31, 2016

 

 

 

 

 

 

Common stock, $0.01 par value; 3,000,000,000 authorized shares, 99,088,973

issued and outstanding as of September 30, 2017 and 98,802,597 issued and

outstanding as of December 31, 2016

 

 

1

 

 

 

1

 

Preferred stock, $0.01 par value; 300,000,000 authorized shares, none issued or outstanding as of September 30, 2022 and December 31, 2021Preferred stock, $0.01 par value; 300,000,000 authorized shares, none issued or outstanding as of September 30, 2022 and December 31, 2021— — 
Common stock, $0.01 par value; 3,000,000,000 authorized shares, 116,387,235 shares issued and outstanding as of September 30, 2022 and 119,904,001 shares issued and outstanding as of December 31, 2021Common stock, $0.01 par value; 3,000,000,000 authorized shares, 116,387,235 shares issued and outstanding as of September 30, 2022 and 119,904,001 shares issued and outstanding as of December 31, 2021

Additional paid-in capital

 

 

160

 

 

 

138

 

Additional paid-in capital1,607 1,630 

Accumulated retained earnings

 

 

172

 

 

 

28

 

Accumulated retained earnings517 357 
Accumulated other comprehensive incomeAccumulated other comprehensive income32 — 

Total equity

 

 

333

 

 

 

167

 

Total equity2,157 1,988 

TOTAL LIABILITIES AND EQUITY

 

$

2,348

 

 

$

2,180

 

TOTAL LIABILITIES AND EQUITY$8,046 $8,008 

See notes to unaudited condensed consolidated financial statements.


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Table of Contents
HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in millions, except per share amounts)

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

Three Months Ended September 30,Nine Months Ended September 30,

 

2017

 

 

2016

 

 

2017

 

 

2016

 

2022202120222021

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

Sales of VOIs, net

 

$

145

 

 

$

130

 

 

$

406

 

 

$

359

 

Sales of VOIs, net$500 $488 $1,130 $597 

Sales, marketing, brand and other fees

 

 

127

 

 

 

136

 

 

 

401

 

 

 

382

 

Sales, marketing, brand and other fees177 118 457 252 

Financing

 

 

38

 

 

 

34

 

 

 

109

 

 

 

100

 

Financing68 53 196 127 

Resort and club management

 

 

37

 

 

 

33

 

 

 

108

 

 

 

98

 

Resort and club management130 99 379 192 

Rental and ancillary services

 

 

45

 

 

 

41

 

 

 

138

 

 

 

135

 

Rental and ancillary services159 112 466 198 

Cost reimbursements

 

 

34

 

 

 

33

 

 

 

102

 

 

 

94

 

Cost reimbursements82 58 215 131 

Total revenues

 

 

426

 

 

 

407

 

 

 

1,264

 

 

 

1,168

 

Total revenues1,116 928 2,843 1,497 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

Cost of VOI sales

 

 

40

 

 

 

44

 

 

 

107

 

 

 

110

 

Cost of VOI sales102 130 207 154 

Sales and marketing

 

 

171

 

 

 

157

 

 

 

492

 

 

 

443

 

Sales and marketing322 234 849 432 

Financing

 

 

11

 

 

 

8

 

 

 

32

 

 

 

24

 

Financing25 19 66 43 

Resort and club management

 

 

12

 

 

 

9

 

 

 

32

 

 

 

25

 

Resort and club management45 26 118 45 

Rental and ancillary services

 

 

30

 

 

 

30

 

 

 

88

 

 

 

86

 

Rental and ancillary services144 84 426 151 

General and administrative

 

 

23

 

 

 

24

 

 

 

75

 

 

 

61

 

General and administrative50 41 158 92 
Acquisition and integration-related expenseAcquisition and integration-related expense19 54 49 83 

Depreciation and amortization

 

 

7

 

 

 

6

 

 

 

21

 

 

 

17

 

Depreciation and amortization57 48 181 71 

License fee expense

 

 

22

 

 

 

22

 

 

 

65

 

 

 

61

 

License fee expense33 24 90 57 
Impairment expenseImpairment expense— — 

Cost reimbursements

 

 

34

 

 

 

33

 

 

 

102

 

 

 

94

 

Cost reimbursements82 58 215 131 

Total operating expenses

 

 

350

 

 

 

333

 

 

 

1,014

 

 

 

921

 

Total operating expenses879 719 2,359 1,261 

Gain on foreign currency transactions

 

 

1

 

 

 

1

 

 

 

1

 

 

 

2

 

Allocated Parent interest expense

 

 

 

 

 

(7

)

 

 

 

 

 

(20

)

Interest expense

 

 

(7

)

 

 

 

 

 

(21

)

 

 

 

Interest expense(37)(42)(105)(74)

Equity in earnings from unconsolidated affiliate

 

 

1

 

 

 

 

 

 

1

 

 

 

 

Other loss, net

 

 

 

 

 

 

 

 

 

 

 

(1

)

Equity in earnings from unconsolidated affiliatesEquity in earnings from unconsolidated affiliates
Other gain (loss), netOther gain (loss), net(20)(22)

Income before income taxes

 

 

71

 

 

 

68

 

 

 

231

 

 

 

228

 

Income before income taxes204 148 389 147 

Income tax expense

 

 

(28

)

 

 

(33

)

 

 

(87

)

 

 

(98

)

Income tax expense(54)(49)(115)(46)

Net income

 

$

43

 

 

$

35

 

 

$

144

 

 

$

130

 

Net income$150 $99 $274 $101 

Earnings per share:(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:Earnings per share:

Basic

 

$

0.43

 

 

$

0.35

 

 

$

1.45

 

 

$

1.31

 

Basic$1.25 $0.92 $2.26 $1.08 

Diluted

 

$

0.43

 

 

$

0.35

 

 

$

1.44

 

 

$

1.31

 

Diluted$1.24 $0.90 $2.23 $1.07 

(1)

For the three and nine months ended September 30, 2016, basic and diluted earnings per share was calculated based on shares distributed to Hilton Grand Vacations’ stockholders on January 3, 2017. See Note 12: Earnings Per Share for additional information.

See notes to unaudited condensed consolidated financial statements.


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Table of Contents
HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSCOMPREHENSIVE INCOME (UNAUDITED)

(in millions)

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

144

 

 

$

130

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

21

 

 

 

17

 

Amortization of deferred financing costs and other

 

 

4

 

 

 

3

 

Provision for loan losses

 

 

45

 

 

 

37

 

Other loss, net

 

 

 

 

 

1

 

Gain on foreign currency transactions

 

 

(1

)

 

 

(2

)

Share-based compensation

 

 

13

 

 

 

 

Deferred income (benefit) taxes

 

 

(5

)

 

 

12

 

Equity in earnings from unconsolidated affiliate

 

 

(1

)

 

 

 

Net changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivables, net

 

 

19

 

 

 

(28

)

Timeshare financing receivables, net

 

 

(75

)

 

 

(52

)

Inventory

 

 

38

 

 

 

(10

)

Other assets

 

 

(11

)

 

 

(7

)

Accounts payable, accrued expenses and other

 

 

96

 

 

 

17

 

Advanced deposits

 

 

(1

)

 

 

6

 

Deferred revenues

 

 

13

 

 

 

10

 

Other

 

 

 

 

 

(1

)

Net cash provided by operating activities

 

 

299

 

 

 

133

 

Investing Activities

 

 

 

 

 

 

 

 

Capital expenditures for property and equipment

 

 

(25

)

 

 

(16

)

Software capitalization costs

 

 

(12

)

 

 

(5

)

Investment in unconsolidated affiliate

 

 

(40

)

 

 

 

Net cash used in investing activities

 

 

(77

)

 

 

(21

)

Financing Activities

 

 

 

 

 

 

 

 

Issuance of non-recourse debt

 

 

350

 

 

 

 

Repayment of non-recourse debt

 

 

(428

)

 

 

(85

)

Repayment of debt

 

 

(7

)

 

 

 

Debt issuance costs

 

 

(5

)

 

 

(6

)

Allocated Parent debt activity

 

 

 

 

 

111

 

Net transfers to Parent

 

 

 

 

 

(114

)

Proceeds from stock option exercises

 

 

1

 

 

 

 

Net cash used in financing activities

 

 

(89

)

 

 

(94

)

Net increase in cash, cash equivalents and restricted cash

 

 

133

 

 

 

18

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

151

 

 

 

79

 

Cash, cash equivalents and restricted cash, end of period

 

$

284

 

 

$

97

 

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Net income$150 $99 $274 $101 
Derivative instrument adjustments, net of tax17 — 49 — 
Foreign currency translation adjustments(11)— (17)— 
Other comprehensive income, net of tax— 32 — 
Comprehensive income$156 $99 $306 $101 

See notes to unaudited condensed consolidated financial statements.


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Table of Contents
HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITYCASH FLOWS (UNAUDITED)

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Equity

 

Balance as of December 31, 2016

 

 

99

 

 

$

1

 

 

$

138

 

 

$

28

 

 

$

167

 

Net income

 

 

 

 

 

 

 

 

 

 

 

144

 

 

 

144

 

Deferred intercompany transaction (1)

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

9

 

Activity related to share-based compensation

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

11

 

Other

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Balance as of September 30, 2017

 

 

99

 

 

$

1

 

 

$

160

 

 

$

172

 

 

$

333

 

Nine Months Ended September 30,
20222021
Operating Activities
Net income$274 $101 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization181 71 
Amortization of deferred financing costs, acquisition premiums and other34 19 
Provision for financing receivables losses103 77 
Impairment expense— 
Other loss, net
Share-based compensation40 32 
Deferred income tax (benefit) expense(1)
Equity in earnings from unconsolidated affiliates(9)(7)
Return on investment in unconsolidated affiliates— 
Net changes in assets and liabilities:
Accounts receivable, net(64)(102)
Timeshare financing receivables, net(141)(36)
Inventory101 (11)
Purchases and development of real estate for future conversion to inventory(4)(25)
Other assets(21)62 
Accounts payable, accrued expenses and other257 
Advanced deposits25 (5)
Deferred revenues(13)(165)
Net cash provided by operating activities763 36 
Investing Activities
Acquisition of Diamond, net of cash and restricted cash acquired— (1,585)
Capital expenditures for property and equipment(25)(11)
Software capitalization costs(26)(14)
Net cash used in investing activities(51)(1,610)
Financing Activities
Issuance of debt— 2,650 
Issuance of non-recourse debt671 96 
Repayment of debt(310)(843)
Repayment of non-recourse debt(824)(234)
Debt issuance costs and discounts(12)(61)
Repurchase and retirement of common stock(162)— 
Payment of withholding taxes on vesting of restricted stock units(8)(5)
Proceeds from employee stock plan purchases
Proceeds from stock option exercises10 
Other financing activity(2)(2)
Net cash (used in) provided by financing activities(644)1,612 
Effect of changes in exchange rates on cash, cash equivalents & restricted cash(19)— 
Net increase in cash, cash equivalents and restricted cash49 38 
Cash, cash equivalents and restricted cash, beginning of period695 526 
Cash, cash equivalents and restricted cash, end of period$744 $564 

(1)

Refer to Note 10: Income Taxes for further discussion.

See notes to unaudited condensed consolidated financial statements.


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Table of Contents

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in millions)
Common StockAdditional
Paid-in
Capital
Accumulated
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total
Equity
SharesAmount
Balance as of December 31, 2021120 $$1,630 $357 $— $1,988 
Net income— — — 51 — 51 
Derivative instrument adjustments, net of tax— — — — 22 22 
Activity related to share-based compensation— — — — 
Balance as of March 31, 2022120 $$1,634 $408 $22 $2,065 
Net income— — — 73 — 73 
Derivative instrument adjustments, net of tax— — — — 10 10 
Foreign currency translation adjustments— — — — (6)(6)
Activity related to share-based compensation— — 16 — — 16 
Employee stock plan issuance— — — — 
Repurchase and retirement of common stock(2)— (26)(57)— (83)
Balance as of June 30, 2022118 $$1,626 $424 $26 $2,077 
Net income— — — 150 — 150 
Derivative instrument adjustments, net of tax— — — — 17 17 
Foreign currency translation adjustments— — — — (11)(11)
Activity related to share-based compensation— — 13 — — 13 
Repurchase and retirement of common stock(2)— (32)(57)— (89)
Balance at September 30, 2022116 $$1,607 $517 $32 $2,157 
See notes to unaudited condensed consolidated financial statements.








5

Table of Contents
HILTON GRAND VACATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(Continued) (in millions)

Common StockAdditional
Paid-in
Capital
Accumulated
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total
Equity
SharesAmount
Balance as of December 31, 202084 $$192 $181 $— $374 
Net loss— — — (7)— (7)
Activity related to share-based compensation— — — — 
Balance as of March 31, 202184 $$194 $174 $— $369 
Net income— — — — 
Activity related to share-based compensation— 18 — — 18 
Balance as of June 30, 202185 $$212 $183 $— $396 
Net income— — — 99 — 99 
Activity related to share-based compensation— 18 — — 18 
Shares issued for Diamond Acquisition34 — 1,381 — — 1,381 
Balance at September 30, 2021120 $$1,611 $282 $— $1,894 
See notes to unaudited condensed consolidated financial statements.
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Table of Contents
HILTON GRAND VACATIONS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Organization and Basis of Presentation

Our Spin-off from Hilton Worldwide Holdings Inc.

On January 3, 2017, the previously announced spin-off was completed by way of a pro rata distribution of Business

Hilton Grand Vacations Inc.’s (“Hilton Grand Vacations,” “we,” “us,” “our,” “HGV” or the “Company”) common stock to Hilton Worldwide Holdings Inc. (“Hilton”) stockholders. Each Hilton stockholder received one share of our common stock for every ten shares of Hilton common stock. As a result of the spin-off, we became a separate publicly-traded company on the New York Stock Exchange under the ticker symbol “HGV,” and Hilton did not retain any ownership interest in our company.

In connection with the completion of the spin-off, we entered into agreements with Hilton (who at the time was a related party) and other third parties, including licenses to use the Hilton brand. The unaudited condensed consolidated financial statements reflect the effect of these agreements. For the three months ended September 30, 2017 and 2016, we incurred $39 million and $46 million, respectively, and for the nine months ended September 30, 2017 and 2016, we incurred $137 million and $150 million, respectively, in costs relating to the agreements entered with Hilton. See Key Agreements Related to the Spin-Off section in Part I - Item 1. Business of our Annual Report on Form 10-K for the year ended December 31, 2016 for further information.

Prior to the spin-off, Hilton maintained a share-based compensation plan for the benefit of its officers, directors and employees which was presented as a component of Net transfers (to) from Parent, a financing activity, on the condensed consolidated statements of cash flows. Subsequent to the spin-off, share-based compensation expense is presented as a component of operating activities on the condensed consolidated statements of cash flows.

Our Business

Hilton Grand Vacations is a global timeshare company engaged in developing, marketing, selling and managing timeshare resorts, primarily under the Hilton Grand Vacations brand. During 2021, we acquired Dakota Holdings, Inc., the parent of Diamond Resorts International (“Diamond”)(the “Diamond Acquisition”), and are in the process of rebranding Diamond properties and sales centers to brands that meet Hilton standards. Our operations primarily consist of:of selling vacation ownership intervals (“VOIs”and vacation ownership interests (collectively, “VOIs” or “VOI”) for usourselves and third parties; operating resorts; financing and servicing loans provided to consumers for their timeshareVOI purchases; operating resorts and multi-resort trusts; and managing our points-based Hilton Grand Vacations Club and Hilton Club exchange program (collectively the “Legacy-HGV Club”) in addition to our Diamond points-based clubs (the “Club”Legacy-HGV Club and Diamond Clubs (as defined below) are collectively referred to as “Clubs”).

As of September 30, 2017,2022, we had 48 timeshare154 properties comprised of 8,101 units, located in the United States (“U.S.”), Europe, Mexico, the Caribbean, Canada and Europe.

Japan. A significant number of our properties and VOIs are concentrated in Florida, Nevada, Hawaii, Europe, California, Virginia and Arizona.

Diamond Acquisition
On August 2, 2021, we completed the Diamond Acquisition by exchanging 100 percent of the outstanding equity interests of Diamond for shares of HGV common stock. Pre-existing HGV shareholders owned approximately 72 percent of the combined company immediately after giving effect of the Diamond Acquisition, with certain funds controlled by Apollo Global Management Inc. (the “Apollo Funds” or, “Apollo”) and other minority shareholders, who previously owned 100 percent of Diamond, holding the remaining, approximately 28 percent at the time the Diamond Acquisition was completed.
Diamond also operates in the hospitality and VOI industry, with a worldwide resort network of global vacation destinations. Diamond’s portfolio consists of resort properties that we manage, are included in one of Diamond’s single- and multi-use trusts (collectively, the “Diamond Collections” or “Collections”), or are Diamond branded resorts in which we own inventory, as well as affiliated resorts and hotels, which we do not manage, and which do not carry the Diamond brand but are a part of Diamond’s network and, through THE Club® and other Club offerings (the “Diamond Clubs”), are available for its members to use as vacation destinations.
The unaudited condensed consolidated financial statements in this report include Diamond’s results of operations beginning on August 2, 2021. We refer to Diamond’s business and operations that we acquired as “Legacy-Diamond”, and our business and operations that existed both prior to and following the Diamond Acquisition as “Legacy-HGV.” See Note 3: Diamond Acquisition for more information.
Basis of Presentation

The unaudited condensed consolidated financial statements presented herein include 100 percent of our assets, liabilities, revenues, expenses and cash flows andas well as all entities in which we have a controlling financial interest. Through the date of the spin-off, theOur accompanying unaudited condensed consolidated financial statements presented herein were prepared onreflect all adjustments, including normal recurring items, considered necessary for a stand-alone basisfair presentation of the interim periods. All material intercompany transactions and were derived from the unaudited consolidated financial statements and accounting records of Hilton.

balances have been eliminated in consolidation.

The unaudited condensed consolidated financial statements reflect our financial position, results of operations and cash flows as prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Although we believe the disclosures made are adequate to prevent information presented from being misleading, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto as of and for the year ended December 31, 2016,2021, included in our Annual Report on Form 10-K filed with the SEC on March 2, 2017.

1, 2022.

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The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and, accordingly, ultimate results could differ from those estimates. Interim results are not necessarily indicative of full year performance.

The accompanyingdetermination of a controlling financial interest is based upon the terms of the governing agreements of the respective entities, including the evaluation of rights held by other interests. If the entity is considered to be a variable interest entity (“VIE”), we determine whether we are the primary beneficiary, and then consolidate those VIEs for which we have determined we are the primary beneficiary. If the entity in which we hold an interest does not meet the definition of a VIE, we evaluate whether we have a controlling financial interest through our voting interests in the entity. We consolidate entities when we own more than 50 percent of the voting shares of a company or otherwise have a controlling financial interest. The consolidated financial statements reflect our financial position, results of operations and cash flows as prepared in conformity with U.S. GAAP.
Note 2: Summary of Significant Accounting Policies
Reclassifications
Certain prior period amounts in the unaudited condensed consolidated financial statements in our opinion, reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods. All material intercompany transactions and balances have been eliminated in consolidation.

We review our estimate of the expected redemption of expired prepaid discounted vacation packages (“packages”) on an ongoing basis. We only reduce the liability for expired packages when a package is redeemed or the likelihood of redemption is remote. This review considers factors such as historical experience, current business practices for pursuing individualsreclassified to redeem


expired packages and the sufficiency and reliability of data available following a change in those redemption business practices. Previously, we concluded that redemption of an expired package was remote once a package had been expired for six months and therefore retained the liability until six months after expiration. During the review in the second quarter of 2017, we determined we then had sufficiently reliable updated information under current business practices to revise our estimate of expired packages that we expect to redeem. As a result during the second quarter of 2017, we changed our accounting estimate for expected redemptions of expired packages to relieve a portion of the remaining liability post expiration and recorded an $11 million reductionconform to the Advanced Deposits liability,current period presentation with corresponding increases to Sales, marketing, brandno effect on previously reported total assets and other fees revenue of $10 million and Accounts payable, accrued expenses and other for the related sales tax liability of $1 million. As a result, for the nine months ended September 30, 2017, ourtotal liabilities, net income increased by $10 million and basic and diluted earnings per share increased by $0.10.

Note 2: Significant Accounting Policies

Investments in Unconsolidated Affiliates

We account for investments in unconsolidated affiliates under the equity method of accounting when we exercise significant influence, but do not maintain a controlling financial interest over the affiliates. We evaluate our investments in affiliates for impairment when there are indicators that the fair value of our investment may be less than our carrying value.

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid investments with original maturities of three months or less.

stockholders’ equity.

Recently Issued Accounting Pronouncements

Adopted

Accounting Standards

Not Yet Adopted

In March 2016,2022, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards Update (“ASU”) No. 2016-092022-02 (“ASU 2016-09”2022-02”), Compensation - Stock Compensation Financial Instruments—Credit Losses (Topic 718)326): Improvements to Employee Share-Based Payment AccountingTroubled Debt Restructurings and Vintage Disclosures. ASU 2016-09 includes provisions intended to simplify several aspects2022-02 provides, under Issue 2 - Vintage Disclosures, that an entity disclose current-period gross write-offs by year of the accounting and presentation of share-based payments. These provisions include the recognition of the income tax effects of awards in the consolidated statement of operations when the awards vest or are settled, permitting an employer to withhold shares in an amount up to the employee’s maximum individual tax rate without resulting in liability classification of the award, permitting entities to make a policy election to accountorigination for forfeitures as they occur, and changes to the classification of tax-related cash flows resulting from share-based payments and cash payments made to taxing authorities on the employee’s behalf on the statement of cash flows. This ASU 2016-09 was effective for reporting periods beginning after December 15, 2016. We adopted ASU 2016-09 retrospectively as of January 1, 2017 and have applied to all periods herein with no material impact to our unaudited condensed consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, (“ASU 2016-18”) Statement of Cash Flows (Topic 230): Restricted Cash. This ASU is intended to provide guidance on the presentation of restricted cash or restricted cash equivalents and reduce the diversity in practice. This ASU requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts on the statement of cash flows. We elected, as permitted by the standard, to early adopt ASU 2016-18 retrospectively as of January 1, 2017 and have applied it to all periods presented herein. The adoption of ASU 2016-18 did not have a material impact to our unaudited condensed consolidated financial statements. The effect of the adoption of ASU 2016-18 on our condensed consolidated statements of cash flows was to include restricted cash balances in the beginning and end of period balances of cash and cash equivalent and restricted cash. The change in restricted cash was previously disclosed in operating activities and financing activities in the condensed consolidated statements of cash flows.

In January 2017, the FASB issued ASU No. 2017-01 (“ASU 2017-01”), Business Combinations (Topic 804): Clarifying the Definition of a Business. This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. We elected, as permitted by the standard, to early adopt ASU 2017-01 prospectively as of January 1, 2017. The adoption of ASU 2017-01 did not have a material impact to our unaudited condensed consolidated financial statements.

Accounting Standards Not Yet Adopted

In May 2014, the FASB issued ASU No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers (Topic 606). This ASU supersedes the revenue recognition requirements in Revenue Recognition (Topic 605), and requires entities to recognize revenue


in a way that depicts the transfer of promised goods orservices to customers in an amount that reflects the consideration to which the entity expects to be entitled inexchange for those goods or services. Subsequent to ASU 2014-09, the FASB has issued several related ASUs amending the original ASU.

The provisions of this ASU are to be applied retrospectively or using a modified retrospective approach for reporting periods beginning after December 15, 2017.   A determination as to whether we will apply the retrospective or modified retrospective adoption method will be made once our quantitative evaluation is complete and we commence quantifying the expected impacts later this year.

   We are currently evaluating the effect that this ASU will have on our consolidated financial statements by analyzing both transactional and analytical data for each of our revenue streams. The following is a status of our evaluation of impacts by significant revenue stream:

Sales of VOIs, net – We expect to recognize Sales of VOI, net when control of the VOI passes to the customer, which generally occurs shortly after the expiration of the purchaser’s period to cancel for a refund. We do not expect that this timing change will have a material impact on our accounting for Sales of VOIs, net. We expect our accounting for uncollectible timeshare financing receivables and net investments in leases. For financing receivables, the vintage disclosure is to remain unchanged.

We are still evaluatingpresent the impact on revenue recognition for salesamortized cost basis by credit quality indicator and class of VOIs that are under construction.

Sales, marketing, brand and other fees - We expect changes to the gross versus net presentation of certain sales incentives as sales incentives provided where we are acting as the agent (e.g., Hilton Honors) will be recognized on a net basis in Sales, marketing, brand and other fees. We expect this classification change to reduce Sales, marketing, brand and other fees and the related expenses by $29.7 millionfinancing receivable for the year ended December 31, 2016.

We plan to recognize the expected breakage on prepaid discounted vacation packages (“packages”) as revenue proportionately when our customers redeem their packages rather than when the likelihood of redemption is remote as we are entitled to the breakage amount. We are currently in the process of assessing the impact of this expected change.

We do not expect material changes to our accounting for our commissions, brand and other fees under fee-for-service arrangements.

Financing - We do not expect material changes to our accounting for financing revenues, as these revenues are out of the scope of Topic 606.

Resort and club management - We do not expect material changes to our accounting for ongoing management fees from our homeowners’ association management agreements and the fees earned from our Club members.

Rental and ancillary services - We do not expect significant changes to our revenue recognition of transient guest transactions, including rental and ancillary services.

Cost reimbursements - While we do not expect significant changes to the timing of recognition of cost reimbursements, we are still evaluating potential impacts to changes in presentation.

We expect immaterial impacts from changes to (i) timing of service fees charged on packages and (ii) classification of contract acquisition costs paid to fee-for-service customers.

We will continue to evaluate and disclose expected impacts that ASU 2014-09 will have on our unaudited condensed consolidated financial statements as more information becomes available.

In August 2016, the FASB issued ASU No. 2016-15 (“ASU 2016-15”), Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice.origination. The provisions of this ASU are effective for reporting periods beginning after December 15, 2017; early adoption is permitted. We are currently evaluating the effect that this ASU will have on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-03 (“ASU 2017-03”), Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323). ASU 2017-03 requires registrants to disclose the effect that recently issued accounting standards will have on their financial statements when adopted in a future period. The SEC staff expects the additional qualitative disclosures to include a description of the effect of the accounting policies that the registrant expects to apply, if


determined, and a comparison to the registrant’s current accounting policies. In addition, a registrant should describe the status of its process to implement the new standards and the significant implementation matters yet to be addressed. ASU 2017-03guidance is effective for fiscal years beginning after December 15, 2019, and2022, including interim periods within those fiscal years with early adoption permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.is to be applied prospectively. We are currently evaluating the effect thateffects of this ASU willto our disclosures.

Note 3: Diamond Acquisition
On August 2, 2021, (the “Acquisition Date”), we completed the Diamond Acquisition by exchanging 100 percent of the outstanding equity interests of Diamond to HGV common shares. Following the closing of the Diamond Acquisition, pre-existing HGV shareholders owned approximately 72 percent of the combined company after giving effect to the Diamond Acquisition, with Apollo Funds and other minority shareholders holding the remaining approximately 28 percent at the time the Diamond Acquisition was completed. Diamond is a leader in the vacation ownership industry focused on the infusion of hospitality and experiences through the full life cycle of an owner or members’ life cycle relationship with Diamond. This strategic combination creates a more expansive industry offering, leveraging HGV’s strong brand and net owner growth along with Diamond’s diverse network of locations and strength in experiential offerings. The acquisition also diversifies our product offerings and allows us to expand our customer demographic.
On the Acquisition Date, shareholders of Diamond received 0.32 shares of our common stock for each share of Diamond common stock, totaling approximately 28 percent of our total common shares outstanding. Additionally, in connection with the Diamond Acquisition, HGV repaid certain existing indebtedness of Diamond.
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The following table presents the fair value of each class of consideration transferred in relation to the Diamond Acquisition at the Acquisition Date:
($ in millions, except stock price amounts)
HGV common stock shares issued for outstanding Diamond shares33.93 
HGV common stock price as of Acquisition Date(1)
40.71 
Stock purchase price$1,381 
Repayment of Legacy-Diamond debt$2,029 
Total consideration transferred$3,410 
(1) Represents the average of the opening and closing price of HGV stock on August 2, 2021.
Fair Values of Assets Acquired and Liabilities Assumed
We accounted for the Diamond Acquisition as a business combination, which required us to record the assets acquired and liabilities assumed at fair value as of the Acquisition Date. The following table presents the fair values of the assets that we acquired and the liabilities that we assumed on the Acquisition Date in connection with the business combination as finalized at September 30, 2022.
($ in millions)Amounts Recognized as of the Acquisition Date
Assets acquired
Cash and cash equivalents$310 
Restricted cash127 
Accounts receivable, net of allowance for doubtful accounts90 
Timeshare financing receivables, net825 
Inventory488 
Property and equipment, net273 
Operating lease right-of-use assets, net33 
Intangible assets, net1,429 
Other assets261 
Total assets acquired$3,836 
Liabilities assumed
Accounts payable, accrued expenses and other$520 
Non-recourse debt, net660 
Operating lease liabilities33 
Advanced deposits
Deferred revenues140 
Deferred income tax liabilities485 
Total liabilities assumed$1,842 
Net assets acquired$1,994 
Total consideration transferred$3,410 
Goodwill(1)
$1,416 
(1)Goodwill is calculated as total consideration transferred less net assets acquired and it primarily represents the value that we expect to obtain from synergies and growth opportunities from our combined Company post-acquisition. The majority of goodwill is not deductible for tax purposes.

The measurement period adjustments recorded during the quarter ended September 30, 2022 resulted from changes to our estimates of the fair value of the acquired assets and assumed liabilities based on finalizing the valuations of acquired property and equipment and accounts receivable. In addition, we have established an initial reserve in connection
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with certain pre-acquisition expenses which we have determined are not deductible for tax purposes. These resulted in a net increase to goodwill for the period of $59 million, net of tax impacts of adjustments.
The measurement period adjustments recorded during the quarter ended June 30, 2022 resulted from changes to our estimates of the fair value of the acquired assets and assumed liabilities based on finalizing the valuations of operating lease right-of-use asset and related lease liabilities valuation and capitalized software. These resulted in a net adjustment to goodwill for the period of $6 million, net of tax impacts of adjustments.
The measurement period adjustments recorded during the quarter ended March 31, 2022 resulted from changes to our estimates of the fair value of the acquired assets and assumed liabilities based on a revision to our valuation of insurance receivables given the ultimate determination of proceeds related to preacquisition business interruption insurance claims. The measurement period adjustments recognized include an adjustment to increase accounts receivable, net of allowance for doubtful accounts, for pre-acquisition contingencies, and the related tax impacts increasing deferred income tax liabilities. These resulted in a net adjustment to goodwill for the period of $26 million.
The prior period net income effect associated with the measurement period adjustments recorded during the nine months ended September 30, 2022 is immaterial.
Timeshare Financing Receivables
We acquired timeshare financing receivables which consist of loans to customers who purchased vacation ownership products and chose to finance their purchases. These timeshare financing receivables are collateralized by the underlying VOIs and generally have 10-year amortizing repayment terms. We estimated the fair value of the timeshare financing receivables using a discounted cash flow model, which calculated a present value of expected future risk-adjusted cash flows over the remaining term of the respective timeshare financing receivables. For purposes of our allocation, we have considered all acquired receivables to be purchase credit deteriorated assets. See Note 7: Timeshare Financing Receivables for additional information.
Acquired timeshare financing receivables with credit deterioration as of the Acquisition Date were as follows:
($ in millions)As of August 2, 2021
Purchase price$825 
Allowance for credit losses512 
Premium attributable to other factors(97)
Par value$1,240 
Inventory
We acquired inventory which primarily consists of completed unsold VOIs and undeveloped land. We valued acquired inventory using a discounted cash flows method, which included an estimate of cash flows expected to be generated from the sale of VOIs. Significant estimates and assumptions impacting the fair value of the acquired inventory that are subjective and/or require complex judgments include our estimates of operating costs and margins, and the discount rate. Certain other estimates and assumptions impacting the fair value of the acquired inventory involving less subjective and/or less complex judgments include: short-term and long-term revenue growth rates, capital expenditures, tax rates and other factors impacting the discounted cash flows.
Property and Equipment
We acquired property and equipment, which includes land, building and leasehold improvements, furniture and fixtures and construction in progress. We valued the majority of acquired property and equipment using a mix of cost, market and discounted cash flow approaches, which included estimates of future income growth, capitalization rates, discount rates, and capital expenditure needs of the resorts.
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Intangible Assets
The following table presents our estimates of the fair values of the acquired Diamond’s identified intangible assets and their related estimated remaining useful lives:
Estimated Fair Value
($ in millions)
Estimated
Useful Life
(in years)
Trade name$18 1.5
Management contracts1,251 35.4
Club member relationships139 14.4
Computer software21 1.5
Total intangible assets$1,429 
We valued the acquired trade name intangible using the relief-from-royalty method, which applies an estimated royalty rate to forecasted future cash flows, discounted to present value. We valued the acquired management contracts intangible and member relationships intangible using the multi-period excess earnings method, which is a variation of the income approach. This method estimates an intangible asset’s value based on the present value of the incremental after-tax cash flows attributable to the intangible asset. Significant estimates and assumptions impacting the fair value of the acquired management contracts intangible that are subjective and/or require complex judgments include our estimates of operating costs and margins, and the discount rate. Certain other estimates and assumptions impacting the fair value of the acquired management contracts intangible involving less subjective and/or less complex judgments include: short-term and long-term revenue growth rates, attrition rates, capital expenditures, tax rates and other factors impacting the discounted cash flows.
Deferred Revenue
Deferred revenue primarily relates to deferred sales incentives revenues, primarily related to Bonus Points, which are deferred and recognized upon redemption; and Club membership fees, which are deferred and recognized over the terms of the applicable contract term or membership on a straight-line basis. Additionally, deferred revenue includes maintenance fees collected from owners, in certain cases, which are earned by the relevant property owners’ association over the applicable period. We valued deferred revenue at its carrying value.
Deferred Income Taxes
Deferred income taxes primarily relate to the fair value of assets and liabilities acquired from Diamond, including timeshare financing receivables, inventory, property and equipment, intangible assets, and debt. We calculated deferred income taxes based on statutory rates in the jurisdictions of the legal entities where the acquired assets and liabilities are recorded.
Debt
As part of the acquisition and consideration transferred, we paid off $2,029 million of Diamond’s existing corporate debt, accrued interest and early termination penalties.
Non-Recourse Debt
We valued the securitized debt from VIEs and warehouse loan facilities, using a discounted cash flow model under the income approach. The significant assumptions in our analysis include default rates, prepayment rates, bond interest rates and other structural factors.
Operating Lease Right-of-Use-Assets and Lease Liabilities
We have recorded liabilities for those operating leases assumed in connection with the Diamond Acquisition with a remaining term in excess of a year. We valued lease liabilities at the present value of the remaining contractual lease payments based on the guidance in ASC 842 and using a discount rate determined as of the Acquisition Date. The right-of-
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use assets for such leases were measured at an amount equal to the lease liabilities, adjusted for favorable or unfavorable terms of the lease when compared with market terms.
Goodwill
We have allocated the acquired goodwill to our segments, Real Estate Sales and Financing and Resort Operations and Club Management, as indicated in the table below.
Real Estate Sales and Financing SegmentResort Operations and Club Management SegmentTotal Consolidated
Goodwill$1,048 $368 $1,416 
Pro Forma Results of Operations
The following unaudited pro forma information presents the combined results of operations of HGV and Diamond as if we had completed the Diamond Acquisition on January 1, 2021, the first day of our prior fiscal year, but using our fair values of assets and liabilities as of the Acquisition Date. These unaudited pro forma results do not reflect any synergies from operating efficiencies. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the Diamond Acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations.
($ in millions, except per share data)Nine Months Ended
September 30, 2021
Revenue$2,226 
Net income58 
Note 4: Revenue from Contracts with Customers
Disaggregation of Revenue
The following tables show our disaggregated revenues by product and segment from contracts with customers. We operate our business in the following two segments: (i) Real estate sales and financing and (ii) Resort operations and club management. Please refer to Note 20: Business Segments below for more details related to our segments.
($ in millions)Three Months Ended September 30,Nine Months Ended September 30,
Real Estate Sales and Financing Segment2022202120222021
Sales of VOIs, net$500 $488 $1,130 $597 
Sales, marketing, brand and other fees177 118 457 252 
Interest income61 46 170 108 
Other financing revenue26 19 
Real estate sales and financing segment revenues$745 $659 $1,783 $976 
($ in millions)Three Months Ended September 30,Nine Months Ended September 30,
Resort Operations and Club Management Segment2022202120222021
Club management$48 $42 $150 $98 
Resort management82 57 229 94 
Rental(1)
157 104 436 184 
Ancillary services30 14 
Resort operations and club management segment revenues$289 $211 $845 $390 
(1)Excludes intersegment eliminations. See Note 20: Business Segments for additional information.
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Contract Balances
The following table provides information on our accounts receivable from contracts with customers which are included in Accounts receivable, net on our unaudited condensed consolidated financial statements.

balance sheets:

($ in millions)September 30,
2022
December 31,
2021
Receivables$273 $202 
The following table presents the composition of our contract liabilities:
($ in millions)September 30,
2022
December 31,
2021
Contract liabilities:
Advanced deposits$138 $112 
Deferred sales of VOIs of projects under construction34 
Club dues and Legacy-HGV Club activation fees105 91 
Bonus Point incentive liability(1)
58 44 
(1)Amounts related to the Bonus Point incentive liability are included in Accounts payable, accrued expenses and other on our unaudited condensed consolidated balance sheets. This liability is comprised of unrecognized revenue for incentives from VOI sales and sales and marketing expenses in conjunction with our fee-for-service arrangements.
Revenue earned for the three and nine months ended September 30, 2022, that was included in the contract liabilities balance at December 31, 2021 was approximately $63 million and $161 million, respectively.
Our accounts receivable that relate to our contracts with customers includes amounts associated with our contractual right to consideration for completed performance obligations related primarily to our fee-for-service arrangements and homeowners’ associations management agreements and are settled when the related cash is received. Accounts receivable are recorded when the right to consideration becomes unconditional and is only contingent on the passage of time. Refer to Note 3:7: Timeshare Financing Receivables for information on balances and changes in balances during the period related to our timeshare financing receivables.
Contract assets relate to incentive fees that can be earned for meeting certain targets on sales of VOIs at properties under our fee-for-service arrangements; however, our right to consideration is conditional upon completing the requirements of the annual incentive fee period. There were $5 million contract assets as of September 30, 2022 and no contract assets as of December 31, 2021.
Contract liabilities include payments received or due in advance of satisfying our performance obligations. Such contract liabilities include advance deposits received on prepaid vacation packages for future stays at our resorts, deferred revenues related to sales of VOIs of projects under construction, Club activation fees and annual dues and the liability for Bonus Points awarded to our customers for purchase of VOIs at our properties or properties under our fee-for-service arrangements that may be redeemed in the future.
In addition to the contract liabilities included herein, we also have deferred revenue of $118 million and $112 million as of September 30, 2022 and December 31, 2021, respectively. This additional deferred revenue balance includes $50 million and $51 million for bonus points and vacation package deferred revenue, $22 million and $10 million in deferred property insurance, $17 million and $14 million in deferred maintenance fees and $28 million and $37 million in other deferred revenue as of September 30, 2022 and December 31, 2021, respectively.
Transaction Price Allocated to Remaining Performance Obligations
Transaction price allocated to remaining performance obligations represents contract revenue that has not yet been recognized. Our contracts with remaining performance obligations primarily include (i) sales of VOIs under construction, (ii) Legacy-HGV Club activation fees paid at closing of a VOI purchase, (iii) customers’ advanced deposits on prepaid vacation packages and (iv) Bonus Points that may be redeemed in the future.
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The following table represents the deferred revenue, cost of VOI sales and direct selling costs from sales of VOIs related to projects under construction as of September 30, 2022 and December 31, 2021:
($ in millions)September 30,
2022
December 31,
2021
Sales of VOIs, net$$34 
Cost of VOI sales(1)
— 12 
Sales and marketing expense— 
(1)Includes anticipated Cost of VOI sales related to inventory associated with Sales of VOIs under construction.
We recognized the revenue, costs of VOI sales and direct selling costs related to the project under construction upon completion during the third quarter of 2022.
The following table includes the remaining transaction price related to Advanced deposits, and Legacy-HGV Club activation fees and Bonus Points as of September 30, 2022:
($ in millions)Remaining
Transaction Price
Recognition PeriodRecognition Method
Advanced deposits$138 18 monthsUpon customer stays
Legacy-HGV Club activation fees65 7 yearsStraight-line basis over average inventory holding period
Bonus Points58 18 - 30 monthsUpon redemption
Note 5: Restricted Cash

Restricted cash was as follows:

 

September 30,

 

 

December 31,

 

($ in millions)

 

2017

 

 

2016

 

($ in millions)September 30,
2022
December 31,
2021

Escrow deposits on VOI sales

 

$

36

 

 

$

81

 

Escrow deposits on VOI sales$218 $152 

Reserves related to non-recourse debt(1)

 

 

22

 

 

 

22

 

Reserves related to non-recourse debt(1)
59 67 
Other(2)
Other(2)
42 44 

 

$

58

 

 

$

103

 

$319 $263 

(1)See Note 13: Debt & Non-recourse Debt for further discussion.
(2)Other restricted cash primarily includes cash collected on behalf of HOAs, deposits related to servicer arrangements and other deposits.
Note 6: Accounts Receivable
Accounts receivable within the scope of ASC 326 are measured at amortized cost. The following table represents our accounts receivable, net of allowance for credit losses:
($ in millions)September 30,
2022
December 31,
2021
Fee-for-service commissions(1)
$89 $73 
Real estate and financing52 51 
Resort and club operations118 76 
Tax receivables25 95 
Insurance claims receivable81 — 
Other receivables(2)
33 
Total$398 $302 
(1)Net of allowance.
(2)Primarily includes individually insignificant allowances recognized in the ordinary course of business.
14

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Our accounts receivable are generally due within one year of origination. We use delinquency status and economic factors such as credit quality indicators to monitor our receivables within the scope of ASC 326 and use these as a basis for how we develop our expected loss estimates.
We sell VOIs on behalf of third-party developers using the Hilton Grand Vacations brand in exchange for sales, marketing and brand fees. We use historical losses and economic factors as a basis to develop our allowance for credit losses. Under these fee-for-service arrangements, we earn commission fees based on a percentage of total interval sales. Additionally, the terms of these arrangements include provisions requiring the reduction of fees earned for defaults and cancellations.
The changes in our allowance for fee-for-service commissions were as follows during the period from December 31, 2021 to September 30, 2022:

(1)

See Note 8: Debt & Non-recourse debt

($ in millions)
Balance as of December 31, 2021$18 
Current period provision for further discussion.

expected credit losses
Write-offs charged against the allowance(9)
Balance at September 30, 2022$14 
In addition to the fee-for-service commission allowance, we have various allowances for our accounts receivable to account for expected losses related to club dues, maintenance fees, trade accounts receivable, sales of VOIs, and marketing packages.

Note 4:7: Timeshare Financing Receivables

Timeshare

We define our timeshare financing receivables portfolio segments as (i) originated and (ii) acquired. The following table presents the components of each portfolio segment by class of timeshare financing receivables:
 
Originated(2)
Acquired(2)
($ in millions)September 30,
2022
December 31,
2021
September 30,
2022
December 31,
2021
Securitized$856 $587 $363 $523 
Unsecuritized(1)
799 810 440 515 
Timeshare financing receivables, gross$1,655 $1,397 $803 $1,038 
Unamortized non-credit acquisition premium(3)
— — 47 74 
Less: allowance for financing receivables losses(374)(280)(388)(482)
Timeshare financing receivables, net$1,281 $1,117 $462 $630 
(1)Includes amounts used as collateral to secure a non-recourse revolving timeshare receivable credit facility (Timeshare Facility) as well as amounts held as future collateral for securitization activities.
(2)Acquired timeshare financing receivables include all timeshare financing receivables of Legacy-Diamond as of the Acquisition Date. Originated timeshare financing receivables include all Legacy-HGV timeshare financing receivables and Legacy-Diamond timeshare financing receivables originated after the Acquisition Date.
(3)Non-credit premium of $97 million was recognized at the Acquisition Date, of which $47 million remains unamortized as of September 30, 2022.
In August 2022, we completed a securitization of $269 million of gross timeshare financing receivables and issued approximately $153 million of 4.30 percent notes, $73 million of 4.74 percent notes, $26 million of 5.57 percent notes, and $17 million of 8.73 percent notes due January 2037. The securitization transaction did not qualify as a sale and, accordingly, no gain or loss was recognized. The transaction is considered a secured borrowing, and the proceeds from the transaction are presented as non-recourse debt. The proceeds were primarily used to pay down the remaining borrowings of our Timeshare Facility and general corporate operating expenses. See Note 13: Debt and Non-recourse Debt for additional information.
In April 2022, we completed a securitization of $246 million of gross timeshare financing receivables and issued approximately $107 million of 3.61 percent notes, $84 million of 4.10 percent notes, $22 million of 4.69 percent notes, and $33 million of 6.79 percent notes due June 2034. The securitization transaction did not qualify as follows:

a sale and, accordingly,

 

 

September 30, 2017

 

($ in millions)

 

Securitized

and Pledged

 

 

Unsecuritized

 

 

Total

 

Timeshare financing receivables

 

$

506

 

 

$

687

 

 

$

1,193

 

Less: allowance for loan loss

 

 

(29

)

 

 

(109

)

 

 

(138

)

 

 

$

477

 

 

$

578

 

 

$

1,055

 

15


 

 

December 31, 2016

 

($ in millions)

 

Securitized

and Pledged

 

 

Unsecuritized

 

 

Total

 

Timeshare financing receivables

 

$

253

 

 

$

892

 

 

$

1,145

 

Less: allowance for loan loss

 

 

(9

)

 

 

(111

)

 

 

(120

)

 

 

$

244

 

 

$

781

 

 

$

1,025

 

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no gain or loss was recognized. The transaction is considered a secured borrowing, and the proceeds from the transaction are presented as non-recourse debt. The proceeds were primarily used to pay down the remaining borrowings of one of our conduit facilities and general corporate operating expenses. See Note 13: Debt and Non-recourse Debt for additional information.
As of September 30, 2022 and December 31, 2021, we had timeshare financing receivables with a carrying value of $9 million and $131 million, respectively, securing the Timeshare Facility. We record an estimate of variable consideration for estimated defaults as a reduction of revenue from VOI sales at the time revenue is recognized on a VOI sale. We record the difference between the timeshare financing receivable and the variable consideration included in the transaction price for the sale of the related VOI as an allowance for financing receivables and record the receivable net of the allowance. For the nine months ended September 30, 2022, we recorded an adjustment to our estimate of variable consideration of $101 million.
We recognize interest income on our timeshare financing receivables as earned. As of September 30, 2022 and December 31, 2021, we hadinterest receivable outstanding of $12 million and $9 million, respectively, on our originated timeshare financing receivables, which represent all Legacy-HGV timeshare financing receivables and timeshare financing receivables originated by Legacy-Diamond subsequent to the Acquisition Date. As of September 30, 2022 and December 31, 2021, we had interest receivable outstanding of $4 million and $7 million on our acquired timeshare financing receivables, which represents all timeshare financing receivables of Legacy-Diamond as of the Acquisition Date. Interest receivable is included in Other Assets within our consolidated balance sheets. The interest rate charged on the notes correlates to the risk profile of the borrowercustomer at the time of purchase and the percentage of the purchase that is financed, among other factors. As of September 30, 2017,2022, our originated timeshare financing receivables had interest rates ranging from 5.31.5 percent to 20.525.8 percent, a weighted averageweighted-average interest rate of 12.114.2 percent, a weighted averageweighted-average remaining term of 7.78.2 and maturities through 2037. Our acquired timeshare financing receivables had interest rates ranging from 2.0 percent to 25.0 percent, a weighted-average interest rate of 15.7 percent, a weighted-average remaining term of 7.6 years and maturities through 2028.

We pledge2032.

Acquired Timeshare Financing Receivables with Credit Deterioration
As part of the Diamond Acquisition, we acquired existing portfolios of timeshare financing receivables. Acquired timeshare financing receivables include all timeshare financing receivables of Legacy-Diamond as of the Acquisition Date and were deemed to be purchase credit deteriorated financial assets. These notes receivable were initially recognized at their purchase price, represented by the acquisition date fair value, and subsequently “grossed-up” by our acquisition date assessment of the allowance for credit losses. The difference over which par value of the acquired purchased credit deteriorated assets exceeds the purchase price plus the initial allowance for credit losses is reflected as a portionnon-credit premium and is amortized as a reduction to interest income under the effective interest method.
The fair value of our acquired timeshare financing receivables as collateral to secureof the Acquisition Date was determined using a non-recourse revolvingdiscounted cash flow method, which calculated a present value of expected future risk-adjusted cash flows over the remaining term of the respective timeshare receivable credit facility (“Timeshare Facility”) withfinancing receivables. which calculated a borrowing capacitypresent value of $450 million. Asexpected future cash flows based on scheduled principal and interest payments over the term of September 30, 2017 and December 31, 2016, we had $143 million and $509 million, respectively,the respective timeshare financing receivables. Consequently, the fair value of grossthe acquired timeshare financing receivables securingrecorded on our consolidated balance sheet as of the Timeshare Facility. We recognize interest income onAcquisition Date included an estimate of expected credit losses which became the historical cost basis for that portfolio going forward.
The allowance for credit losses for our acquired timeshare financing receivables as earned.is remeasured at each period end and takes into consideration an estimated measure of anticipated defaults and early repayments. We record an estimate of uncollectibility as a reduction of revenue from VOI sales at the time revenue is recognized on a VOI sale.

In March 2017, we completed a securitization of approximately $357 million of grossconsider historical Legacy-Diamond timeshare financing receivables performance and issued approximately $291 millionthe current economic environment in the re-measurement of 2.66 percent notes and approximately $59 millionthe allowance for credit losses for our acquired timeshare financing receivables. Subsequent changes to the allowance for credit losses are recorded as additions to or reversals of 2.96 percent notes, which have a stated maturity datecredit losses in our consolidated statements of December 2028. The securitization transactions did not qualify as sales and, accordingly, no gain or loss was recognized. The transaction is considered a secured borrowing; therefore, the proceeds from the transaction are presented as non-recourse debt (collectively, the “Securitized Debt”). See Note 8: Debt & Non-recourse debtoperations through provision for further discussion.

credit losses.

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Our acquired timeshare financing receivables as of September 30, 20172022 mature as follows:

($ in millions)

 

Securitized

and Pledged

 

 

Unsecuritized

 

 

Total

 

Year

 

 

 

 

 

 

 

 

 

 

 

 

2017 (remaining)

 

$

19

 

 

$

28

 

 

$

47

 

2018

 

 

76

 

 

 

56

 

 

 

132

 

2019

 

 

75

 

 

 

60

 

 

 

135

 

2020

 

 

72

 

 

 

65

 

 

 

137

 

2021

 

 

67

 

 

 

70

 

 

 

137

 

Thereafter

 

 

197

 

 

 

408

 

 

 

605

 

 

 

 

506

 

 

 

687

 

 

 

1,193

 

Less: allowance for loan loss

 

 

(29

)

 

 

(109

)

 

 

(138

)

 

 

$

477

 

 

$

578

 

 

$

1,055

 

Acquired Timeshare Financing Receivables
($ in millions)SecuritizedUnsecuritizedTotal
Year
2022 (remaining)$10 $$18 
202341 34 75 
202445 38 83 
202548 42 90 
202651 47 98 
Thereafter168 271 439 
$363 $440 $803 

Originated Timeshare Financing Receivables
Originated timeshare financing receivables represent all Legacy-HGV timeshare financing receivables and timeshare financing receivables originated by Legacy-Diamond subsequent to the Acquisition Date. Our originated timeshare financing receivables as of September 30, 2022 mature as follows:
Originated Timeshare Financing Receivables
($ in millions)SecuritizedUnsecuritizedTotal
Year
2022 (remaining)$24 $19 $43 
2023100 52 152 
2024104 59 163 
2025105 66 171 
2026105 73 178 
Thereafter418 530 948 
$856 $799 $1,655 
Allowance for Financing Receivables Losses
The changes in our allowance for financing receivables losses were as follows:
($ in millions)OriginatedAcquired
Balance as of December 31, 2021$280 $482 
Provision for financing receivables losses(1)
101 — 
Write-offs(52)(63)
Upgrades(2)
45 (31)
Balance at September 30, 2022$374 $388 
($ in millions)
Originated
Acquired
Balance as of December 31, 2020$211 $— 
Provision for financing receivables losses(1)
77 — 
Initial allowance for PCD financing receivables acquired during the period— 469 
Write-offs(50)(7)
Balance at September 30, 2021$238 $462 
(1)Includes incremental provision for financing receivables losses, net of activity related to the repurchase of defaulted and upgraded securitized timeshare financing receivables.
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(2)Represents the initial change in allowance resulting from upgrades of Acquired loans. Upgraded Acquired loans and their related allowance are included in the Originated portfolio segment.
Credit Quality of Timeshare Financing Receivables
Legacy-HGV Timeshare Financing Receivables
We evaluate this portfolio collectively for purposes of estimating variable consideration, since we hold a large group of homogeneous timeshare financing receivables which are individually immaterial. We monitor the credit qualitycollectability of our receivables on an ongoing basis. There are no significant concentrations of credit risk with any individual counterparty or groups of counterparties. We use a technique referred to as static pool analysis as the basis for estimating expected defaults and determining our loan loss reserve requirementsallowance for financing receivables losses on our timeshare financing receivables. For static pool analysis, we use certain key dimensions to stratify our portfolio, including FICO scores, equity percentage at the time of sale and certain other factors. The adequacy of the related allowance is determined by management through analysis of several factors, such as current economic conditions and industry trends, as well as the specific risk characteristics of the portfolio including assumed default rates, aging and historical write-offs of these receivables. The allowance is maintained at a level deemed adequate by management based on a periodic analysis of the mortgage portfolio.

Our gross balances by average FICO score of our Legacy-HGV timeshare financing receivables balances bywere as follows:
 Legacy-HGV Timeshare Financing Receivables
($ in millions)September 30,
2022
December 31,
2021
FICO score
700+$734 $703 
600-699264 248 
<60036 35 
No score(1)
167 166 
$1,201 $1,152 
(1)Timeshare financing receivables without a FICO score wereare primarily related to foreign borrowers.
The following table details our Legacy-HGV timeshare financing receivables by the origination year and average FICO score as follows:

of September 30, 2022:

 

September 30,

 

 

December 31,

 

($ in millions)

 

2017

 

 

2016

 

($ in millions)20222021202020192018PriorTotal

FICO score

 

 

 

 

 

 

 

 

FICO score

700+

 

$

763

 

 

$

725

 

700+$258 $157 $55 $98 $68 $98 $734 

600-699

 

 

224

 

 

 

211

 

600-69987 58 20 35 25 39 264 

<600

 

 

28

 

 

 

28

 

<60011 36 

No score(1)

 

 

178

 

 

 

181

 

No score(1)
41 30 19 29 19 29 167 

 

$

1,193

 

 

$

1,145

 

$397 $253 $97 $167 $115 $172 $1,201 

(1)

Timeshare financing receivables without a FICO score are primarily related to foreign borrowers.

(1)Timeshare financing receivables without a FICO score are primarily related to foreign borrowers.

We apply payments we receive for loans, including those in non-accrual status, to amounts due in the following order: servicing fees; interest; principal; and late charges. Once a loan is 91 days past due, we cease accruing interest and reverse the accrued interest recognized up to that point. We resume interest accrual for loans for which we had previously ceased accruing interest once the loan is less than 91 days past due. We fully reserve for a timeshare financing receivable in the month following the date that the loan is 121 days past due and, subsequently, we write off the uncollectible note against the reserve once the foreclosure process is complete and we receive the deed for the foreclosed unit.

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Table of Contents
As of September 30, 20172022 and December 31, 2016,2021, we had ceased accruing interest on timeshare financing receivables with an aggregate principal balance of $47$71 million and $38$83 million, respectively. The following tables detail an aged analysis of our gross timeshare receivables balance:
Legacy-HGV Timeshare Financing Receivables
September 30, 2022
($ in millions)SecuritizedUnsecuritizedTotal
Current$687 $427 $1,114 
31 - 90 days past due16 
91 - 120 days past due
121 days and greater past due65 66 
$698 $503 $1,201 
Legacy-HGV Timeshare Financing Receivables
December 31, 2021
($ in millions)SecuritizedUnsecuritizedTotal
Current$569 $488 $1,057 
31 - 90 days past due12 
91 - 120 days past due
121 days and greater past due77 79 
$579 $573 $1,152 
Legacy-Diamond Timeshare Financing Receivables
We evaluate this portfolio collectively for purposes of estimating variable consideration, since we hold a large group of homogeneous timeshare financing receivables balance:

 

 

September 30, 2017

 

($ in millions)

 

Securitized

and Pledged

 

 

Unsecuritized

 

 

Total

 

Current

 

$

498

 

 

$

635

 

 

$

1,133

 

31 - 90 days past due

 

 

5

 

 

 

8

 

 

 

13

 

91 - 120 days past due

 

 

2

 

 

 

2

 

 

 

4

 

121 days and greater past due

 

 

1

 

 

 

42

 

 

 

43

 

 

 

$

506

 

 

$

687

 

 

$

1,193

 


 

 

December 31, 2016

 

($ in millions)

 

Securitized

and Pledged

 

 

Unsecuritized

 

 

Total

 

Current

 

$

248

 

 

$

847

 

 

$

1,095

 

31 - 90 days past due

 

 

3

 

 

 

9

 

 

 

12

 

91 - 120 days past due

 

 

1

 

 

 

4

 

 

 

5

 

121 days and greater past due

 

 

1

 

 

 

32

 

 

 

33

 

 

 

$

253

 

 

$

892

 

 

$

1,145

 

The changes inwhich are individually immaterial. We monitor the collectability of our receivables on an ongoing basis. There are no significant concentrations of credit risk with any individual counterparty or groups of counterparties. We use a technique referred to as static pool analysis as the basis for estimating expected defaults and determining our allowance for loan lossfinancing receivables losses on our timeshare financing receivables. For static pool analysis, we use certain key dimensions to stratify our portfolio, including FICO scores, equity percentage at the time of sale and certain other factors. The adequacy of the related allowance is determined by management through analysis of several factors, such as current economic conditions and industry trends, as well as the specific risk characteristics of the portfolio including assumed default rates, aging and historical write-offs of these receivables. The allowance is maintained at a level deemed adequate by management based on a periodic analysis of the mortgage portfolio.

Our gross balances by average FICO score of our Legacy-Diamond acquired and originated timeshare financing receivables were as follows:

 

 

September 30, 2017

 

($ in millions)

 

Securitized

and Pledged

 

 

Unsecuritized

 

 

Total

 

Balance as of December 31, 2016

 

$

9

 

 

$

111

 

 

$

120

 

Write-offs

 

 

 

 

 

(27

)

 

 

(27

)

Securitization

 

 

28

 

 

 

(28

)

 

 

 

Provision for loan loss(1)

 

 

(8

)

 

 

53

 

 

 

45

 

Balance as of September 30, 2017

 

$

29

 

 

$

109

 

 

$

138

 

Legacy-Diamond
Acquired Timeshare Financing Receivables
($ in millions)September 30, 2022December 31, 2021
FICO score
700+$423 $601 
600-699300 356 
<60063 70 
No score(1)
17 11 
$803 $1,038 

 

 

September 30, 2016

 

($ in millions)

 

Securitized

and Pledged

 

 

Unsecuritized

 

 

Total

 

Balance as of December 31, 2015

 

$

17

 

 

$

89

 

 

$

106

 

Write-offs

 

 

 

 

 

(27

)

 

 

(27

)

Provision for loan loss(1)

 

 

(6

)

 

 

43

 

 

 

37

 

Balance as of September 30, 2016

 

$

11

 

 

$

105

 

 

$

116

 

(1)Timeshare financing receivables without a FICO score are primarily related to foreign borrowers.

(1)

Includes activity related to repurchase of defaulted and upgraded securitized timeshare financing receivables, net of incremental provision for loan loss.

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Table of Contents
Legacy-Diamond
Originated Timeshare Financing Receivables
($ in millions)September 30, 2022December 31, 2021
FICO score
700+$282 $172 
600-699144 60 
<60024 11 
No score(1)
$454 $245 
(1)Timeshare financing receivables without a FICO score are primarily related to foreign borrowers.
The following tables detail our Legacy-Diamond acquired and originated timeshare financing receivables by the origination year and average FICO score as of September 30, 2022:
Legacy-Diamond Acquired Timeshare Financing Receivables
($ in millions)20222021202020192018PriorTotal
FICO score
700+$— $75 $91 $109 $71 $77 $423 
600-699— 50 55 78 46 71 300 
<600— 12 15 13 17 63 
No score(1)
— 17 
$— $138 $166 $202 $124 $173 $803 
(1)Timeshare financing receivables without a FICO score are primarily related to foreign borrowers.
Legacy-Diamond Originated Timeshare Financing Receivables
($ in millions)20222021202020192018PriorTotal
FICO score
700+$200 $82 $— $— $— $— $282 
600-69998 46 — — — — 144 
<60014 10 — — — — 24 
No score(1)
— — — — 
$315 $139 $— $— $— $— $454 
(1)Timeshare financing receivables without a FICO score are primarily related to foreign borrowers.
The accrued interest on our Legacy-Diamond timeshare financing receivables is accrued based on the contractual provisions of the loan documents, which is suspended at the earlier of (i) the customer’s account becoming over 90 days delinquent, or (ii) the completion of cancellation or foreclosure proceedings. Once suspended, we reverse all prior recognized interest income as well. We resume interest accrual for receivables for which we had previously ceased accruing interest once the receivable is less than 91 days past due. We fully reserve for a timeshare financing receivable in the month following the date that the receivable is 121 days past due and, subsequently, we write off the uncollectible balance against the reserve once the foreclosure process is complete and we become owner of the deed for the foreclosed unit.
20

Table of Contents
As of September 30, 2022 and December 31, 2021, we had ceased accruing interest on Legacy-Diamond timeshare financing receivables with an aggregate principal balance of $400 million and $369 million, respectively. The following tables detail an aged analysis of our gross timeshare receivables balance:
Legacy-Diamond Timeshare Financing Receivables
September 30, 2022
($ in millions)SecuritizedUnsecuritizedTotal
Current$483 $341 $824 
31 - 90 days past due17 16 33 
91 - 120 days past due10 
121 days and greater past due16 374 390 
$521 $736 $1,257 
Legacy-Diamond Timeshare Financing Receivables
December 31, 2021
($ in millions)SecuritizedUnsecuritizedTotal
Current$496 $385 $881 
31 - 90 days past due15 18 33 
91 - 120 days past due11 
121 days and greater past due14 344 358 
$531 $752 $1,283 
Note 5:8: Inventory

Inventory was as follows:

comprised of the following:

 

September 30,

 

 

December 31,

 

($ in millions)

 

2017

 

 

2016

 

($ in millions)September 30,
2022
December 31,
2021

Completed unsold VOIs

 

$

206

 

 

$

233

 

Completed unsold VOIs$1,092 $1,219 

Construction in process

 

 

11

 

 

 

20

 

Construction in process52 20 

Land, infrastructure and other

 

 

258

 

 

 

260

 

Land, infrastructure and other

 

$

475

 

 

$

513

 

$1,145 $1,240 

We benefited from $4 million in

The table below presents costs of sales true-ups relating to VOI products forand the related impacts to the carrying value of inventory.
 Nine Months Ended September 30,
($ in millions)20222021
Cost of sales true-up(1)
$17 $(1)
(1)For the nine months ended September 30, 2017, which resulted in a $4 million increase to2022, the carrying value of inventory as of September 30, 2017. We benefited from $10 million in costs of sales true-ups relating totrue-up decreased costs of VOI products forsales and increased inventory. For the yearnine months ended December 31, 2016, which resulted in a $10 million increase toSeptember 30, 2021, the carrying valuecosts of inventory assales true-up increased costs of December 31, 2016. VOI sales and decreased inventory.


Shown below are expenses incurred, recorded in Cost of VOI sales,, related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects.

fee-for service projects:

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

Three Months Ended September 30,Nine Months Ended September 30,

($ in millions)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

($ in millions)2022202120222021

Cost of VOI sales related to fee-for-service upgrades

 

$

8

 

 

$

18

 

 

$

28

 

 

$

42

 

Cost of VOI sales related to fee-for-service upgrades$$$$
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Note 9: Property and Equipment
Property and equipment were comprised of the following:
($ in millions)September 30,
2022
December 31,
2021
Land$234 $193 
Building and leasehold improvements400 405 
Furniture and equipment80 82 
Construction in progress249 231 
963 911 
Accumulated depreciation(187)(155)
$776 $756 
Land increased by $48 million during the second quarter of 2022 from December 31, 2021. We concluded that certain parcels of land and infrastructure which were previously classified as held for sale, no longer met the held for sale criteria. Thus, these assets were reclassified to property and equipment as a non-cash transfer. The assets were measured at fair value as of June 30, 2022 as assets held for sale prior to reclassification, principally utilizing market approaches for the land parcels and the cost approach for infrastructure. During the second quarter of 2022, we recorded a reversal of impairment expense of $7 million corresponding with this reclassification.

Note 6:10: Consolidated Variable Interest Entities

As of September 30, 20172022 and December 31, 2016,2021, we consolidated three and two9 variable interest entities (“VIEs”), respectively, that issued Securitized Debt, backed by pledged assets consisting and 11 VIEs, respectively. The activities of these entities are limited primarily of a pool ofto purchasing qualifying non-recourse timeshare financing receivables whichfrom us and issuing debt securities and/or borrowing under a debt facility to facilitate such purchases. The timeshare financing receivables held by these entities are not available to our creditors and are not our legal assets, nor is without recoursethe debt that is securitized through these entities a legal liability to us.
We have determined that we are the primary beneficiaries of theseall VIEs as we have the power to direct the activities that most


significantly affect their economic performance. We are also the servicer of these timeshare financing receivables and we are required tooften replace or repurchase timeshare financing receivables that are in default at their outstanding principal amounts. Additionally, we have the obligation to absorb their losses and the right to receive benefits that could be significant to them. Only the assets of our VIEs are available to settle the obligations of the respective entities.

As part of the Diamond Acquisition, we acquired the variable interests in the entities associated with Diamond’s outstanding timeshare financing receivables securitization transactions and conduit facilities. They have been aggregated for disclosure purposes as they are similar in nature to our previously established VIEs. As of September 30, 2022 and December 31, 2021, conduit facilities had outstanding balances of zero and $133 million, respectively. As of September 30, 2022, all conduit facilities were paid off and terminated.
Our unaudited condensed consolidated balance sheets included the assets and liabilities of these entities, which primarily consisted of the following:

 

September 30,

 

 

December 31,

 

($ in millions)

 

2017

 

 

2016

 

($ in millions)September 30,
2022
December 31,
2021

Restricted cash

 

$

19

 

 

$

10

 

Restricted cash$58 $62 

Timeshare financing receivables, net

 

 

477

 

 

 

244

 

Timeshare financing receivables, net1,009 1,021 

Non-recourse debt(1)

 

 

484

 

 

 

244

 

Non-recourse debt(1)
1,168 1,195 

(1)

Net of deferred financing costs.

(1)Net of deferred financing costs.

During the three and nine months ended September 30, 20172022 and 2016,2021, we did not provide any financial or other support to any VIEs that we were not previously contractually required to provide, nor do we intend to provide such support in the future.

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Note 7: Investment11: Investments in Unconsolidated Affiliate

On July 18, 2017,Affiliates

As of September 30, 2022, we entered into an agreement with BRE Ace Holdings LLC, a Delaware limited liability company (“BRE Ace Holdings”), an affiliate of The Blackstone Group L.P. (“Blackstone”) and formed BRE Ace LLC. Pursuant to the agreement, we contributed $40 million in cash for ahave 25 percent interestand 50 percent ownership interests in BRE Ace LLC and 1776 Holding LLC, respectively, which owns a 1,201-key timeshare resort propertyare VIEs. We do not consolidate BRE Ace LLC and related operations, commonly known as “Elara, by Hilton Grand Vacations,” located in Las Vegas, Nevada.1776 Holding LLC because we are not the primary beneficiary. Our investment interestinterests in and equity earned from BRE Ace LLCboth VIEs are included in the condensedour consolidated balance sheets as InvestmentInvestments in unconsolidated affiliateaffiliates and in the condensedour consolidated statements of operations as Equity in earnings from unconsolidated affiliateaffiliates, respectively.

BRE Ace LLC had

Our two unconsolidated affiliates have aggregated debt balances of $207$398 million and non-recourse debt of $235$463 million as of September 30, 2017.2022 and December 31, 2021, respectively. The debt and non-recourse debt areis secured by itstheir assets and areis without recourse to us. Our maximum exposure to loss as a result of our investment interestinterests in BRE Ace LLCthe two unconsolidated affiliates is primarily limited to (i) the carrying amount of the investmentinvestments, which totals $41totaled $69 million and $59 million as of September 30, 2017, as well as2022 and December 31, 2021, respectively, and (ii) receivables for commission and other fees earned under a fee-for-service arrangement.arrangements. See Note 13:  19: Related Party Transactions for additional information.

Note 8:12: Intangible Assets
Intangible assets and related accumulated amortization were as follows:
September 30, 2022
($ in millions)Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
Trade name$18 $(14)$
Management contracts1,340 (199)1,141 
Club member relationships139 (31)108 
Capitalized software160 (95)65 
$1,657 $(339)$1,318 
December 31, 2021
($ in millions)Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
Trade name$18 $(5)$13 
Management contracts1,340 (106)1,234 
Club member relationships139 (12)127 
Capitalized software138 (71)67 
$1,635 $(194)$1,441 
We acquired definite-lived intangible assets as part of the Diamond Acquisition, which have been valued in the amount of $1,429 million as of the Acquisition Date. Refer to Note 3: Diamond Acquisition for further details. Amortization expense on intangible assets was $50 million and $38 million for the three months ended September 30, 2022 and 2021, respectively, and $147 million and $48 million for the nine months ended September 30, 2022 and 2021, respectively.
23

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Note 13: Debt & Non-recourse debt

Debt

Debt
The following table details our outstanding debt balance and its associated interest rates:

 

 

September 30,

 

 

December 31,

 

($ in millions)

 

2017

 

 

2016

 

Debt(1)

 

 

 

 

 

 

 

 

Senior secured credit facilities:

 

 

 

 

 

 

 

 

Term loan with an average rate of 3.48%, due 2021

 

$

193

 

 

$

200

 

Senior notes with a rate of 6.125%, due 2024

 

 

300

 

 

 

300

 

 

 

 

493

 

 

 

500

 

Less: unamortized deferred financing costs and discount(2)(3)

 

 

(9

)

 

 

(10

)

 

 

$

484

 

 

$

490

 

(1)

For the nine months ended September 30, 2017 and year ended December 31, 2016, weighted average interest rates were 5.092 percent and 4.851 percent, respectively.

(2)

Amount includes deferred financing costs of $2 million and $7 million as of September 30, 2017 and $2 million and $8 million as of December 31, 2016, relating to our term loan and senior notes, respectively.

($ in millions)September 30,
2022
December 31,
2021
Debt(1)
Senior secured credit facility
Term loan with a rate of 5.250%, due 2028$1,287 $1,297 
Revolver with a rate of 4.424%, due 2026— 300 
Senior notes with a rate of 5.000%, due 2029850 850 
Senior notes with a rate of 4.875%, due 2031500 500 
Other debt29 27 
2,666 2,974 
Less: unamortized deferred financing costs and discounts(2)(3)
(54)(61)
$2,612 $2,913 

(3)

Amount does not include deferred financing costs of $2 million as of September 30, 2017 and December 31, 2016, relating to our revolving facility included in Other Assets in our condensed consolidated balance sheets.

(1)As of September 30, 2022 and December 31, 2021, weighted-average interest rates were 5.248% and 4.052%, respectively.

(2)Amount includes unamortized deferred financing costs related to our term loan and senior notes of $27 million and $20 million, respectively, as of September 30, 2022 and $33 million and $22 million, respectively, as of December 31, 2021. This amount also includes unamortized original issuance discounts of $7 million and $6 million as of September 30, 2022 and December 31, 2021, respectively.
(3)Amount does not include unamortized deferred financing costs of $4 million and $5 million as of September 30, 2022 and December 31, 2021, respectively, related to our revolving facility which are included in Other assets in our unaudited condensed consolidated balance sheets.
Senior secured credit facilities
During the nine months ended September 30, 2022, we repaid $310 million under the senior secured credit facilities. As of September 30, 2022, we had $1 million of letters of credit outstanding under the revolving credit facility and $2 million outstanding backed by cash collateral. We were in compliance with all applicable maintenance and financial covenants and ratios as of September 30, 2017.

2022.

We primarily use interest rate swaps as part of our interest rate risk management strategy for our variable-rate debt. These interest rate swaps are associated with the remaining available LIBOR based senior secured credit facility. Therefore as of September 30, 2022, these interest rate swaps convert the LIBOR based variable rate on our Term Loan to average fixed rates of 1.32 percent per annum with maturities between 2023 and 2028, for the balance on this borrowing up to the notional values of our interest rate swaps. As of September 30, 2022, the notional values of the interest rate swaps under our Term Loan was $710 million. Our interest rate swaps have been designated and qualify as cash flow hedges of interest rate risk and recorded at their estimated fair value as an asset in Other assets in our unaudited condensed consolidated balance sheets. As of September 30, 2022 and December 31, 2021, the estimated fair value of our cash flow hedges are $67 million and $2 million, respectively. We characterize payments we make in connection with these derivative instruments as interest expense and a reclassification of accumulated other comprehensive income for presentation purposes. The following table reflects the activity in accumulated other comprehensive income related to our derivative instruments during the nine months ended September 30, 2022.

Net unrealized gain on derivative instruments
Balance as of December 31, 2021$
Other comprehensive income before reclassifications, net48 
Reclassification to net income
Balance as of September 30, 2022$51 
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Non-recourse Debt

The following table details our outstanding non-recourse debt balance and its associated interest rates:

 

 

September 30,

 

 

December 31,

 

($ in millions)

 

2017

 

 

2016

 

Non-recourse debt(1)

 

 

 

 

 

 

 

 

Timeshare Facility with an average rate of 2.54%, due 2019

 

$

129

 

 

$

450

 

Securitized Debt with an average rate of 2.43%, due 2028

 

 

489

 

 

 

246

 

 

 

 

618

 

 

 

696

 

Less: unamortized deferred financing costs(2)

 

 

(6

)

 

 

(2

)

 

 

$

612

 

 

$

694

 

(1)

For the nine months ended September 30, 2017 and year ended December 31, 2016, weighted average interest rates were 2.453 percent and 1.946 percent, respectively.

(2)

Amount relates to Securitized Debt only and does not include deferred financing costs of $2 million as of September 30, 2017 and $3 million as of December 31, 2016,
($ in millions)September 30,
2022
December 31,
2021
Non-recourse debt(1)
Timeshare Facility with an average rate of 2.35%, due 2025(3)
$— $131 
HGV Securitized Debt with a weighted average rate of 2.711%, due 202848 70 
HGV Securitized Debt with a weighted average rate of 3.602%, due 2032108 143 
HGV Securitized Debt with a weighted average rate of 2.431%, due 2033111 151 
HGV Securitized Debt with a weighted average rate of 4.304%, due 2034147 — 
HGV Securitized Debt with a weighted average rate of 4.826%, due 2037260 — 
HGV Securitized Debt with a weighted average rate of 3.658%, due 2039192 193 
Diamond Resorts Premium Yield Facility with an average rate of 4.766%, due 2031— 
Diamond Resorts Conduit Facility with an average rate of 2.250%, due 2023— 125 
Diamond Resorts Conduit Facility with an average rate of 3.000%, due 2024— 
Diamond Resorts Owner Trust 2017 with a weighted average rate of 3.504%, due 2029— 41 
Diamond Resorts Owner Trust 2018 with a weighted average rate of 4.061%, due 203162 92 
Diamond Resorts Owner Trust 2019 with a weighted average rate of 3.255%, due 203298 148 
Diamond Resorts Owner Trust 2021 with a weighted average rate of 2.160%, due 2032147 224 
1,173 1,334 
Less: unamortized deferred financing costs(2)
(12)(6)
$1,161 $1,328 

(1)As of September 30, 2022 and December 31, 2021, weighted-average interest rates were 3.661% and 2.876%, respectively.
(2)Amount relates to securitized debt only and does not include unamortized deferred financing costs of $4 million and $2 million as of September 30, 2022 and December 31, 2021, respectively, relating to our Timeshare Facility included in Other Assets in our condensed consolidated balance sheets.

The Timeshare Facility is a non-recourse obligationincluded in Other Assets in our unaudited condensed consolidated balance sheets.

(3)In connection with the amended and is payable solely fromrestated Timeshare Facility executed in May 2022, the poolrevolving commitment period of timeshare financing receivables pledged as collateralthe Timeshare Facility terminates in August 2024, however the repayment maturity date extends 12 months beyond the commitment termination date to August 2025.
During the nine months ended September 30, 2022, we terminated our conduit facility due in 2023 and related assets.

2024.

In March 2017,August 2022, we completed a securitization of approximately $357$269 million of gross timeshare financing receivables and issued approximately $291$153 million of 2.664.30 percent notes, $73 million of 4.74 percent notes, $26 million of 5.57 percent notes, and $59$17 million of 2.968.73 percent notes due December 2028.January 2037. The Securitized Debtsecuritized debt is backed by pledged assets, consisting primarily of a pool of timeshare financing receivables secured by first mortgages or deeds of trust on timeshare interests.interest. The Securitized Debtproceeds were primarily used to pay down the remaining borrowings of our Timeshare Facility and general corporate operating expenses. In connection with the securitization, we incurred $5 million in debt issuance costs.
In April 2022, we completed a securitization of $246 million of gross timeshare financing receivables and issued approximately $107 million of 3.61 percent notes, $84 million of 4.10 percent notes, $22 million of 4.69 percent notes, and $33 million of 6.79 percent notes due June 2034. The securitized debt is backed by pledged assets, consisting primarily of a pool of timeshare financing receivables secured by first mortgages or deeds of trust on timeshare interest and temporarily by a $34 million cash deposit. The securitized debt is a non-recourse obligation and is payable solely from the pool of timeshare financing receivables pledged as collateral to the debt.

The proceeds were primarily used to pay down the remaining borrowings on one of our conduit facility and general corporate operating expenses. In connection with the securitization, we incurred $4 million in debt issuance costs.

The Timeshare Facility is a non-recourse obligation payable solely from the pool of timeshare financing receivables pledged as collateral and related assets. In May 2022, we Amended and Restated our Timeshare Facility agreement under new terms, which include increasing the borrowing capacity from $450 million to $750 million, allowing
25

Table of Contents
us to borrow up to the maximum amount until May 2024 and requiring all amounts borrowed to be repaid in 2025. In connection with the amendment, we incurred $3 million in debt issuance costs.
We are required to deposit payments received from customers on the timeshare financing receivables securing the Timeshare Facility and Securitized Debt into depository accounts maintained by third parties. On a monthly basis, the depository accounts are utilized to make required principal, interest and other payments due under the respective loan agreements. The balances in the depository accounts were $22$59 million and $67 million as of September 30, 20172022 and December 31, 2016,2021, respectively, and were included in Restricted cash in our unaudited condensed consolidated balance sheets.

Debt Maturities

The contractual maturities of our debt and non-recourse debt as of September 30, 20172022 were as follows:

($ in millions)

 

Debt

 

 

Non-recourse

Debt

 

 

Total

 

Year

 

 

 

 

 

 

 

 

 

 

 

 

2017 (remaining)

 

$

3

 

 

$

30

 

 

$

33

 

2018

 

 

10

 

 

 

134

 

 

 

144

 

2019

 

 

10

 

 

 

228

 

 

 

238

 

2020

 

 

10

 

 

 

120

 

 

 

130

 

2021

 

 

160

 

 

 

32

 

 

 

192

 

Thereafter

 

 

300

 

 

 

74

 

 

 

374

 

 

 

$

493

 

 

$

618

 

 

$

1,111

 

($ in millions)DebtNon-recourse DebtTotal
Year
2022 (remaining)$$188 $192 
202315 433 448 
202415 164 179 
202514 214 228 
202613 65 78 
Thereafter2,605 109 2,714 
$2,666 $1,173 $3,839 


Note 9:14: Fair Value Measurements

The carrying amounts and estimated fair values of our financial assets and liabilities were as follows:

 

 

September 30, 2017

 

 

 

 

 

 

 

Hierarchy Level

 

($ in millions)

 

Carrying

Amount

 

 

Level 1

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Timeshare financing receivables(1)

 

$

1,055

 

 

$

 

 

$

1,394

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Debt(2)

 

 

484

 

 

 

329

 

 

 

197

 

Non-recourse debt(2)

 

 

612

 

 

 

 

 

 

617

 

 

 

December 31, 2016

 

 

 

 

 

 

 

Hierarchy Level

 

($ in millions)

 

Carrying

Amount

 

 

Level 1

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Timeshare financing receivables(1)

 

$

1,025

 

 

$

 

 

$

1,147

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Debt(2)

 

 

490

 

 

 

314

 

 

 

200

 

Non-recourse debt(2)

 

 

694

 

 

 

 

 

 

696

 

(1)

Carrying amount net of allowance for loan loss.

(2)

Carrying amount net of unamortized deferred financing costs and discount.

September 30, 2022
Hierarchy Level
($ in millions)Carrying
Amount
Level 1Level 3
Assets:
Timeshare financing receivables, net(1)
$1,743 $— $1,860 
Liabilities:
Debt, net(2)
2,612 2,370 36 
Non-recourse debt, net(2)
1,161 1,115 — 

December 31, 2021
Hierarchy Level
($ in millions)Carrying
Amount
Level 1Level 3
Assets:   
Timeshare financing receivables, net(1)
$1,747 $— $1,905 
Liabilities:   
Debt, net(2)
2,913 2,663 340 
Non-recourse debt, net(2)
1,328 1,080 270 
(1)Carrying amount net of allowance for financing receivables losses.
(2)Carrying amount net of unamortized deferred financing costs and discount.
Our estimates of the fair values were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop the estimated fair values. The table
26

above excludes cash and cash equivalents, restricted cash, accounts receivable, accounts payable, advance deposits and accrued liabilities, all of which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments.

The Our estimated fair value of derivative financial instruments is considered a level 2 measurement and is included inNote 13: Debt and Non-recourse Debt above. Our valuation methodology is categorized based on each asset or liability’s respective measurement inputs and their correlation to information available in active markets as follows:

Level 1 - Measurements based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access.
Level 2 - Measurements based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or market data other than quoted prices that are observable.
Level 3 - Measurements based on unobservable data that are supported by little or no market activity and are significant to the valuation methodology.
The estimated fair values of our originated and acquired timeshare financing receivables were determined using a discounted cash flow model. Our model incorporates default rates, coupon rates, credit quality and loan terms respective to the portfolio based on current market assumptions for similar types of arrangements.

The estimated fair values of our Level 1 debt was based on prices in active debt markets.

The estimated fair value of our Levellevel 2 derivative financial instruments was determined utilizing projected future cash flows discounted based on an expectation of future interest rates derived from observable market interest rate curves and market volatility.
The estimated fair value of our level 3 debt and non-recourse debt were as follows:

Debt - based onwas determined utilizing indicative quotes obtained for similar issuances and projected future cash flows discounted at risk-adjusted rates.

Non-recourseThe estimated fair value of our level 3 non-recourse debt - based onwas determined utilizing projected future cash flows discounted at risk-adjusted rates.

Note 15: Leases
We lease sales centers, office space and equipment under operating leases, some of which we acquired as part of the Diamond Acquisition. Our leases expire at various dates from 2022 through 2030, with varying renewal and termination options. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.
As part of our integration of business operations from the Diamond Acquisition, we ceased utilizing one leased office space in the first quarter of 2022 and one additional office space in the second quarter of 2022 , both of which the Company considered to be a triggering event for impairment analysis. We recognized no impairment expenses on the related right-of-use assets during the three months ended September 30, 2022 and $6 million in the nine months ended September 30, 2022 respectively.
We recognize rent expense on leases with both contingent and non-contingent lease payment terms. Rent associated with non-contingent lease payments are recognized on a straight-line basis over the lease term. Rent expense for all operating leases for the three months ended September 30, 2022 and 2021, was $14 million and $6 million, and $29 million and $15 million, for the nine months ended September 30, 2022 and 2021, respectively. For the three months ended September 30, 2022 and 2021, these amounts included less than $1 million of short-term and variable lease costs, and for the nine months ended September 30, 2022 and 2021, $2 million and $1 million, respectively.
27


Supplemental cash flow information related to operating leases was as follows:
Nine Months Ended September 30,
($ in millions)20222021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases$20 $15 
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases35 
Supplemental consolidated balance sheet information related to operating leases was as follows:
September 30,
2022
December 31,
2021
Weighted-average remaining lease term of operating leases (in years)44
Weighted-average discount rate of operating leases4.46 %4.35 %
The future minimum lease payments under non-cancelable operating leases, due in each of the next five years and thereafter as of September 30, 2022, are as follows:
($ in millions)
Operating Leases
Year
2022 (remaining)$
202326 
202418 
202515 
2026
Thereafter
Total future minimum lease payments$81 
Less: imputed interest(7)
Present value of lease liabilities$74 
Note 10:16: Income Taxes

At the end of each quarter, we estimate the effective tax rate expected to be applied for the full year.

The effective income tax rate is determined by the level and composition of pre-tax income or loss, which is subject to federal, foreign, state and local income taxes. The effective income tax rate for the nine months ended September 30, 20172022 and 20162021 was approximately 3830 percent and 4331 percent, respectively, which decreasedrespectively. The effective tax rate decrease year over year is primarily due to a decreasethe change in cumulative installment sale interest liability.

The Company was a party to several intercompany asset transfers with Hilton priorearnings mix of our worldwide income and the impact of non-deductible costs related to the spin-off. As required under U.S. tax regulations,Diamond acquisition in the gain resulting from the intercompany transferthird quarter of these assets should be deferred and no deferred tax asset or liability should be recognized until a recognition event occurs. On January 3, 2017, Hilton executed a tax-free spin-off of the Company, which met the requirement of a recognition event. On the spin-off date, for the assets transferred, we recognized a stepped up tax basis, re-measured the asset by applying applicable2021. The difference between our effective tax rate changesas compared to the U.S. statutory federal tax rate of 21 percent is primarily due to the impact of state and evaluated the realizability of the asset. This resulted in a reduction to our net deferred tax liability and an increase in our Additional paid-in capital of $9 million on our condensed consolidated balance sheetforeign income taxes, as of September 30, 2017.

well as discrete items including share-based compensation.

Note 11:17: Share-Based Compensation

Stock Plan

We issue time-vestingservice-based restricted stock units (“Service RSUs”), service and performance-based restricted stock units (“Performance RSUs”) and nonqualified stock options (“options”Options”) to certain employees. All performance shares that were issued under the stock plan of Hilton, were converted to RSUs as of December 31, 2016.employees and directors. We recognized share-based compensation expense of $5$14 million and $2 million duringfor the three months ended September 30, 20172022 and 2016, respectively2021, and $13$40 million and $7$32 million duringfor the nine months ended September 30, 20172022 and 2016,2021, respectively.
As of September 30, 2017,2022, unrecognized compensation costs for unvested awards werewas approximately $13$43 million, which is expected to be recognized over a weighted average period of 2.01.9 years. As of September 30, 2017,2022, there were 7,961,1512,657,102 shares of common stock available for future issuance.

issuance under this plan.

28

Service RSUs

During the nine months ended September 30, 2017,2022, we issued 530,674795,963 Service RSUs with a weighted average grant date fair value of $29.15,$44.17, which generally vest 25 percent in the first year, 25 percent in the second year and 50 percent in the third yearequal annual installments over three years from the date of grant.

Options

During the nine months ended September 30, 20172022, we issued 669,658 options389,536 Options with aan exercise price of $44.09, which generally vest over three years from the date of the grant.
The weighted-average grant date fair value of $8.66 and an exercise price of $28.30,these options was $20.08, which generally vest 25 percent in the first year, 25 percent in the second year and 50 percent in the third year from the date of grant.

The grant date fair value of each of these option grants was determined using the Black-Scholes-Merton option-pricing model with the following assumptions:

assumptions included in the table below. Expected volatility is calculated using our historical and implied volatility of our share price. Dividend yield is calculated based on our expected future payout at the time of issuance. Risk-free rate is based on the yields of U.S. Department of Treasury instruments with similar maturities. Expected term is estimated using the vesting period and contractual term of the Options.

Expected volatility(1)

26.3

%

Dividend yield(2)

Expected volatility

45.8 

%

Risk-free rate(3)

Dividend yield

— 

2.3

%

Risk-free rate

1.7 %
Expected term (in years)(4)

6.0

(1)

Due to limited trading history for Hilton Grand Vacations’ common stock, we did not have sufficient information available on which to base a reasonable and supportable estimate of the expected volatility of our share price. As a result, we used a weighted-average of the implied volatility and the average historical volatility of our peer group over a time period consistent with its expected term assumption. Our peer group was determined based upon companies in our industry with similar business models and is consistent with those used to benchmark its executive compensation.

(2)

At the date of grant we had no plans to pay dividends during the expected term of these options.

(3)

Based on the yields of U.S. Department of Treasury instruments with similar expected lives.

(4)

Estimated using the average of the vesting periods and the contractual term of the options.

As of September 30, 2017,2022, we had 169,926 options1,539,384 Options outstanding that were exercisable.


Performance RSUs
During the nine months ended months ended September 30, 2022, we issued 93,064 Performance RSUs with a grant date fair value of $44.09. The Performance RSUs are settled at the end of a two-year performance period, with 50 percent of the Performance RSUs subject to achievement based on the Company’s adjusted earnings before interest expense, taxes and depreciation and amortization further adjusted for net deferral and recognition of revenues and related direct expenses related to sales of VOIs of projects under construction. The remaining 50 percent of the Performance RSUs are subject to the achievement of certain contract sales targets.
We determined that the performance conditions for our Performance RSUs are probable of achievement and, for the three and nine months ended September 30, 2022, we recognized compensation expense based on the number of Performance RSUs we expect to vest.
Employee Stock Purchase Plan
In March 2017, the Board of Directors adopted the Hilton Grand Vacations Inc. Employee Stock Purchase Plan (the “ESPP”), which became effective during 2017. In connection with the ESPP, we issued 2.5 million shares of common stock which may be purchased under the ESPP. The ESPP allows eligible employees to purchase shares of our common stock at a price per share not less than 95 percent of the fair market value per share of common stock on the purchase date, up to a maximum threshold established by the plan administrator for the offering period. During the three and nine months ended September 30, 2022 and 2021, we recognized less than $1 million of compensation expense related to this plan.
29

Note 12:18: Earnings Per Share

The following table presentstables present the calculation of our basic and diluted earnings per share (“EPS”). The and the corresponding weighted average shares outstanding referenced in these calculations for the three and nine months ended September 30, 2016 reflect 98,802,597 shares distributed on January 3, 2017, our spin-off date, to our stockholders. See Note 1: Organization2022 and Basis of Presentation for further discussion. The weighted average shares outstanding used to compute basic EPS and diluted EPS2021.
Three Months Ended September 30,Nine Months Ended September 30,
($ and shares outstanding in millions, except per share amounts)2022202120222021
Basic EPS:
Numerator:
Net income(1)
$150 $99 $274 $101 
Denominator:
Weighted average shares outstanding120 108 121 93 
Basic EPS$1.25 $0.92 $2.26 $1.08 
Diluted EPS:
Numerator:
Net income(1)
$150 $99 $274 $101 
Denominator:
Weighted average shares outstanding121 109 123 94 
Diluted EPS$1.24 $0.90 $2.23 $1.07 
(1)Net income for the three months ended September 30, 2017 is 98,981,5572022 and 99,730,483,2021 was $149,767,212 and $98,704,709, respectively, and $273,567,561 and $100,634,069 for the nine months ended September 30, 2017 is 98,916,8942022 and 99,530,534,2021, respectively.

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

($ and shares outstanding in millions, except per share amounts)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Basic EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income(1)

 

$

43

 

 

$

35

 

 

$

144

 

 

$

130

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

99

 

 

 

99

 

 

 

99

 

 

 

99

 

Basic EPS

 

$

0.43

 

 

$

0.35

 

 

$

1.45

 

 

$

1.31

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income(1)

 

$

43

 

 

$

35

 

 

$

144

 

 

$

130

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

100

 

 

 

99

 

 

 

100

 

 

 

99

 

Diluted EPS

 

$

0.43

 

 

$

0.35

 

 

$

1.44

 

 

$

1.31

 

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Weighted average shares outstanding:
Basic EPS119,564,760 107,688,389 121,308,912 92,944,812 
Diluted EPS121,064,107 109,138,778 122,942,279 94,162,838 

(1)

Net income for the three months ended September 30, 2017 and 2016 was $42,700,978 and $34,597,597, respectively, and for the nine months ended September 30, 2017 and 2016 was $143,742,500 and $129,727,071, respectively.

The dilutive effect of outstanding share-based compensation awards is reflected in diluted earnings per common share by application of the treasury stock method using average market prices during the period.

For the three and nine months ended September 30, 2017,2022, we excluded 224,783846,369 and 736,581, respectively, and 512,371 and 631,738 for the three and nine months ended September 30, 2021, respectively, of share-based compensation awards, because their effect would have been anti-dilutive under the treasury stock method. For the three months ended September 30, 2017, we did not exclude any share-based compensation awards.

Note 13:19: Related Party Transactions

Relationship Between HGV and Hilton after the Spin-Off

On January 3, 2017, when the spin-off was completed, Hilton and Park Hotels & Resorts Inc. ceased to be related parties of HGV. In connection with the spin-off, we entered into certain agreements with Hilton (who at the time was a related party) and other third parties. See Key Agreements Related to the Spin-Off section in Part I - Item 1. Business of our Annual Report on Form 10-K for the year ended December 31, 2016 for further information.

HNA Tourism Group Co., Ltd.

On March 15, 2017, Blackstone completed the previously announced sale of 24,750,000 shares of our common stock to HNA Tourism Group Co., Ltd. (“HNA”), representing approximately 25 percent of the outstanding shares of our common stock.

In connection with the consummation of the sale, we adopted our amended and restated by-laws, effective March 15, 2017, to remove references to Blackstone’s ownership of at least 40 percent of the total voting power of our common stock and revised certain provisions referencing the Blackstone Stockholders Agreement, as appropriate, to include references to the HNA Stockholder Agreement.

The Blackstone Group

As of March 31, 2017, Blackstone held 15,008,689 shares, or approximately 15 percent of our outstanding common stock. On May 25, 2017, Blackstone filed a Registration Statement on Form S-1 and registered all of our common stock held by them. On June 14, 2017, Blackstone entered into an underwriting agreement with J.P. Morgan Securities LLC pursuant to which J.P. Morgan


Securities LLC agreed to purchase from Blackstone 9,650,000 shares of our common stock at a price of $35.40 per share. The sale was completed on June 20, 2017. Subsequently, on September 25, 2017, Blackstone completed the sale of substantially all of the remaining shares of our common stock held by them to several institutional investors and ceased to be a related party of HGV. We did not receive any proceeds from either of these sales. As of September 30, 2017, Blackstone holds only a nominal number of shares of our common stock.

The following table summarizes amounts included in our condensed consolidated statements of operations related to a fee-for-service arrangement with Blackstone affiliates to sell VOIs on their behalf through September 30, 2017:

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

($ in millions)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Commission and other fees

 

$

42

 

 

$

54

 

 

$

135

 

 

$

142

 

Also related to the fee-for-service agreement, as of September 30, 2017 and December 31, 2016, we have outstanding receivables of $8 million and $20 million, respectively.  

BRE Ace LLC

On July 18, 2017, we entered into an agreement with BRE Ace Holdings, an affiliate of Blackstone, to form BRE Ace LLC.  In conjunction with this agreement we acquired and 1776 Holding, LLC

We hold a 25 percent ownership interest in BRE Ace LLC. During the nine months ended September 30, 2017, we recorded $1 millionLLC, a VIE, which owns a timeshare resort property and related operations, commonly known as “Elara, by Hilton Grand Vacations.”
We hold a 50 percent ownership interest in equity1776 Holding, LLC, a VIE, which owns a timeshare resort property and related operations, known as “Liberty Place Charleston, by Hilton Club.”
We record Equity in earnings from our unconsolidated affiliates, included in our unaudited condensed consolidated statements of operations. See Note 7: Investment11: Investments in Unconsolidated AffiliateAffiliates for additional information. In addition,Additionally, we earn commissions and other fees related to a fee-for-service agreementagreements with the investees to sell VOIs at Elara, by Hilton Grand Vacations.Vacations and Liberty Place Charleston, by Hilton Club. These amounts are summarized in the following table and are included in Sales, marketing, brand, and other fees on our unaudited condensed consolidated statements of operations as of the date they became a related party.  

parties.

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

($ in millions)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Commission and other fees

 

$

43

 

 

$

 

 

$

43

 

 

$

 

30

Also


Table of Contents
We also had $14 million and $20 million of outstanding receivables related to the fee-for-service agreement,agreements included in Accounts receivable, net on our unaudited condensed consolidated balance sheets as of September 30, 2017 we have outstanding receivables of $29 million.  

2022 and December 31, 2021, respectively.
Three Months Ended September 30,Nine Months Ended September 30,
($ in millions)2022202120222021
Equity in earnings from unconsolidated affiliates$$$$
Commissions and other fees52 33 133 70 

Note 14:20: Business Segments

We operate our business through the following two segments:

Real estate sales and financing – We market and sell VOIs that we own. We also source VOIs through fee-for-service agreements with third-party developers. Related to the sales of the VOIs that we own, we provide consumer financing, which includes interest income generated from the origination of consumer loans to customers to finance their purchase of VOIs and revenue from servicing the loans. We also generate fee revenue from servicing the loans provided by third-party developers to purchasers of their VOIs.

Resort operations and club management – We manage the Club and Diamond Clubs and earn activation fees, annual dues and transaction fees from member exchanges for other vacation products. We also earn fees for managing the timeshare properties. We generate rental revenue from unit rentals of unsold inventory and inventory made available due to ownership exchanges under our Club program.and Diamond Clubs programs. We also earn revenue from food and beverage, retail and spa outlets at our timeshare properties.

The performance of our operating segments is evaluated primarily based on adjusted earnings before interest expense (excluding non-recourse debt), taxes, depreciation and amortization (“EBITDA”). We define Adjusted EBITDA as EBITDA, which has been further adjusted to exclude certain items, including, but not limited to, gains, losses and expenses in connection with: (i) other gains, including asset dispositions; (ii)dispositions and foreign currency transactions; (iii)(ii) debt restructurings/retirements; (iv)(iii) non-cash impairment losses; (v) reorganization costs, including severance and relocation costs; (vi)(iv) share-based and other compensation expenses; (vii)and (v) other items, including but not limited to costs related to the spin-off;associated with acquisitions, restructuring, amortization of premiums resulting from purchase accounting, and (viii) other items. During the first quarter of 2017, we revised our definition of EBITDA to exclude the adjustment of interest expense relating to our non-recourse debt as a reconciling item to arrive at net income (loss) in order to conform to the presentation of the timeshare industry following the consummation of the spin-off from Hilton. This adjustment was retrospectively applied to prior period(s) to conform with the current presentation.

non-cash and one-time charges.

We do not include equity in earnings (losses) from unconsolidated affiliateaffiliates in our measures of segment revenues.operating performance.

Below is the presentation of our reportable segment results which include the acquired Diamond operations within both segments since the Acquisition Date. The following table presents revenues for our reportable segments reconciled to consolidated amounts:

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

($ in millions)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate sales and financing(1)

 

$

310

 

 

$

301

 

 

$

916

 

 

$

843

 

Resort operations and club management(2)

 

 

90

 

 

 

81

 

 

 

270

 

 

 

251

 

Total segment revenues

 

 

400

 

 

 

382

 

 

 

1,186

 

 

 

1,094

 

Cost reimbursements

 

 

34

 

 

 

33

 

 

 

102

 

 

 

94

 

Intersegment eliminations(1)(2)(3)

 

 

(8

)

 

 

(8

)

 

 

(24

)

 

 

(20

)

Total revenues

 

$

426

 

 

$

407

 

 

$

1,264

 

 

$

1,168

 

(1)

Includes charges of $1 million and $2 million to the resort operations and club management segment for billing and collection services provided by the real estate sales and financing segment for the three and nine months ended September 30, 2016. There were no charges for the three and nine months ended September 30, 2017.

(2)

Includes charges to the real estate sales and financing segment from the resort operations and club management segment for discounted stays at properties resulting from marketing packages. These charges totaled $7 million for each of the three months ended September 30, 2017 and 2016, and $23 million and $18 million for the nine months ended September 30, 2017 and 2016, respectively.

Three Months Ended September 30,Nine Months Ended September 30,
($ in millions)2022202120222021
Revenues:
Real estate sales and financing$745 $659 $1,783 $976 
Resort operations and club management(1)
299 216 870 403 
Total segment revenues1,044 875 2,653 1,379 
Cost reimbursements82 58 215 131 
Intersegment eliminations(1)(2)
(10)(5)(25)(13)
Total revenues$1,116 $928 $2,843 $1,497 

(3)

Includes charges to the real estate sales and financing segment from the resort operations and club management segment for the rental of model units to show prospective buyers. These charges totaled $1 million for each of the three and nine months ended September 30, 2017. There were charges of less than $1 million for each of the three and nine months ended September 30, 2016

(1)Includes charges to the real estate sales and financing segment from the resort operations and club management segment for fulfillment of discounted marking package stays at resorts. These charges totaled $10 million and $5 million for the three months ended September 30, 2022 and 2021, respectively. For the nine months ended September 30, 2022 and 2021, these charges totaled $25 million and $13 million, respectively.

31

Table of Contents
(2)Includes charges to the real estate sales and financing segment from the resort operations and club management segment for the rental of model units toshow prospective buyers. These charges totaled $1 million and $2 million and less than $1 million for the three and nine months ended September 30, 2022 and 2021, respectively.
The following table presents Adjusted EBITDA for our reportable segments reconciled to net income:

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

($ in millions)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate sales and financing(1)

 

$

81

 

 

$

85

 

 

$

263

 

 

$

250

 

Resort operations and club management(1)

 

 

50

 

 

 

42

 

 

 

153

 

 

 

139

 

Segment Adjusted EBITDA

 

 

131

 

 

 

127

 

 

 

416

 

 

 

389

 

General and administrative

 

 

(23

)

 

 

(24

)

 

 

(75

)

 

 

(61

)

Depreciation and amortization

 

 

(7

)

 

 

(6

)

 

 

(21

)

 

 

(17

)

License fee expense

 

 

(22

)

 

 

(22

)

 

 

(65

)

 

 

(61

)

Other loss, net

 

 

 

 

 

 

 

 

 

 

 

(1

)

Gain on foreign currency transactions

 

 

1

 

 

 

1

 

 

 

1

 

 

 

2

 

Allocated Parent interest expense(2)

 

 

 

 

 

(7

)

 

 

 

 

 

(20

)

Interest expense

 

 

(7

)

 

 

 

 

 

(21

)

 

 

 

Income tax expense

 

 

(28

)

 

 

(33

)

 

 

(87

)

 

 

(98

)

Equity in earnings from unconsolidated affiliate(3)

 

 

1

 

 

 

 

 

 

1

 

 

 

 

Other adjustment items

 

 

(3

)

 

 

(1

)

 

 

(5

)

 

 

(3

)

Net income

 

$

43

 

 

$

35

 

 

$

144

 

 

$

130

 

(1)

Includes intersegment eliminations. Refer to our table presenting revenues by reportable segment above for additional discussion.

(2)

This amount represents interest expense on an unconditional obligation to guarantee certain Hilton allocated debt balances which were released in November 2016.

 Three Months Ended September 30,Nine Months Ended September 30,
($ in millions)2022202120222021
Adjusted EBITDA:
Real estate sales and financing(1)
$295 $280 $666 $352 
Resort operations and club management(1)
112 109 332 212 
Segment Adjusted EBITDA407 389 998 564 
Acquisition and integration-related expense(19)(54)(49)(83)
General and administrative(50)(41)(158)(92)
Depreciation and amortization(57)(48)(181)(71)
License fee expense(33)(24)(90)(57)
Other loss, net(20)(22)
Interest expense(37)(42)(105)(74)
Income tax expense(54)(49)(115)(46)
Equity in earnings from unconsolidated affiliates
Impairment expense— (1)— (2)
Other adjustment items(2)
(11)(12)(36)(23)
Net income$150 $99 $274 $101 

(3)

This amount represents our 25 percent interest in BRE Ace LLC. See Note 7: Investment in Unconsolidated Affiliate for additional information.

(1)Includes intersegment transactions. Refer to our table presenting revenues by reportable segment above for additional discussion.


(2)For the three and nine months ended September 30, 2022 and 2021, this amount includes costs associated with restructuring, one-time charges and othernon-cash items included within our reportable segments.

Note 15:21: Commitments and Contingencies

Commitments
We have entered into certain arrangements with developers whereby we have committed to purchase vacation ownership units or other real estate at a future date to be marketed and sold under our Hilton Grand Vacations brand. As of September 30, 2017,2022, we were committed to purchase approximately $208$270 million of inventory and land over a period of five years.8 years and $12 million of other commitments in the normal course of business. Additionally, we have committed to develop additional vacation ownership units at an existing resort in Japan. We are also committed to an agreement to exchange parcels of land in Hawaii, subject to the successful completion of zoning, land use requirements and other applicable regulatory requirements. The ultimateactual amount and timing of the acquisitions isare subject to change pursuant to the terms of the respective arrangements, which could also allow for cancellation in certain circumstances. During the nine months ended September 30, 2017 and 2016,2022, we purchased $9fulfilled $50 million and $11 million, respectively, of VOI inventory aspurchases required under our inventory commitments. During the nine months ended September 30, 2021, we completed $132 million of purchases required under our inventory-related purchase commitments. As of September 30, 2017,2022, our remaining obligationobligations pursuant to these arrangements waswere expected to be incurred as follows: $3 million in 2018, $187 million in 2019, $9 million in 2020,
($ in millions)
2022
(remaining)
2023202420252026ThereafterTotal
Inventory purchase obligations$56 $141 $59 $$$$270 
Other commitments(1)
— — — 12 
Total$58 $149 $61 $$$$282 
(1)Primarily relates to commitments related to information technology and $9 million in 2021.

sponsorships.

32

Rebranding Costs
As part of the Diamond Acquisition and per our licensing agreement with Hilton, we are committed to rebranding Diamond properties to brands that meet Hilton standards. We are currently rebranding our resorts and sales centers and expect rebranding to occur over a period of several years.
Litigation Contingencies
We are involved in litigation arising from the normal course of business, some of which includesinclude claims for substantial sums. Management has also identified certain otherWe evaluate these legal matters where we believeproceedings and claims at each balance sheet date to determine the degree of probability of an unfavorable outcome and, when it is probable that a liability has been incurred, our ability to reasonably possible and/or for which no estimate the amount of possible lossesloss. We record a contingent litigation liability when it is determined that it is probable that a liability has been incurred and the amount of the loss can be made. Whilereasonably estimated.
As of September 30, 2022, we accrued liabilities of approximately $121 million for all legal matters that were contingencies. Approximately $95 million of these accrued liabilities relate to a judgment entered against Diamond in March 2022 in connection with a case filed in 2015 that was not deemed probable and estimable as of the ultimate results of claimsAcquisition Date. This matter is subject to insurance coverage and litigation cannot be predicted with certainty, we expect that the ultimate resolution of all pending or threatened claims and litigationas a result as of September 30, 2017,2022, we recorded an insurance claim receivable of $80 million within Accounts receivable, net in our unaudited condensed consolidated balance sheet, During the three and nine months ended September 30, 2022, we recognized a charge of $1 million and $15 million, respectively, to our unaudited condensed consolidated statement of operations that represents the amount of the settlement liability not deemed probable of recovery from the insurance carriers.
While we currently believe that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material effect on the Company’s financial condition, cash flows, or materially adversely affect overall trends in our condensed consolidated results of operations, legal proceedings are inherently uncertain and unfavorable rulings could, individually or in aggregate, have a material adverse effect on the Company’s business, financial positioncondition or cash flows.

results of operations.

Note 16:22: Subsequent Events

On October 13, 2017, we acquired an 83-unit, ski-in mountain lodge

Management has evaluated all subsequent events through November 9, 2022, the date the unaudited condensed consolidated financial statements were available to be issued. The results of management’s analysis indicated no significant subsequent events have occurred that required consideration or adjustments to our disclosures in Park City, Utah, known as “The Sunrise Lodge, a Hilton Grand Vacations Club.”  Prior to the acquisition, HGV was providing marketing, sales and resort management services to the seller Sunrise Park City, LLC under a fee-for-service agreement.  

unaudited financial statements.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2016.

2021.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) thatamended. Forward-looking statements convey management’s expectations as to the future of HGV, and are based on our management’s beliefs, andexpectations, assumptions and onsuch plans, estimates, projections and other information currently available to our management. Forward-looking statements include, but are not limited to, statements related to our expectations regardingmanagement at the performance of our business, our financial results, our liquidity and capital resources, the benefits resulting from our spin-off, the effects of competition and the effects of future legislation or regulations and other non-historicaltime HGV makes such statements. Forward-looking statements include all statements that are not historical facts and canmay be identified by the use of forward-looking terminology such as the words “outlook,” “believes,“believe,“expects,“expect,” “potential,” “goal,” “continues,” “may,” “will,” “should,” “could,” “would,” “seeks,” “approximately,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates”“anticipates,” “future,” “guidance,” “target,” or the negative version of these words or other comparable words.

Forward-lookingwords, although not all forward-looking statements may contain such words. The forward-looking statements contained in this Quarterly Report on Form 10-Q include statements related to HGV’s revenues, earnings, taxes, cash flow and related financial and operating measures, and expectations with respect to future operating, financial and business performance, and other anticipated future events and expectations that are not historical facts.

HGV cautions you that our forward-looking statements involve known and unknown risks, uncertainties and assumptions. Actualother factors, including those that are beyond HGV’s control, which may cause the actual results, mayperformance or achievements to be materially different from the future results. Any one or more of these risks or uncertainties could adversely impact
33

HGV’s operations, revenue, operating profits and margins, key business operational metrics discussed under “— Operational Metrics” below, financial condition or credit rating.
For additional information regarding factors that could cause HGV’s actual results to differ materially from those expressed or implied in these forward-looking statements. You should not put undue reliance on anythe forward-looking statements in this Quarterly Report on Form 10-Q. We do not intend to update any of these forward-looking statement or publicly announce10-Q, please see the results of any revisions to these forward-looking statements, other than as is required under the federal securities laws.

The risk factors discussed in “Part I-ItemI—Item 1A. Risk Factors” and the Summary of Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 20162021, as supplemented and updated by the risk factors discussed in “Part II-Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q forand those described from time to time in other periodic reports that we file with the quarter ended September 30, 2017 could cause our results to differ materially from those expressed in forward-looking statements.SEC. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business. Any such risks could cause our resultsExcept for HGV’s ongoing obligations to differ materially from those expressed in forward-looking statements. Wedisclose material information under the federal securities laws, we undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, changes in management’s expectations, or otherwise, except as required by law.

otherwise.

Terms Used in this Quarterly Report on Form 10-Q

Except where the context requires otherwise, references in this Quarterly Report on Form 10-Q to “Hilton Grand Vacations,” “HGV,” “the Company,” “we,” “us” and “our” refer to Hilton Grand Vacations Inc., together with its consolidated subsidiaries. “Legacy-HGV” refers to our business and operations that existed both prior to and following the Diamond Acquisition (as defined below), excluding Legacy-Diamond. “Legacy-Diamond” refers to the business and operations that we acquired in the Diamond Acquisition. Except where the context requires otherwise, references to our “properties” and “rooms”or “resorts” refer to the timeshare properties managed,


franchised, ownedthat we manage or leased by us.own. Of these propertiesresorts and rooms,units, a portion areis directly owned or leased by us or joint ventures in which we have an interest andinterest; the remaining propertiesresorts and roomsunits are owned by our third-party owners.

Investment funds associated with or designated by The Blackstone Group L.P. and their affiliates, former majority owners of Hilton Worldwide Holdings, Inc. (together with its then consolidated subsidiaries, “Hilton”), are referred to herein as “Blackstone.”

Investment funds associated with or designated by HNA Tourism Group Co., Ltd. and their affiliates are referred to herein as “HNA.”

“Developed” refers to VOI inventory that is sourced from projects developed by HGV.

“Fee for service” refers to VOI inventory that we sell and manage on behalf of third-party developers.

“Just-in-time” refers to VOI inventory that is primarily sourced in transactions that are designed to closely correlate the timing of the acquisition by us with our sale of that inventory to purchasers.

“Points-based” refers to VOI sales that are backed by physical real estate that is contributed to a trust.
“VOI” refers to vacation ownership intervals.

intervals and interests.

Non-GAAP Financial Measures

This Quarterly Report on Form 10-Q includes discussion of terms that are not recognized terms under U.S. Generally Accepted Accounting Principles (“U.S. GAAP”), and financial measures that are not calculated in accordance with U.S. GAAP, including contract sales, sales revenue, real estate margin, tour flow, volume per guest, capital efficiency ratio, transient rate, earnings before interest expense (excluding interest expense relating to our non-recourse debt), taxes and depreciation and amortization (“EBITDA”), and Adjusted EBITDAEBITDA.
Operational Metrics
This Quarterly Report on Form 10-Q includes discussion of key business operational metrics including contract sales, sales revenue, real estate profit, tour flow, and segment Adjusted EBITDA. volume per guest (“VPG”).
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Key“Key Business and Financial Metrics and Terms Used by Management” and “-Results“Results of Operations” for a discussion of the meanings of these terms, the Company’s reasons for providing non-GAAP financial measures, and reconciliations of non-GAAP financial measures to measures calculated in accordance with U.S. GAAP.

Overview

Spin-Off Transactions

On January 3, 2017, the previously announced spin-off was completed by way of

Our Business
We are a pro rata distribution of the Company’s common stock to Hilton stockholders. Each Hilton stockholder received one share of our common stock for every ten shares of Hilton common stock. As a result of the spin-off, we became a separate publicly-tradedglobal timeshare company on the New York Stock Exchangeengaged in developing, marketing, selling and managing timeshare resorts primarily under the ticker symbol “HGV”Hilton Grand Vacations brand. Our Company also owns and operates Diamond Resorts International (“Diamond”) and is in the process of rebranding Diamond properties and sales centers to brands that meet Hilton standards. Our operations primarily consist of: selling vacation ownership intervals and vacation ownership interests (collectively,
34

“VOIs”, “VOI”) for us and third parties; financing and servicing loans provided to consumers for their timeshare purchases; operating resorts and multi-resort trusts; and managing our points-based Hilton Grand Vacations Club and Hilton did not retain any ownership interest in us.

In connection withClub exchange program (collectively the completion of the spin-off, we entered into agreements with Hilton (who at the time was a related party)“Legacy-HGV Club”) and other third parties, including licenses to use the Hilton brand. See Key Agreements Related to the Spin-Off section in Part I – Item 1. Business of our Annual Report on Form 10-K for the year ended December 31, 2016 for further information.

On March 15, 2017, Blackstone completed the previously announced sale of 24,750,000 shares of our common stock to HNA, representing approximately 25 percent of the outstanding shares of our common stock. Blackstone retained 15,008,689 shares, or approximately 15 percent of our common stock upon the completion of the sale.

In connection with the consummation of the sale, we adopted our amended and restated by-laws, effective March 15, 2017, to remove references to Blackstone’s ownership of at least 40 percent of the total voting power of our common stock and revised certain provisions referencing the Blackstone Stockholders Agreement, as appropriate, to include references to the HNA Stockholder Agreement.

On May 25, 2017, Blackstone filed a Registration Statement on Form S-1 and registered all of our common stock held by them. On June 14, 2017, Blackstone entered into an underwriting agreement with J.P. Morgan Securities LLC pursuant to which J.P. Morgan Securities LLC agreed to purchase from Blackstone 9,650,000 shares of our common stock at a price of $35.40 per share. The sale was completed on June 20, 2017. Subsequently, on September 25, 2017, Blackstone completed the sale of substantially all of the remaining shares of our common stock held by them to several institutional investors.  We did not received any proceeds from either of these sales.  Diamond points-based clubs.

As of September 30, 2017, Blackstone holds only a nominal2022, we have 154 properties located in the United States (“U.S.”), Europe, Mexico, the Caribbean, Canada, and Japan. A significant number of shares of our common stock.    


Tax Matters Agreement

Subsequent to the spin-off, we have no unrecognized taxes that, if recognized, would have impacted our effective tax rate. As a large taxpayer, Hilton is continuously under audit by the IRSproperties and other taxing authorities. HGV has joinedVOIs are concentrated in the Hilton U.S. Federal tax consolidated filing for prior tax years up to the date of the spin-off. Although we do not anticipate that a significant impact to our unrecognized tax balance will occur during the next fiscal year as a result of these audits, it remains possible that the amount of our liability for unrecognized taxes could change over that time period. Pursuant to the Tax Matters Agreement, Hilton is liableFlorida, Nevada, Hawaii, Europe, California, Virginia and shall pay the relevant tax authority for all taxes related to the taxable income prior to the spin-off. HGV will be responsible for its portion of any amounts Hilton is deemed liable by a taxing authority according to the Tax Matters Agreement. HGV is responsible for tax years subsequent to the spin-off.

Our Business

We are a rapidly growing timeshare company that markets and sells VOIs, manages resorts in top leisure and urban destinations, and operates a points-based vacation club. As of September 30, 2017, we have 48 resorts, representing 8,101 units, which are located in iconic vacation destinations such as the Hawaiian Islands, New York City, Orlando and Las Vegas,Arizona. and feature spacious, condominium-style accommodations with superior amenities and quality service. As of September 30, 2017,2022, we have approximately 284,000344,000 Hilton Grand Vacations Club (the “Club”)and Hilton Club members. Legacy-HGV Club members have the flexibility to exchange their VOIs for stays at any Hilton Grand Vacations resort or any property in the Hilton system of 1418 industry-leading brands across more than 5,000approximately 7,000 properties, as well as numerous experiential vacation options, such as cruises and guided tours.

We also have 171,000 Diamond Club members who are able to utilize their points across the Diamond resorts, affiliated properties and alternative experiential options.

Diamond Acquisition
On August 2, 2021, we completed the acquisition of Dakota Holdings, Inc., the parent of Diamond (the “Diamond Acquisition”). We completed the acquisition by exchanging 100 percent of the outstanding equity interests of Diamond into shares of HGV common stock. Pre-existing HGV shareholders own approximately 72 percent of the combined company after giving effect of the Diamond Acquisition, with certain funds controlled by Apollo Global Management Inc. (the “Apollo Funds” or, “Apollo”) and other minority shareholders, who previously owned 100 percent of Diamond, holding the remaining approximately 28 percent at the time the Diamond Acquisition was completed.
Diamond also operates in the hospitality and VOI industry, with a worldwide resort network of global vacation destinations. Diamond’s portfolio consists of resort properties that we manage, are included in one of Diamond’s single- and multi-use trusts (collectively, the “Diamond Collections” or “Collections”), or are Diamond branded resorts in which we own inventory. In addition there are affiliated resorts and hotels, which we do not manage, and which do not carry the Diamond brand but are a part of Diamond’s network and, through THE Club® and other Club offerings (the “Diamond Clubs”), are available for its members to use as vacation destinations.
The financial results within this report include Diamond’s results of operations beginning on August 2, 2021. We refer to Diamond’s business and operations that we acquired as “Legacy-Diamond”, and our business and operations that existed both prior to and following the Diamond Acquisition as “Legacy-HGV.” See Note 3: Diamond Acquisition for more information. Acquisition and integration-related expenses represent direct costs associated with the Diamond Acquisition including integration costs, legal fees, financial and other professional services. These expenses also include severance, retention and other employee-related benefits.
Our Segments
We operate our business across two segments: (1) real estate sales and financing; and (2) resort operations and club management.

Real Estate Sales and Financing

Our primary Legacy-HGV product is the marketing and selling of fee-simple VOIs deeded in perpetuity and right to use real estate interests, developed either by us or by third parties. This ownership interest is an interest in real estate generally equivalent to one week annuallyon an annual basis, at the timeshare resort where the VOI was purchased. Traditionally, timeshare operators have funded 100 percent of the investment necessary to acquire land and construct timeshare properties. In 2010,addition to developing our own properties, we began sourcingsource VOIs through fee-for-service and just-in-time agreements with third-party developers and have successfully transformed from a capital-intensive business to one that is highly capital-efficient.focused our inventory strategy on developing an optimal inventory mix focused on developed properties as well as fee-for-service and just-in-time agreements. The fee-for-service agreements enable us to generate fees from the sales and marketing of the VOIs and Legacy-HGV Club memberships and from the management of the timeshare properties without requiring us to fund acquisition and construction costs. The just-in-time agreements enable us to source VOI inventory in a manner that allows us to correlate the timing of acquisition of the inventory by us with the sale to purchasers. Sales of owned, inventory, including purchased just-in-time inventory, generally result in greater Adjusted EBITDA contributions, while fee-for-service sales require less initial investment and allow us to accelerate our sales growth. Both sales of owned inventory and fee-for-service sales generate long-term, predictable fee streams, by adding to the Club membership base and properties under management, that generate strong returns on invested capital.

35

We also source VOIs through our Collections product which are represented by an annual or biennial allotment of points that can be utilized for vacations at any of the resorts in our network for varying lengths of stay. Purchasers of points generally do not acquire a direct ownership interest in the resort properties in our network. For each Collection, one or more trustees hold legal title to the deeded fee simple real estate interests or the functional equivalent, or, in some cases, leasehold real estate interests for the benefit of the respective Collection’s association members in accordance with the applicable agreements.
For the nine months ended September 30, 2017,2022, sales from fee-for-service, just-in-time, and developed inventory and points-based sources were 5428 percent, 2014 percent, 21 percent and 2636 percent, respectively, of contract sales. See “-Real“Key Business and Financial Metrics and Terms Used by Management — Real Estate Sales Operating Metrics” for additional discussion of contract sales. Based onThe estimated contract sales value related to our trailing twelve months sales pace, we have access toinventory that is currently available for sale at open or soon-to-be open projects and inventory at new or existing projects that will become available for sale in the future upon registration, delivery or construction is approximately five years of future inventory, with capital$12 billion at current pricing.
Capital efficient arrangements, representingcomprised of our fee-for-service and just-in-time inventory, represented approximately 8840 percent of that supply. We believe that the visibility into our long-term supply allows us to efficiently manage inventory to meet predicted sales, reduce capital investments, minimize our exposure to the cyclicality of the real estate market and mitigate the risks of entering into new markets.

We originate loanssell our vacation ownership products primarily through our distribution network of both-in-market and off-site sales centers. Our products are currently marketed for sale throughout the United States, Mexico, Canada, Europe, and Japan. We operate sales distribution centers in major markets and popular leisure destinations with year-round demand and a history of being a friendly environment for vacation ownership. We have approximately 60 sales distribution centers in various domestic and international locations. A phased rebranding of sales centers that were acquired as part of the Diamond Acquisition began in late 2021. Our marketing and sales activities are based on targeted direct marketing and a highly personalized sales approach. We use targeted direct marketing to reach potential members who are identified as having the financial ability to pay for our products and have an affinity with Hilton (Legacy-HGV only) and are frequent leisure travelers. Tour flow quality impacts key metrics such as close rate and VPG, defined in “Key Business and Financial Metrics and Terms Used by Management—Real Estate Sales Operating Metrics.” Additionally, the quality of tour flow impacts sales revenue and the collectability of our timeshare financing receivables. For the nine months ended September 30, 2022, 71 percent of our contract sales were to our existing owners.
We provide financing for members purchasing our developed and acquired inventory whichand generate interest income. Our loanstimeshare financing receivables are collateralized by the underlying VOIs and are generally structured as 10-year, fully-amortizing loans that bear a fixed interest rate typically ranging from 92.5 percent to 1825 percent per annum.

Financing propensity was 63 percent and 66 percent for the nine months ended September 30, 2022 and 2021. We calculate financing propensity as contract sales volume of financed contracts originated in the period divided by contract sales volume of all contracts originated in the period.

The interest rate on our loans is determined by, among other factors, the amount of the down payment, the borrower’s credit profile and the loan term. The weighted averageweighted-average FICO score for new loans to U.S. and Canadian borrowers at the time of origination were as follows:

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

Weighted average FICO score

 

 

738

 

 

 

736

 

Nine Months Ended September 30,
20222021
Weighted-average FICO score735 724 

Prepayment is permitted without penalty. When a member defaults, we ultimately return their VOI to inventory for resale and that member no longer participates in our Club.

Clubs.

Some of our loanstimeshare financing receivables have been pledged as collateral in our securitization transactions and our Timeshare Facility, which have in the past and may in the future provide funding for our business activities. In these securitization transactions, special purpose entities are established to issue various classes of debt securities which are generally collateralized by a single pool of assets, consisting of timeshare financing receivables that we service and related cash deposits. For additional information see Note 4: 7: Timeshare Financing Receivables in our unaudited condensed consolidated financial statements.

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Table of Contents
In addition, we earn fees from servicing our securitized loan portfolio and the loans provided by third-party developers of our fee-for-service projects to purchasers of their VOIs.

VOIs and from our securitized timeshare financing receivables.

Resort Operations and Club Management

We enter into a management agreementagreements with the homeowners’ association (“HOA”)HOAs of the VOI owners for timeshare resorts developed by us or a third party. Each of the HOAs is governed by a board of directors comprisingcomprised of owner and developer representatives that are charged with ensuring the resorts are well-maintained and financially stable. Our management services include day-to-day operations of the resorts, maintenance of the resorts, preparation of reports, budgets and projections and employee training and oversight. Our HOA management agreements provide for a cost-plus management fee, which means we generally earn a fee equal to 10 percent to 15 percent of the costs to operate the applicable resort. The fees we earn are highly predictable due to the relatively fixed nature of resort operating expenses and our management fees are unaffected by changes in rental rate or occupancy. We are reimbursed for the costs incurred to perform our services, principally related to personnel providing on-site services. The initial term of our management agreements typically ranges fromfrom three to five years and the agreements are subject to periodic renewal for one to three yearthree-year periods. Many of these agreements renew automatically unless either party provides advance notice of termination before the expiration of the term.

We also manage and operate the Clubs, including the points-based Hilton Grand Vacations Club and Hilton Club exchange programs, which provide exclusive exchange, leisure travel and reservation services to our Legacy-HGV Club members.members, as well as the Diamond Clubs. When an owner purchasesowners purchase a VOI, he or she isthey are generally automatically enrolled in thea Club and given an annual allotment of points that allowwhich allows the member to exchange his or her annual usage rights in the VOI that they owntheir points for a number of vacation and travel options. In addition to an annual membership fee, Club members pay incremental fees depending on exchanges they choose within the Club system.

We rent unsold VOI inventory, third-party inventory and inventory made available due to ownership exchanges through our Clubclub programs. We earn a fee from rentals of third-party inventory. Additionally, we provide ancillary offerings including food and beverage, retail and spa offerings at these timeshare properties.

Key Business and Financial Metrics and Terms Used by Management

Real Estate Sales Operating Metrics

The

We measure our performance using the following are not recognized terms under U.S. GAAP:

key operating metrics:

Contract sales represents the total amount of VOI products (fee-for-service, just-in-time, developed, and points-based) under purchase agreements signed during the period where we have received a down payment of at least 10 percent of the contract price. Contract sales is not a recognized term under U.S. GAAP and should not be considered in isolation or as an alternative to Sales of VOIs, net or any other comparable operating measure derived in accordance with U.S. GAAP. Contract sales differ from revenues from the Sales of VOIs, net that we report in our unaudited condensed consolidated statements of operations due to the requirements for revenue recognition, as well as adjustments for incentives and other administrative fee revenues.incentives. We consider contract sales to be an important operating measure because it reflects the pace of sales in our business.

business and is used to manage the performance of the sales organization. While we do not record the purchase price of sales of VOI products developed by fee-for-service partners as revenue in our unaudited condensed consolidated financial statements, rather recording the commission earned as revenue in accordance with U.S. GAAP, we believe contract sales to be an important operational metric, reflective of the overall volume and pace of sales in our business and believe it provides meaningful comparability of our results to the results of our competitors which may source their VOI products differently.
We believe that the presentation of contract sales on a combined basis (fee-for-service, developed and points-based) is most appropriate for the purpose of the operating metric; additional information regarding the split of contract sales, is included in “—Real Estate” below.

Sales revenue represents saleSales of VOIs, net and, commissions and brand fees earned from the sale of fee-for-service intervals.

Real estate margin profit represents sales revenue less the cost of VOI sales, and sales and marketing costs, net of marketing revenue. Real estate margin percentage is calculated by dividing real estate margin by sales revenue. We consider this to be an important operating measure because it measures the efficiency of our sales and marketing spending and management of inventory costs.

Tour flow represents the number of sales presentations given at our sales centers during the period.

Volume per guest (“VPG”) represents the sales attributable to tours at our sales locations and is calculated by dividing Contractcontract sales, excluding telesales, by tour flow. We consider VPG to be an

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Table of Contents
important operating measure because it measures the effectiveness of our sales process, combining the average transaction price with the closing rate.


Capital efficiency ratio represents the ratio of cost of VOI sales to VOI inventory spend, including fee-for-service upgrades. We consider this to be an important operating measure because capital efficiency allows us to reduce inventory investment requirements while continuing to generate growth in revenues and cash flows.

Resort and Club Management and Rental Metrics

Transient rate represents the total rental room revenue for transient guests divided by total number of transient room nights sold in a given period and excludes room rentals associated with marketing programs, owner usage and the redemption of Club Bonus Points.

For further information see Item 8. Financial Statements and Supplementary Data - Note 2: Basis of Presentation and Summary of Significant Accounting Policies in our Annual Report on Form 10-K for the year ended December 31, 2016.

2021.

EBITDA and Adjusted EBITDA

EBITDA, presented herein, is a financial measure that is not recognized under U.S. GAAP that reflects net income, (loss), before interest expense (excluding non-recourse debt), a provision for income taxes and depreciation and amortization. During the first quarter of 2017, we revised our definition of EBITDA to exclude the adjustment of interest expense relating to our non-recourse debt as a reconciling item to arrive at net income (loss) in order to conform to the presentation of the timeshare industry following the consummation of the spin-off from Hilton. The revised definition was applied to prior period(s) to conform with current presentation.
Adjusted EBITDA, presented herein, is calculated as EBITDA, as previously defined, further adjusted to exclude certain items, including, but not limited to, gains, losses and expenses in connection with: (i) other gains, including asset dispositions; (ii)dispositions and foreign currency transactions; (iii)(ii) debt restructurings/retirements; (iv)(iii) non-cash impairment losses; (v) reorganization costs, including severance and relocation costs; (vi)(iv) share-based and certain other compensation expenses; (vii)and (v) other items, including but not limited to costs related to the spin-off;associated with acquisitions, restructuring, amortization of premiums resulting from purchase accounting, and (viii) other items.

non-cash and one-time charges.

EBITDA and Adjusted EBITDA are not recognized terms under U.S. GAAP and should not be considered as alternatives to net income (loss) or other measures of financial performance or liquidity derived in accordance with U.S. GAAP. In addition, our definitions of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

We believe that EBITDA and Adjusted EBITDA provide useful information to investors about us and our financial condition and results of operations for the following reasons: (i) EBITDA and Adjusted EBITDA are among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions; and (ii) EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry.

EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered either in isolation or as a substitute for net income, (loss), cash flow or other methods of analyzing our results as reported under U.S. GAAP. Some of these limitations are:

EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;

EBITDA and Adjusted EBITDA do not reflect our interest expense (excluding interest expense on non-recourse debt), or the cash requirements necessary to service interest or principal payments on our indebtedness;

EBITDA and Adjusted EBITDA do not reflect our tax expense or the cash requirements to pay our taxes;

EBITDA and Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;

EBITDA and Adjusted EBITDA do not reflect the effect on earnings or changes resulting from matters that we consider not to be indicative of our future operations;

EBITDA and Adjusted EBITDA do not reflect any cash requirements for future replacements of assets that are being depreciated and amortized; and

EBITDA and Adjusted EBITDA may be calculated differently from other companies in our industry limiting their usefulness as comparative measures.

Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.



38

Recent Events

On July 18, 2017, we entered into an agreement with BRE Ace Holdings LLC, a Delaware limited liability company (“BRE Ace Holdings”), an affiliateTable of Blackstone and formed BRE Ace LLC. Pursuant to the agreement, we contributed $40 million in cash for a 25 percent interest in BRE Ace LLC, which owns a 1,201-key timeshare resort property and related operations, commonly known as “Elara, by Hilton Grand Vacations,” located in Las Vegas, Nevada. 

On September 10, 2017, Hurricane Irma hit the Florida Keys as a Category 4 hurricane, weakening somewhat as it made landfall along Florida’s southwest shoreline. Although certain of our managed Florida properties were temporarily closed during the aftermath of Hurricane Irma, neither HGV’s operations nor financial performance were significantly impacted by this storm. In the aftermath of Hurricane Irma, the IRS has granted an automatic extension to individuals and businesses affected by the hurricanes, which extends tax filing and payment deadlines beginning September 4, 2017.  As a result, we have delayed our third quarter Federal income tax payment.  

Contents

Results of Operations

Three and Nine Months Ended September 30, 20172022 Compared with the Three and Nine Months Ended September 30, 2016

2021

Segment Results

We evaluate our business segment operating performance using segment Adjusted EBITDA, as described in Note 14: 20: Business Segments in our unaudited condensed consolidated financial statements. We do not include equity in earnings (losses) from unconsolidated affiliateaffiliates in our measures of segment revenues.operating performance. For a discussion of our definition of EBITDA and Adjusted EBITDA, how management uses itthem to manage our business and material limitations on itstheir usefulness, refer to “—Key Business and Financial Metrics and Terms Used by Management—EBITDA and Adjusted EBITDA.” The following table setstables set forth revenues and Adjusted EBITDA by segment, reconciledsegment:
Three Months Ended September 30,
Variance (1)
Nine Months Ended September 30,
Variance (1)
($ in millions)20222021$%20222021$%
Revenues:
Real estate sales and financing$745 $659 $86 13.1 $1,783 $976 $807 82.7 
Resort operations and club management299 216 83 38.4 870 403 467 NM
Total segment revenues1,044 875 169 19.3 2,653 1,379 1,274 92.4 
Cost reimbursements82 58 24 41.4 215 131 84 64.1 
Intersegment eliminations(2)
(10)(5)(5)100.0 (25)(13)(12)92.3 
Total revenues$1,116 $928 $188 20.3 $2,843 $1,497 $1,346 89.9 
(1)NM - fluctuation in terms of percentage change is not meaningful.
(2)Refer to Note 20: Business Segments in our unaudited condensed consolidated amount, including net income, our most comparable U.S. GAAP financial measure:

statements for details on the intersegment eliminations.

 

 

Three Months Ended

September 30,

 

 

Variance

 

 

Nine Months Ended

September 30,

 

 

Variance

 

($ in millions)

 

2017

 

 

2016

 

 

$

 

 

%

 

 

2017

 

 

2016

 

 

$

 

 

%

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate sales and financing

 

$

310

 

 

$

301

 

 

$

9

 

 

 

3.0

%

 

$

916

 

 

$

843

 

 

$

73

 

 

 

8.7

%

Resort operations and club management

 

 

90

 

 

 

81

 

 

 

9

 

 

 

11.1

 

 

 

270

 

 

 

251

 

 

 

19

 

 

 

7.6

 

Segment revenues

 

 

400

 

 

 

382

 

 

 

18

 

 

 

4.7

 

 

 

1,186

 

 

 

1,094

 

 

 

92

 

 

 

8.4

 

Cost reimbursements

 

 

34

 

 

 

33

 

 

 

1

 

 

 

3.0

 

 

 

102

 

 

 

94

 

 

 

8

 

 

 

8.5

 

Intersegment eliminations(1)

 

 

(8

)

 

 

(8

)

 

 

 

 

 

 

 

 

(24

)

 

 

(20

)

 

 

(4

)

 

 

(20.0

)

Total revenues

 

$

426

 

 

$

407

 

 

$

19

 

 

 

4.7

 

 

$

1,264

 

 

$

1,168

 

 

$

96

 

 

 

8.2

 

(1)

Refer to Note 14: Business Segments in our unaudited condensed consolidated financial statements for details on the intersegment eliminations.


The following table reconciles net income, our most comparable U.S. GAAP financial measure, to EBITDA and Adjusted EBITDA:

 

 

Three Months Ended

September 30,

 

 

Variance

 

 

Nine Months Ended

September 30,

 

 

Variance

 

($ in millions)

 

2017

 

 

2016

 

 

$

 

 

%

 

 

2017

 

 

2016

 

 

$

 

 

%

 

Net Income

 

$

43

 

 

$

35

 

 

$

8

 

 

 

22.9

%

 

$

144

 

 

$

130

 

 

$

14

 

 

 

10.8

%

Interest expense

 

 

7

 

 

 

 

 

 

7

 

 

NM(1)

 

 

 

21

 

 

 

 

 

 

21

 

 

NM(1)

 

Allocated Parent interest expense

 

 

 

 

 

7

 

 

 

(7

)

 

 

(100.0

)

 

 

 

 

 

20

 

 

 

(20

)

 

 

(100.0

)

Income tax expense

 

 

28

 

 

 

33

 

 

 

(5

)

 

 

(15.2

)

 

 

87

 

 

 

98

 

 

 

(11

)

 

 

(11.2

)

Depreciation and amortization

 

 

7

 

 

 

6

 

 

 

1

 

 

 

16.7

 

 

 

21

 

 

 

17

 

 

 

4

 

 

 

23.5

 

Interest expense, depreciation and amortization included in equity in earnings from unconsolidated affiliate

 

 

2

 

 

 

 

 

 

2

 

 

NM(1)

 

 

 

2

 

 

 

 

 

 

2

 

 

NM(1)

 

EBITDA

 

 

87

 

 

 

81

 

 

 

6

 

 

 

7.4

 

 

 

275

 

 

 

265

 

 

 

10

 

 

 

3.8

 

Other loss, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

(1

)

 

 

(100.0

)

Gain on foreign currency transactions

 

 

(1

)

 

 

(1

)

 

 

 

 

 

 

 

 

(1

)

 

 

(2

)

 

 

1

 

 

 

(50.0

)

Share-based compensation expense

 

 

5

 

 

 

2

 

 

 

3

 

 

NM(1)

 

 

 

13

 

 

 

7

 

 

 

6

 

 

 

85.7

 

Other adjustment items(2)

 

 

3

 

 

 

11

 

 

 

(8

)

 

 

(72.7

)

 

 

7

 

 

 

21

 

 

 

(14

)

 

 

(66.7

)

Adjusted EBITDA

 

$

94

 

 

$

93

 

 

$

1

 

 

 

1.1

 

 

$

294

 

 

$

292

 

 

$

2

 

 

 

0.7

 

(1)

Fluctuation in terms of percentage change is not meaningful.

(2)

For the three and nine months ended September 30, 2017, amounts represent $2 million and $5 million, respectively, of costs associated with the spin-off transaction.

 

 

Three Months Ended

September 30,

 

 

Variance

 

 

Nine Months Ended

September 30,

 

 

Variance

 

($ in millions)

 

2017

 

 

2016

 

 

$

 

 

%

 

 

2017

 

 

2016

 

 

$

 

 

%

 

Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate sales and financing(1)

 

$

81

 

 

$

85

 

 

$

(4

)

 

 

(4.7

)%

 

$

263

 

 

$

250

 

 

$

13

 

 

 

5.2

%

Resort operations and club management(1)

 

 

50

 

 

 

42

 

 

 

8

 

 

 

19.0

 

 

 

153

 

 

 

139

 

 

 

14

 

 

 

10.1

 

Segment Adjusted EBITDA

 

 

131

 

 

 

127

 

 

 

4

 

 

 

3.1

 

 

 

416

 

 

 

389

 

 

 

27

 

 

 

6.9

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA from unconsolidated affiliate

 

 

3

 

 

 

 

 

 

3

 

 

NM(1)

 

 

 

3

 

 

 

 

 

 

3

 

 

NM(1)

 

License fee expense

 

 

(22

)

 

 

(22

)

 

 

 

 

 

 

 

 

(65

)

 

 

(61

)

 

 

(4

)

 

 

6.6

 

General and administrative(2)

 

 

(18

)

 

 

(12

)

 

 

(6

)

 

 

50.0

 

 

 

(60

)

 

 

(36

)

 

 

(24

)

 

 

66.7

 

Adjusted EBITDA

 

$

94

 

 

$

93

 

 

$

1

 

 

 

1.1

 

 

$

294

 

 

$

292

 

 

$

2

 

 

 

0.7

 

(1)

Includes intersegment eliminations and other adjustments.

Three Months Ended September 30,
Variance (1)
Nine Months Ended September 30,
Variance (1)
($ in millions)20222021$%20222021$%
Net income$150 $99 $51 51.5 $274 $101 $173 NM
Interest expense37 42 (5)(11.9)105 74 31 41.9 
Income tax expense54 49 10.2 115 46 69 NM
Depreciation and amortization57 48 18.8 181 71 110 NM
Interest expense, depreciation and amortization included in equity in earnings from unconsolidated affiliates— 100.0 100.0 
EBITDA300 238 62 26.1 677 293 384 NM
Other loss, net(2)20 (22)(110.0)(1)22 (23)NM
Share-based compensation expense14 14 — — 40 32 25.0 
Impairment expense— (1)(100.0)— (2)(100.0)
Acquisition and integration-related expense19 54 (35)(64.8)49 83 (34)(41.0)
Other adjustment items(2)
13 (6)(46.2)48 20 28 NM
Adjusted EBITDA$338 $340 $(2)(0.6)$813 $452 $361 79.9 

(2)

Excludes share-based compensation and other adjustment items.

(1)NM - fluctuation in terms of percentage change is not meaningful.

(2)For the three and nine months ended September 30, 2022 and 2021 this amount includes costs associated with restructuring, one-time charges and other non-cash items. This amount also includes the amortization of premiums resulting from purchase accounting.
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The following table reconciles our segment Adjusted EBITDA to Adjusted EBITDA:
Three Months Ended September 30,
Variance (1)
Nine Months Ended September 30,
Variance (1)
($ in millions)20222021$%20222021$%
Adjusted EBITDA:
Real estate sales and financing(2)
$295 $280 $15 5.4 $666 $352 $314 89.2 
Resort operations and club management(2)
112 109 2.8 332 212 120 56.6 
Adjustments:
Adjusted EBITDA from unconsolidated affiliatesNM12 50.0 
License fee expense(33)(24)(9)37.5 (90)(57)(33)57.9 
General and administrative(3)
(41)(26)(15)57.7 (107)(63)(44)69.8 
Adjusted EBITDA$338 $340 $(2)(0.6)$813 $452 $361 79.9 
(1)NM - fluctuation in terms of percentage change is not meaningful.
(2)Includes intersegment transactions, share-based compensation, depreciation and other adjustments attributable to the segments.
(3)Excludes segment related share-based compensation, depreciation and other adjustment items.
Real Estate Sales and Financing

Real

In accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”), revenue and the related costs to fulfill and acquire the contract (“direct costs”) from sales of VOIs under construction are deferred until the point in time when construction activities are deemed to be completed. The real estate sales and financing segment revenues increaseis impacted by construction related deferral and recognition activity. In periods where Sales of VOIs and related direct costs of projects under construction are deferred, margin percentages will generally contract as the indirect marketing and selling costs associated with these sales are recognized as incurred in the current period. In periods where previously deferred Sales of VOIs and related direct costs are recognized upon construction completion, margin percentages will generally expand as the indirect marketing and selling costs associated with these sales were recognized in prior periods.
The following table represents deferrals and recognitions of Sales of VOI revenue and direct costs for properties under construction:
Three Months Ended September 30,VarianceNine Months Ended September 30,Variance
($ in millions)20222021$20222021$
Sales of VOIs (deferrals)$10 $— $10 $(53)$— $(53)
Sales of VOIs recognitions76 241 (165)87 167 (80)
Net Sales of VOIs (deferrals) recognitions86 241 (155)34 167 (133)
Cost of VOI sales (deferrals)(1)
— (18)— (18)
Cost of VOI sales recognitions27 73 (46)30 50 (20)
Net Cost of VOI sales (deferrals) recognitions(1)
30 73 (43)12 50 (38)
Sales and marketing expense (deferrals)— (8)— (8)
Sales and marketing expense recognitions11 35 (24)13 24 (11)
Net Sales and marketing expense (deferrals) recognitions13 35 (22)24 (19)
Net construction (deferrals) recognitions$43 $133 $(90)$17 $93 $(76)
(1)Includes anticipated Costs of VOI sales of VOIs under construction that will be acquired under a just-in-time arrangement once construction is complete for the three and nine months ended September 30, 2017, compared to the same period in 2016, primarily due to a $4 million increase in sales revenue, a $2 million increase in marketing revenue2022 and a $4 million increased in financing revenues. The increase in sales revenue was primarily due to higher sales of VOIs, net, due to sales at our newly developed project beginning in the fourth quarter of 2016.  The increase in marketing revenues was primarily due to an increase in title related services. The increase in financing revenues was primarily due an increase in interest income from higher outstanding timeshare financing receivables balance. Real estate sales and financing segment Adjusted EBITDA decreased by $4 million for the three months ended September 30, 2017, compared to the same period in 2016, primarily due to a $14 million increase in sales and marketing expense as well as a decrease in commission and brand fees.

2021.

Real estate sales and financing segment revenues increased by $86 million and $807 million for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021. Excluding the impact of the Diamond Acquisition, sales revenue primarily increased in these periods due to an increase in travel demand and a
40

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corresponding increase in tour flow and sales transactions; partially offset by a net decrease in the recognition of deferred sales of VOIs related to projects previously under construction during the same periods in 2021. Sales revenue for the nine months ended September 30, 2017, compared to2022 also increased as a result of the same period in 2016, primarily due to a $44 million increase in sales revenue, a $22 million increase in marketing revenue and a $9 million increased in financing revenues. The increase in sales revenue was primarily due to a $47 million increase in saleslaunch of VOIs, net, due to sales at our newly developed project beginningnew properties in the fourth quartersecond half of 2016. The increase in marketing revenue was primarily due to (i) a $10 million reduction of our expected redemptions of expired discounted vacation packages, (ii) a $8 million

2021.

increase in the actual redemption of discounted vacation packages and (iii) a $3 million increase in title related service revenue.  The increase in financing revenues was primarily due an increase in interest income from higher outstanding timeshare financing receivables balance.  Real estate sales and financing segment Adjusted EBITDA increased by $13$15 million and by $314 million for the three and nine months ended September 30, 2017,2022, compared to the same periodperiods in 2016,2021, primarily due to an increase in revenues associated with the segment, partially offset by a $49 million increase in sales and marketing expense as well as a decrease in commission and brand fees.

revenue increases discussed above.

Refer to “—Real Estate” and “—Financing” for further discussion on the revenues and expenses of the real estate sales and financing segment.

Resort Operations and Club Management

Resort operations and club management segment revenues increased by $83 million and $467 million for the three and nine months ended September 30, 2017,2022, compared to the same periods in 2016, primarily due to (i) an2021. Excluding the impact of the Diamond Acquisition, the increase of $4 million and $10 million, respectively, in resort operations and club management revenues was driven by greater resort management revenue from the launch of new properties subsequent toin the third quartersecond half of 2016 and (ii)2021 as well as an increase of $4 million and $3 million, respectively, in rental and ancillary services revenues as a result of higher transient room and club inventory rentals at our developed and fee-for-service properties.Club members. Resort operations and club management segment Adjustedadjusted EBITDA increased by $3 million and by $120 million for the three and nine months ended September 30, 2017,2022, compared to the same periods in 2016,2021, primarily due to increasesthe increase in resort and club management and rental revenues associated with the segment,described above, partially offset by increasesa by an increase in resort and club management expenses due to personnel-related costs incurred to service increased arrivals and transaction activity along with the launch of $3 millionnew club features and $9 million, respectively, in segment expenses.  

programs.

Refer to “— Resort and Club Management” and “—Rental and Ancillary Services” for further discussion on the revenues and expenses of the resort operations and club management segment.

Real Estate Sales and Financing Segment

Real Estate

 

 

Three Months Ended

September 30,

 

 

Variance

 

 

Nine Months Ended

September 30,

 

 

Variance

 

($ in millions, except Tour flow and VPG)

 

2017

 

 

2016

 

 

$

 

 

%

 

 

2017

 

 

2016

 

 

$

 

 

%

 

Sales of VOIs, net

 

$

145

 

 

$

130

 

 

$

15

 

 

 

11.5

%

 

$

406

 

 

$

359

 

 

$

47

 

 

 

13.1

%

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee-for-service sales(1)

 

 

169

 

 

 

181

 

 

 

(12

)

 

 

(6.6

)

 

 

508

 

 

 

512

 

 

 

(4

)

 

 

(0.8

)

Loan loss provision

 

 

19

 

 

 

14

 

 

 

5

 

 

 

35.7

 

 

 

45

 

 

 

37

 

 

 

8

 

 

 

21.6

 

Reportability and other(2)

 

 

(7

)

 

 

(19

)

 

 

12

 

 

 

(63.2

)

 

 

(23

)

 

 

(49

)

 

 

26

 

 

 

(53.1

)

Contract sales

 

$

326

 

 

$

306

 

 

$

20

 

 

 

6.5

 

 

$

936

 

 

$

859

 

 

$

77

 

 

 

9.0

 

Tour flow

 

 

87,346

 

 

 

79,817

 

 

 

7,529

 

 

 

9.4

 

 

 

246,865

 

 

 

230,362

 

 

 

16,503

 

 

 

7.2

 

VPG

 

$

3,555

 

 

$

3,602

 

 

$

(47

)

 

 

(1.3

)

 

$

3,590

 

 

$

3,504

 

 

$

86

 

 

 

2.5

 

(1)

Represents contract sales from fee-for-service properties on which we earn commissions and brand fees.

(2)

Includes adjustments for revenue recognition, including percentage-of-completion deferrals and amount in rescission, and sales incentives, as well as adjustments related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects.

Three Months Ended
September 30,
Variance (1)
Nine Months Ended
September 30,
Variance (1)
($ in millions, except Tour flow and VPG)20222021$%20222021$%
Contract sales$621 $433 $188 43.4 $1,747 $831 $916 NM
Adjustments:
Fee-for-service sales(2)
(175)(124)(51)41.1 (488)(289)(199)68.9 
Provision for financing receivables losses(32)(50)18 (36.0)(103)(78)(25)32.1 
Reportability and other:
Net recognition of sales of VOIs under construction(3)
86 241 (155)(64.3)34 167 (133)(79.6)
Fee-for-service sale upgrades, net66.7 14 75.0 
Other(4)
(5)(15)10 (66.7)(74)(42)(32)76.2 
Sales of VOIs, net$500 $488 $12 2.5 $1,130 $597 $533 89.3 
Tour flow142,647 97,628 45,019 375,507 181,921 193,586 
VPG$4,229 $4,255 $(26)$4,463 $4,356 $107 

(1)NM - fluctuation in terms of percentage change is not meaningful.

(2)Represents contract sales from fee-for-service properties on which we earn commissions and brand fees.
(3)Represents the net recognition of revenues related to the Sales of VOIs under construction that are recognized when construction is complete.
(4)Includes adjustments for revenue recognition, including amounts in rescission and sales incentives.
Contract sales increased for the three months ended September 30, 2017, compared to the same period in 2016, primarily due to an increase in tour flow which correlates to the increase in marketing expense. VPG decreased for the three months ended September 30, 2017, compared to the same period in 2016 due to a 1.4 percent decrease in close rate, partially offset by a 0.8 percent increase in average transaction price.

Contract sales increased for the nine months ended September 30, 2017, compared to the same period in 2016, primarily due to an increase in tour flow which correlates to the increases in marketing expense$188 million and VPG. VPG increased for the nine months ended September 30, 2017, compared to the same period in 2016 due to a 0.5 percent and 2.1 percent increase in close rate and average transaction price, respectively.

 

Three Months Ended

September 30,

 

 

Variance

 

 

Nine Months Ended

September 30,

 

 

Variance

 

($ in millions)

 

2017

 

 

2016

 

 

$

 

 

%

 

 

2017

 

 

2016

 

 

$

 

 

%

 

Sales of VOIs, net

 

$

145

 

 

$

130

 

 

$

15

 

 

 

11.5

%

 

$

406

 

 

$

359

 

 

$

47

 

 

 

13.1

%

Sales, marketing, brand and other fees

 

 

127

 

 

 

136

 

 

 

(9

)

 

 

(6.6

)

 

 

401

 

 

 

382

 

 

 

19

 

 

 

5.0

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing revenue and other fees

 

 

34

 

 

 

32

 

 

 

2

 

 

 

6.3

 

 

 

109

 

 

 

87

 

 

 

22

 

 

 

25.3

 

Sales revenue

 

 

238

 

 

 

234

 

 

 

4

 

 

 

1.7

 

 

 

698

 

 

 

654

 

 

 

44

 

 

 

6.7

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of VOI sales

 

 

40

 

 

 

44

 

 

 

(4

)

 

 

(9.1

)

 

 

107

 

 

 

110

 

 

 

(3

)

 

 

(2.7

)

Sales and marketing expense, net(1)

 

 

142

 

 

 

125

 

 

 

17

 

 

 

13.6

 

 

 

394

 

 

 

356

 

 

 

38

 

 

 

10.7

 

Real estate margin

 

$

56

 

 

$

65

 

 

$

(9

)

 

 

(13.8

)

 

$

197

 

 

$

188

 

 

$

9

 

 

 

4.8

 

Real estate margin percentage

 

 

23.5

%

 

 

27.8

%

 

 

 

 

 

 

 

 

 

 

28.2

%

 

 

28.7

%

 

 

 

 

 

 

 

 

(1)

Includes revenue recognized through our marketing programs for existing owners and prospective first-time buyers.

Sales revenue increased for the three months ended September 30, 2017, compared to the same period in 2016, primarily as a result of a $15by $916 million increase in Sales of VOIs, net due to sales at our newly developed projects beginning in the fourth quarter of 2016, in Washington, DC and New York, NY.  The increase in sales revenues was partially offset by (i) a decrease in commission and brand fees primarily due to a shift in sales mix from fee-for-service to developed projects, (ii) a decrease in commission rate received on fee-for-service due to project mix and (iii) higher sales and marketing expense due to an increase in contract sales volume and research and development costs to evaluate new markets.  

Sales revenue increased for the nine months ended September 30, 2017, compared to the same period in 2016, primarily as a result of (i) a $47 million increase in Sales of VOIs, net due to sales at our newly developed projects beginning in the fourth quarter of 2016, in Washington, DC and New York, NY, (ii) a $10 million reduction of our expected redemptions of expired discounted vacation packages, (iii) an $8 million increase in the actual redemption of discounted vacation packages and (iii) a $3 million increase in title related service revenue.   The increase in sales revenues was partially offset by (i) a decrease in commission and brand fees primarily due to a shift in sales mix from fee-for-service to developed projects, (ii) a decrease in commission rate received on fee-for-service due to project mix and (iii) higher sales and marketing expense due to an increase in contract sales volume and research and development costs to evaluate new markets.  

Real estate margin and real estate margin percentage decreased for the three months ended September 30, 2017, compared to the same period in 2016, primarily as a result of an increase in our marketing costs as a percentage of revenue and additional research and development costs to evaluate new markets. Real estate margin increased for the nine months ended September 30, 2017, compared to the same period in 2016, primarily as a result of the increases in segment revenues, partially offset by the aforementioned sales and marketing expenses.  Real estate margin percentage was flat for the nine months ended September 30, 2017, compared to the same period in 2016.


Financing

 

Three Months Ended

September 30,

 

 

Variance

 

 

Nine Months Ended

September 30,

 

 

Variance

 

($ in millions)

 

2017

 

 

2016

 

 

$

 

 

%

 

 

2017

 

 

2016

 

 

$

 

 

%

 

Interest income

 

$

33

 

 

$

31

 

 

$

2

 

 

 

6.5

%

 

$

97

 

 

$

91

 

 

$

6

 

 

 

6.6

%

Other financing revenue

 

 

5

 

 

 

3

 

 

 

2

 

 

 

66.7

 

 

 

12

 

 

 

9

 

 

 

3

 

 

 

33.3

 

Financing revenue

 

 

38

 

 

 

34

 

 

 

4

 

 

 

11.8

 

 

 

109

 

 

 

100

 

 

 

9

 

 

 

9.0

 

Consumer financing interest expense

 

 

6

 

 

 

3

 

 

 

3

 

 

 

100.0

 

 

 

16

 

 

 

9

 

 

 

7

 

 

 

77.8

 

Other financing expense

 

 

5

 

 

 

5

 

 

 

 

 

 

 

 

 

16

 

 

 

15

 

 

 

1

 

 

 

6.7

 

Financing expense

 

 

11

 

 

 

8

 

 

 

3

 

 

 

37.5

 

 

 

32

 

 

 

24

 

 

 

8

 

 

 

33.3

 

Financing margin

 

$

27

 

 

$

26

 

 

$

1

 

 

 

3.8

 

 

$

77

 

 

$

76

 

 

$

1

 

 

 

1.3

 

Financing margin percentage

 

 

71.1

%

 

 

76.5

%

 

 

 

 

 

 

 

 

 

 

70.6

%

 

 

76.0

%

 

 

 

 

 

 

 

 

Financing revenue increased for the three and nine months ended September 30, 2017,2022, compared to the same periods in 2016,2021. Excluding the impact of the Diamond Acquisition, the increase in these

41

Table of Contents
periods was primarily due to an increase in tour flow corresponding with increases in travel demand related to new inventory available for sale at resorts that were opened in the second half of 2021.
Three Months Ended
September 30,
Variance (1)
Nine Months Ended
September 30,
Variance (1)
($ in millions)20222021$%20222021$%
Sales, marketing, brand and other fees$177$118$5950.0$457$252$205 81.3 
Less:
Marketing revenue and other fees5245715.61649074 82.2 
Commissions and brand fees125735271.2293162131 80.9 
Sales of VOIs, net500488122.51,130597533 89.3 
Sales revenue6255616411.41,423759664 87.5 
Less:
Cost of VOI sales102130(28)(21.5)20715453 34.4 
Sales and marketing expense, net(2)
2461747241.4644316328 NM
Real estate profit$277$257$207.8$572$289$283 97.9 
Real estate profit margin44.3 %45.8 %40.2 %38.1 %
(1)NM - fluctuation in terms of percentage change is not meaningful.
(2)Includes revenue recognized through our marketing programs for existing owners and prospective first-time buyers and revenue associated with sales incentives, title service and document compliance.
Real estate profit increased by $20 million and by $283 million for the three and nine months ended September 30, 2022, compared to the same periods in 2021. Excluding the impact of the Diamond Acquisition, these increases were driven by greater travel demand; partially offset by a net decrease in the recognition of deferred sales of VOIs related to projects previously under construction. The increase in real estate profit was also attributed to a higher mix of sales of VOIs at new properties and greater commissions earned on sales of fee-for-service properties compared to the same periods in 2021. For the three and nine months ended September 30, 2022, cost of VOI sales decreased primarily due to a net decrease in the recognition of deferred cost of VOI sales related to projects previously under construction during the same periods in 2021; partially offset with an increase consistent with the increase in sales revenue. For the same periods, marketing revenue and other fees increased as a result of increased sales of vacation packages.
Financing
Three Months Ended
September 30,
Variance (1)
Nine Months Ended
September 30,
Variance (1)
($ in millions)20222021$%20222021$%
Interest income(2)
$61$46$1532.6$170$108$6257.4
Other financing revenue772619736.8
Financing revenue68531528.31961276954.3
Consumer financing interest expense(3)
118337.52622418.2
Other financing expense1411327.340211990.5
Financing expense2519631.666432353.5
Financing profit$43$34$926.5$130$84$4654.8
 Financing profit margin63.2 %64.2 %66.3 %66.1 %
(1)NM - fluctuation in terms of percentage change is not meaningful.
(2)For the three and nine months ended September 30, 2022, this amount includes $7 million and $27 million, respectively, of amortization of the premium related to the acquired timeshare financing receivables resulting from the Diamond Acquisition.
(3)For the three and nine months ended September 30, 2022, this amount includes $2 million and $6$8 million, respectively, in interest incomeof amortization of the premium related to the acquired non-recourse debt resulting from a higher outstandingthe Diamond Acquisition.
Financing profit increased by $9 million and $46 million for the three and nine months ended September 30, 2022, compared to the same periods in 2021. Excluding the impact of the Diamond Acquisition, financing revenue     
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Table of Contents
increased due to an increase in the weighted average interest rate and an increase in the carrying balance of the timeshare financing receivables balanceportfolio. Financing expense also increased due to increased costs associated with loan servicing in addition to an increase in consumer financing interest expense resulting from an increase in the weighted-average interest rate compared to the same periods in 2021.
Resort Operations and Club Management Segment
Resort and Club Management
Three Months Ended
September 30,
Variance (1)
Nine Months Ended
September 30,
Variance (1)
($ in millions)20222021$%20222021$%
Club management revenue$48$42$614.3$150$98$5253.1
Resort management revenue82572543.922994135NM
Resort and club management revenues130993131.337919218797.4
Club management expense118337.531181372.2
Resort management expense34181688.9872760NM
Resort and club management expenses45261973.11184573NM
Resort and club management profit$85$73$1216.4$261$147$11477.6
Resort and club management profit margin65.4 %73.7 %68.9 %76.6 %
(1)NM - fluctuation in terms of percentage change is not meaningful.
Resort and club management profit increased by $12 million and $114 million for the three and nine months ended September 30, 2022, compared to the same periods in 2021. Excluding the impact of the Diamond Acquisition, the increases in resort operations and club management revenues were driven by greater resort management revenue from the launch of new properties in the second half of 2021 as well as an increase in Club members and number of transactions; partially offset by an increase in resort and club management expenses due to personnel related costs incurred to service increased transactions and the launch of new club features and programs.
Rental and Ancillary Services
Three Months Ended
September 30,
Variance (1)
Nine Months Ended
September 30,
Variance (1)
($ in millions)20222021$%20222021$%
Rental revenues$157$104$5351.0$436$184$252NM
Ancillary services revenues28(6)(75.0)301416NM
Rental and ancillary services revenues1591124742.0466198268NM
Rental expenses141776483.1401138263NM
Ancillary services expense37(4)(57.1)25131292.3
Rental and ancillary services expenses144846071.4426151275NM
Rental and ancillary services profit$15$28$(13)(46.4)$40$47$(7)(14.9)
Rental and ancillary services profit margin9.4 %25.0 %8.6 %23.7 %
(1)NM - fluctuation in terms of percentage change is not meaningful.
Rental and ancillary services profit decreased by $13 million and $7 million for the three and nine months ended September 30, 2022, compared to the same periods in 2021. Excluding the impact of the Diamond Acquisition, rental and ancillary services revenue increased in both of these periods due to an increase in average nightly rates charged in addition
43

Table of Contents
to an increase in rooms available for rent corresponding with the launch of new properties during the second half of 2021. Rental and ancillary services expense increased consistent with the aforementioned launch of new properties.
Other Operating Expenses
Three Months Ended
September 30,
Variance (1)
Nine Months Ended
September 30,
Variance (1)
($ in millions)20222021$%20222021$%
General and administrative$50 $41 $22.0 $158 $92 $66 71.7 
Depreciation and amortization57 48 18.8 181 71 110 NM
License fee expense33 24 37.5 90 57 33 57.9 
Impairment (reversal) expense— (1)(100.0)— (2)(100.0)
(1)NM - fluctuation in terms of percentage change is not meaningful.
The change in other operating expenses for the three and nine months ended September 30, 2022, compared to the same periods in 2021 was driven by increased costs subsequent to the Diamond Acquisition and increases in expenses related to share-based compensation. General and administrative expenses increased by $9 million and $66 million compared to the same periods in 2021, primarily due to increased salaries and wages expenses corresponding with an increase in team members associated with the Diamond Acquisition. General and administrative expenses also increased due to expenses incurred associated with Performance RSUs during the three and nine months ended September 30, 2017. Financing margin2022, that were not incurred in the same periods in 2021 due to certain performance targets that were not expected to be achieved during that period. Depreciation and amortization increased due to additional amortization expense recognized related to management contracts, club member relationships and trade names acquired as a part of the Diamond Acquisition. License fee expense increased during the three and nine months ended September 30, 2022, compared to the same periods in 2021 due to improved results related to increased travel demand.
Acquisition and Integration-Related Expense
Three Months Ended
September 30,
Variance (1)
Nine Months Ended
September 30,
Variance (1)
($ in millions)20222021$%20222021$%
Acquisition and integration-related expense$19 $54 $(35)(64.8)$49 $83 $(34)(41.0)
(1)NM - fluctuation in terms of percentage change is not meaningful.
Acquisition and integration-related costs include direct expenses related to the Diamond Acquisition including integration costs, legal and other professional fees. Integration costs include technology-related costs, fees paid to management consultants and employee-related costs such as severance and retention. For the three and nine months ended September 30, 2022, acquisition and integration-related costs decreased by $35 million and $34 million, respectively, due to decreased legal and professional fees incurred compared to the same periods in 2021.
Non-Operating Expenses
Three Months Ended
September 30,
Variance (1)
Nine Months Ended
September 30,
Variance (1)
($ in millions)20222021$%20222021$%
Interest expense$37 $42 $(5)(11.9)$105 $74 $31 41.9 
Equity in earnings from unconsolidated affiliates(2)(1)(1)100.0 (9)(7)(2)28.6 
Other (gain) loss, net(2)20 (22)(110.0)(1)22 (23)(104.5)
Income tax expense54 49 10.2 115 46 69 NM
(1)NM- fluctuation in terms of percentage change is not meaningful.
44

Table of Contents
The change in non-operating expenses for the three and nine months ended September 30, 2017,2022, compared to the same periods in 2016,2021 was primarily due to higher non-recourse debt balance associated with the additional drawdown on our timeshare facility in December 2016. See Note 8: Debt & Non-recourse debt in our unaudited condensed consolidated financial statements for additional information.

Resort Operations and Club Management Segment

Resort and Club Management

 

 

Three Months Ended

September 30,

 

 

Variance

 

 

Nine Months Ended

September 30,

 

 

Variance

 

($ in millions)

 

2017

 

 

2016

 

 

$

 

 

%

 

 

2017

 

 

2016

 

 

$

 

 

%

 

Club management revenue

 

$

22

 

 

$

21

 

 

$

1

 

 

 

4.8

%

 

$

63

 

 

$

60

 

 

$

3

 

 

 

5.0

%

Resort management revenue

 

 

15

 

 

 

12

 

 

 

3

 

 

 

25.0

 

 

 

45

 

 

 

38

 

 

 

7

 

 

 

18.4

 

Resort and club management revenues

 

 

37

 

 

 

33

 

 

 

4

 

 

 

12.1

 

 

 

108

 

 

 

98

 

 

 

10

 

 

 

10.2

 

Club management expense

 

 

7

 

 

 

5

 

 

 

2

 

 

 

40.0

 

 

 

18

 

 

 

15

 

 

 

3

 

 

 

20.0

 

Resort management expense

 

 

5

 

 

 

4

 

 

 

1

 

 

 

25.0

 

 

 

14

 

 

 

10

 

 

 

4

 

 

 

40.0

 

Resort and club management expenses

 

 

12

 

 

 

9

 

 

 

3

 

 

 

33.3

 

 

 

32

 

 

 

25

 

 

 

7

 

 

 

28.0

 

Resort and club management margin

 

$

25

 

 

$

24

 

 

$

1

 

 

 

4.2

 

 

$

76

 

 

$

73

 

 

$

3

 

 

 

4.1

 

Resort and club management margin percentage

 

 

67.6

%

 

 

72.7

%

 

 

 

 

 

 

 

 

 

 

70.4

%

 

 

74.5

%

 

 

 

 

 

 

 

 

Resort and club management revenues increased for the three and nine months ended September 30, 2017, compared to the same periods in 2016, primarily due to (i) ana year over year increase in resort management revenue from the launch of new properties subsequent to the third quarter of 2016 and (ii) an increase of approximately 19,000 in Club members resulting in higher annual dues and transaction fees. These increases were partially offset by higher resort and club management expenses due to an increase in costs for servicing additional Club members and properties.  In addition, for the nine months ended September 30, 2017, the increases were partially offset by a one-time fee earned in 2016 on a prepaid contract.

Resort and club management margin increased for the three and nine months ended September 30, 2017, compared to the same periods in 2016, primarily due to the aforementioned increases in segment revenues, partially offset by an increase in segment expenses as a result of customer and company related initiatives.  Resort and club management margin percentage decreased for the three and nine months ended September 30, 2017, compared to the same periods in 2016, primarily due to an increase in segment expenses as a result of customer and company related initiatives, partially offset by the aforementioned increases in segment revenues.


Rental and Ancillary Services

 

 

Three Months Ended

September 30,

 

 

Variance

 

 

Nine Months Ended

September 30,

 

 

Variance

 

($ in millions)

 

2017

 

 

2016

 

 

$

 

 

%

 

 

2017

 

 

2016

 

 

$

 

 

%

 

Rental revenues

 

$

39

 

 

$

35

 

 

$

4

 

 

 

11.4

%

 

$

120

 

 

$

116

 

 

$

4

 

 

 

3.4

%

Ancillary services revenues

 

 

6

 

 

 

6

 

 

 

 

 

 

 

 

 

18

 

 

 

19

 

 

 

(1

)

 

 

(5.3

)

Rental and ancillary services revenues

 

 

45

 

 

 

41

 

 

 

4

 

 

 

9.8

 

 

 

138

 

 

 

135

 

 

 

3

 

 

 

2.2

 

Rental expenses

 

 

25

 

 

 

23

 

 

 

2

 

 

 

8.7

 

 

 

73

 

 

 

67

 

 

 

6

 

 

 

9.0

 

Ancillary services expense

 

 

5

 

 

 

7

 

 

 

(2

)

 

 

(28.6

)

 

 

15

 

 

 

19

 

 

 

(4

)

 

 

(21.1

)

Rental and ancillary services expenses

 

 

30

 

 

 

30

 

 

 

 

 

 

 

 

 

88

 

 

 

86

 

 

 

2

 

 

 

2.3

 

Rental and ancillary services margin

 

$

15

 

 

$

11

 

 

$

4

 

 

 

36.4

 

 

$

50

 

 

$

49

 

 

$

1

 

 

 

2.0

 

Rental and ancillary services margin percentage

 

 

33.3

%

 

 

26.8

%

 

 

 

 

 

 

 

 

 

 

36.2

%

 

 

36.3

%

 

 

 

 

 

 

 

 

Rental and ancillary services revenues increased for the three months ended September 30, 2017, compared to the same period in 2016, primarily due to an increase of $4 million in rental revenues as a result of higher transient room and club inventory rentals at our developed and fee-for-service properties.  Rental expenses increased by $2 million, offset by a decrease in ancillary expense.  

Rental and ancillary services revenues increased for the nine months ended September 30, 2017, compared to the same period in 2016, primarily due to an increase of $4 million in rental revenues as a result of higher transient room and club inventory rentals at our developed and fee-for-service properties.  The increases were partially offset by (i) a net increase of $2 million in rental expenses due to additional owners and new properties, (ii) a one-time insurance claim payment of $2 million received in 2016, and (iii) a reduction in access fees received due to higher quantity of access fees sold in 2016.

Rental and ancillary services margin increased for the three months ended September 30, 2017, compared to the same period in 2016, due to aforementioned increases in segment revenues and lower property subsidy expenses from operational savings. Rental and ancillary services margin was flat for the nine months ended September 30, 2017, compared to the same period in 2016.

Other Operating Expenses

 

 

Three Months Ended

September 30,

 

 

Variance

 

 

Nine Months Ended

September 30,

 

 

Variance

 

($ in millions)

 

2017

 

 

2016

 

 

$

 

 

%

 

 

2017

 

 

2016

 

 

$

 

 

%

 

Unallocated general and administrative

 

$

23

 

 

$

17

 

 

$

6

 

 

 

35.3

%

 

$

75

 

 

$

44

 

 

$

31

 

 

 

70.5

%

Allocated general and administrative

 

 

 

 

 

7

 

 

 

(7

)

 

 

(100.0

)

 

 

 

 

 

17

 

 

 

(17

)

 

 

(100.0

)

General and administrative

 

$

23

 

 

$

24

 

 

 

(1

)

 

 

(4

)

 

$

75

 

 

$

61

 

 

$

14

 

 

 

23.0

 

Unallocated general and administrative expenses increased for the three and nine months ended September 30, 2017, compared to the same periods in 2016, primarily due to an increase in expenses relating to regulatory filings, professional fees and other costs as a result of becoming an independent publicly traded company. Allocated general and administrative were expenses allocated to us from Hilton relating to the spin-off which was completed on January 3, 2017.

 

 

Three Months Ended

September 30,

 

 

Variance

 

 

Nine Months Ended

September 30,

 

 

Variance

 

($ in millions)

 

2017

 

 

2016

 

 

$

 

 

%

 

 

2017

 

 

2016

 

 

$

 

 

%

 

Depreciation and amortization

 

$

7

 

 

$

6

 

 

$

1

 

 

 

16.7

%

 

$

21

 

 

$

17

 

 

$

4

 

 

 

23.5

%

License fee expense

 

 

22

 

 

 

22

 

 

 

 

 

 

 

 

 

65

 

 

 

61

 

 

 

4

 

 

 

6.6

 

Depreciation and amortizationinterest expense increased for the three and nine months ended September 30, 2017, compared to the same periods in 2016, primarily due to asset transfers from Hilton during the fourth quarter of 2016, some of which we hold as property and equipment for future conversion into inventory. The increase in license fee expense for the nine months ended September 30, 2017 was as a result of the issuance of our senior secured credit facility in the third quarter of 2021, in addition to an increase in revenues.


Non-Operating Expenses

 

 

Three Months Ended

September 30,

 

 

Variance

 

 

Nine Months Ended

September 30,

 

 

Variance

 

($ in millions)

 

2017

 

 

2016

 

 

$

 

 

%

 

 

2017

 

 

2016

 

 

$

 

 

%

 

Gain on foreign currency transactions

 

$

(1

)

 

$

(1

)

 

$

 

 

 

 

 

$

(1

)

 

$

(2

)

 

$

1

 

 

 

(50.0

)%

Allocated Parent interest expense

 

 

 

 

 

7

 

 

 

(7

)

 

 

(100.0

)

 

 

 

 

 

20

 

 

 

(20

)

 

 

(100.0

)

Interest expense

 

 

7

 

 

 

 

 

 

7

 

 

NM(1)

 

 

 

21

 

 

 

 

 

 

21

 

 

NM(1)

 

Other loss, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

(1

)

 

 

(100.0

)

Income tax expense

 

 

28

 

 

 

33

 

 

 

(5

)

 

 

(15.2

)

 

 

87

 

 

 

98

 

 

 

(11

)

 

 

(11.2

)

Equity in earnings from unconsolidated affiliate

 

 

(1

)

 

 

 

 

 

(1

)

 

NM(1)

 

 

 

(1

)

 

 

 

 

 

(1

)

 

NM(1)

 

(1)

Fluctuation in termsOther (gain) loss, net resulting from a loss on debt extinguishment of percentage change is not meaningful.

The Allocated Parent interest expense relates to an unconditional obligation to guarantee certain Hilton allocated debt balances which was releasedcorporate indebtedness in November 2016.

The increase in interest expense for the three and nine months ended September 30, 2017, compared to the same periods in 2016 is directly related to the financing transactions closed during and subsequent to the fourththird quarter of 2016.

2021. Income tax expense decreased foralso increased consistent with the three and nine months ended September 30, 2017, compared toincrease in income before income taxes in the same periods in 2016, primarily due to a decrease in the cumulative installment sale interest liability.

Equity in earnings from unconsolidated affiliate relates to our 25 percent interest in BRE Ace LLC.  See Note 7: Investment in unconsolidated affiliate in our unaudited condensed consolidated financial statements for additional information.

periods.

Liquidity and Capital Resources

Overview

Prior

Our cash management objectives are to maintain the fourth quarteravailability of 2016, any net cash generated by our business has been transferred to Hilton, where it has been centrally managed. Transfers of cash toliquidity, minimize operational costs, make debt payments and from Hilton have been reflected as a component of Net transfers (to) from Parent in our condensed consolidated statements of cash flows.

As of September 30, 2017, we had total cashfund future acquisitions and cash equivalents of $284 million, including $58 million of restricted cash. The restricted cash balance relates to escrowed cash from our sales of our VOIs and consumer financing receivables pledged to our non-recourse revolving timeshare receivable credit facility or securitizations.

development projects. Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating expenses and other expenditures, including payroll and related benefits, legal costs, operating costs associated with the operation of our resorts and sales centers, interest and scheduled principal payments on our outstanding indebtedness, inventory-related purchase commitments, and capital expenditures for renovations and maintenance at our offices and sales centers. Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities, inventory-related purchase commitments and costs associated with potential acquisitions and development projects.

projects, including rebranding.

We finance our business activitiesshort- and long-term liquidity needs primarily with existingthrough cash and cash equivalents, cash generated from our operations, draws on our senior secured credit facility and our non-recourse revolving timeshare credit facility (“Timeshare Facility”), and through periodic securitizations of our timeshare financing receivables.
In April 2022, we completed a securitization of $246 million of gross timeshare financing receivables. The proceeds were primarily used to pay down one of our conduit facilities in full and for general corporate purposes. See Note 13: Debt and Non-Recourse Debt for additional information.
In May 2022, we amended and restated our Timeshare Facility agreement under new terms, which includes increasing the borrowing capacity from $450 million to $750 million allowing us to borrow up to the maximum amount until May 2024 and requiring all amounts borrowed to be repaid in 2025. The Timeshare Facility is secured by certain timeshare financing receivables in our loan portfolio. See Note 13: Debt and Non-Recourse Debt and Note 7: Timeshare Financing Receivables for additional information.
In August 2022, we completed a securitization of $269 million of gross timeshare financing receivables. The proceeds were primarily used to pay down the remaining borrowings of our Timeshare Facility and general corporate operating expenses. See Note 13: Debt and Non-recourse Debt for additional information.
As of September 30, 2022, we had total cash and cash equivalents of $425 million, including $319 million of restricted cash.
As of September 30, 2022, we had $999 million remaining borrowing capacity under the revolver facility.
As of September 30, 2022, we had an aggregate of $750 million remaining borrowing capacity in total under our Timeshare Facility due in 2025. Of this amount, we have $178 million of mortgage notes that are available to be securitized and another $324 million of mortgage notes that we expect will become eligible as soon as they meet typical milestones including receipt of first payment, deeding, or recording.
We believe that this cash willour capital allocation strategy provides adequate funding for our operations, is flexible enough to fund our development pipeline, securitizes the optimal level of receivables, and provides the ability to be adequatestrategically opportunistic in the marketplace. We have made commitments with developers to meet anticipated requirements for operating expensespurchase vacation ownership units at a future date to be marketed and other expenditures, including payroll and related benefits, legal costs and capital expenditures for the foreseeable future. The objectivessold under our Hilton Grand Vacations brand. As of September 30, 2022, our cash management policy are to maintain the availabilityinventory-related purchase commitments totaled $270 million over 8 years.
45

Table of liquidity, minimize operational costs, make debt payments and fund future acquisitions and development projects. Further, we have an investment policy that is focused on the preservation of capital and maximizing the return on new and existing investments.

Contents

Sources and Uses of Our Cash

The following table summarizes our net cash flows and key metrics related to our liquidity:

 

 

Nine Months Ended September 30,

 

 

Variance

 

 

($ in millions)

 

2017

 

 

2016

 

 

$

 

 

%

 

 

Net cash provided by (used in):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities(2)

 

$

299

 

 

$

133

 

 

$

166

 

 

NM(1)

 

 

Investing activities

 

 

(77

)

 

 

(21

)

 

 

(56

)

 

NM(1)

 

 

Financing activities(2)

 

 

(89

)

 

 

(94

)

 

 

5

 

 

 

(5.3

)

 

(1)

Fluctuation in terms of percentage change is not meaningful.

(2)

Reflects the adoption of Accounting Standards Update (“ASU”) No. 2016-18, (“ASU 2016-18”) Statement of Cash Flows (Topic 230): Restricted Cash. See Note 2: Significant Accounting Policies in our unaudited condensed consolidated financial statements for further discussion.

Nine Months Ended September 30,Variance
($ in millions)20222021
$
Net cash provided by (used in):
Operating activities$763 $36 $727 
Investing activities(51)(1,610)1,559 
Financing activities(644)1,612 (2,256)

Operating Activities

Cash flow provided by operating activities is primarily generated from (1) sales and financing of VOIs and (2) net cash generated from managing our resorts, Club and Diamond Club operations and providing related rental and ancillary services. Cash flows used in operating activities primarily include spending for the acquisition of inventory,purchase and development of new phases of existing resortsreal estate for future conversion to inventory and funding our working capital needs. Our cash flows from operations generally vary due to the following factors related to the sale of our VOIs:VOIs; the degree to which our owners finance their purchase and our owners’ repayment of timeshare financing receivables; the timing of management and sales and marketing services provided; and cash outlays for VOI inventory acquisition and development. Additionally, cash flow from operations will also vary depending upon our sales mix of VOIs; over time, we generally receive more cash from the sale of an owned VOI as compared to that from a fee-for-service sale.

Net

The change in net cash flows provided by operating activities increased by $166 million during the nine months ended September 30, 2017, compared to the same period in 2016, primarily as a result of improved operating results in the real estate sales and financing segment and increased sources of cash for working capital requirements.  In addition, as permitted by the federal government pursuant to a tax relief program for regions impacted by Hurricane Irma, we deferred our estimated federal tax payment until the first quarter of 2018.

Capital efficiency allows us to reduce inventory investment requirements and to generate growth in revenues and cash flows. Over a short-term period, depending on the timing of inventory spend, our capital efficiency may vary; however, over the long-term, we generally target a 50/50 mix of owned and fee-for-service inventory, which we expect will allow us to expand partner relationships and to provide a strong inventory supply without the upfront capital investment. In addition, we continue to move towards more just-in-time owned inventory sourcing arrangements that we expect to also drive capital efficiency. The change for the nine months ended September 30, 2017,2022, compared to the same period in 2016, is2021 was primarily duedriven by increased sales and operating performance compared to reducedthe prior year, as discussed above, in addition to an increase in net working capital from operations.

The following table summarizes our VOI inventory spending:
Nine Months Ended September 30,
($ in millions)20222021
VOI spending - owned properties(1)
$96 $159 
VOI spending - fee-for-service upgrades(2)
Purchases and development of real estate for future conversion to inventory25 
Total VOI inventory spending$109 $189 
(1)For the nine months ended September 30, 2022 and 2021, our VOI inventory spending while maintaining a consistent sales paceon owned properties relates to deeded properties that are classified as Inventory on our unaudited condensed consolidated balance sheets.
(2)Includes expense related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects from developed projects of $6 million and fewer fee-for-service upgrades.  However, over the long-term, we consider a ratio of VOI inventory spend to cost$4 million recorded in Costs of VOI sales of 1:1 to be indicative of capital efficiency.

The following is a summary of our Capital Efficiency Ratio:

 

 

Nine Months Ended September 30,

 

($ in millions)

 

2017

 

 

2016

 

VOI spending - owned properties

 

$

31

 

 

$

62

 

VOI spending - fee-for-service upgrades

 

 

41

 

 

 

65

 

Total VOI inventory spending(1)

 

$

72

 

 

$

127

 

Cost of VOI sales(1)

 

$

107

 

 

$

110

 

Capital Efficiency Ratio

 

 

1.5

 

 

 

0.9

 

(1)

Includes costs of VOI sales related to the cost of reacquiring inventory that we have developed from existing owners upgrading into fee-for-service projects. Excludes non-cash asset transfers from Hilton and non-cash inventory accruals.

for the nine months ended September 30, 2022 and 2021, respectively.

Investing Activities

The following table summarizes our net cash used in investing activities:

 

Nine Months Ended September 30,

 

 

Variance

 

Nine Months Ended September 30,Variance

($ in millions)

 

2017

 

 

2016

 

 

$

 

 

%

 

($ in millions)20222021$
Acquisition of Diamond, net of cash and restricted cash acquiredAcquisition of Diamond, net of cash and restricted cash acquired$— $(1,585)$1,585 

Capital expenditures for property and equipment

 

$

(25

)

 

$

(16

)

 

$

(9

)

 

 

56.3

%

Capital expenditures for property and equipment(25)(11)(14)

Software capitalization costs

 

 

(12

)

 

 

(5

)

 

 

(7

)

 

NM(1)

 

Software capitalization costs(26)(14)(12)

Investment in unconsolidated affiliate

 

 

(40

)

 

 

 

 

 

(40

)

 

NM(1)

 

Net cash used in investing activities

 

$

(77

)

 

$

(21

)

 

$

(56

)

 

NM(1)

 

Net cash used in investing activities$(51)$(1,610)$1,559 

(1)

Fluctuation in terms of percentage change is not meaningful.

Our capital expenditures include spending related to technology and buildings and leasehold improvements used to support sales and marketing locations, resort operations and corporate activities.activities in addition to capitalized costs

46

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associated with rebranding Legacy-Diamond properties as a result of the Diamond Acquisition. We believe the renovations of our existing assets are necessary to stay competitive in the markets in which we operate.

The change in net cash used in investing activities for nine months ended September 30, 2022, compared to the same period in 2021, was primarily due to costs associated with acquisition of Diamond in the third quarter of 2021.
Financing Activities

The following table summarizes our net cash used in(used in) provided by financing activities:

 

 

Nine Months Ended September 30,

 

 

Variance

 

($ in millions)

 

2017

 

 

2016

 

 

$

 

 

%

 

Issuance of non-recourse debt

 

$

350

 

 

$

 

 

$

350

 

 

NM(1)

 

Repayment of non-recourse debt

 

 

(428

)

 

 

(85

)

 

 

(343

)

 

NM(1)

 

Repayment of debt

 

 

(7

)

 

 

 

 

 

(7

)

 

NM(1)

 

Debt issuance costs

 

 

(5

)

 

 

(6

)

 

 

1

 

 

 

(16.7

)%

Allocated Parent debt activity

 

 

 

 

 

111

 

 

 

(111

)

 

 

(100.0

)

Net transfers to Parent(2)

 

 

 

 

 

(114

)

 

 

114

 

 

 

(100.0

)

Proceeds from stock option exercises

 

 

1

 

 

 

 

 

 

1

 

 

NM(1)

 

Net cash used in financing activities

 

$

(89

)

 

$

(94

)

 

$

5

 

 

 

(5.3

)

(1)

Fluctuation in terms of percentage change is not meaningful.

(2)

All transactions between HGV and Hilton have been settled in connection with the spin-off.

Nine Months Ended September 30,Variance
($ in millions)20222021$
Issuance of debt$— $2,650 $(2,650)
Issuance of non-recourse debt671 96 575 
Repayment of debt(310)(843)533 
Repayment of non-recourse debt(824)(234)(590)
Debt issuance costs and discounts(12)(61)49 
Repurchase and retirement of common stock(162)— (162)
Payment of withholding taxes on vesting of restricted stock units(8)(5)(3)
Proceeds from employee stock plan purchases
Proceeds from stock option exercises10 (9)
Other financing activity(2)(2)— 
Net cash (used in) provided by financing activities$(644)$1,612 $(2,256)

Thechange in net cash used inprovided by financing activities for the nine months ended September 30, 2017,2022, compared to the same period in 2016,2021, was primarily due to our financing transactions that occurreddriven by corporate debt drawn in connection with the Diamond Acquisition in the firstthird quarter of 2017. During2021, in addition to the nine months ended September 30, 2017, we issued $350 millionlaunch of our share repurchase program in the first half of 2022.
Contractual Obligations
Our commitments primarily relate to agreements with developers to purchase or construct vacation ownership units, operating leases, and obligations associated with our debt, non-recourse securitized debt and paid $5 million in debt issuance costs. The proceeds received from the non-recourse securitized debt were used to pay down a portion of our timeshare facility. We also paid $7 million of the principal amount of the senior secured term loan. See Note 8: Debt & Non -recourse debt in our unaudited condensed consolidated financial statements for further discussion. Additionally, following the spin-off date we no longer receive transfers from Hilton.

Contractual Obligations

The following table summarizes our significant contractual obligations as of September 30, 2017:

 

 

Payments Due by Period

 

($ in millions)

 

Total

 

 

Less Than 1

Year

 

 

1-3 Years

 

 

3-5 Years

 

 

More Than 5

Years

 

Debt(1)

 

$

650

 

 

$

35

 

 

$

69

 

 

$

206

 

 

$

340

 

Non-recourse debt(1)

 

 

652

 

 

 

147

 

 

 

348

 

 

 

100

 

 

 

57

 

Purchase commitments

 

 

208

 

 

 

3

 

 

 

196

 

 

 

9

 

 

 

 

Total contractual obligations

 

$

1,510

 

 

$

185

 

 

$

613

 

 

$

315

 

 

$

397

 

(1)

Includes principal, as well as estimated interest payments. For our variable-rate debt, we have assumed a constant 30-day LIBOR rate of 1.23 percent as of September 30, 2017.


related interest. As of September 30, 2017, our2022, we were committed to approximately $5,054 million in contractual obligations relating to our operating leases have not materially changed from what was reported in our Annual Report on Form 10-K for the year ended December 31, 2016.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements as of September 30, 2017 consisted of $208over 9 years, $312 million of certain commitments with developers whereby we have committed to purchase vacation ownership units at a future date towhich will be marketed and sold underfulfilled in the Hilton Grand Vacations brand.remainder of 2022. The ultimate amount and timing of the acquisitionscertain commitments is subject to change pursuant to the terms of the respective arrangements, which could also allow for cancellation in certain circumstances. See Note 15: 21: Commitments and Contingencies, Note 13: Debt and Non-recourse Debt and Note 15: Leases in our unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for a discussionadditional information. We also intend to rebrand Diamond properties to brands that meet Hilton standards in accordance with the Amended and Restated License Agreement with Hilton.

We utilize surety bonds related to the sales of VOIs in order to meet regulatory requirements of certain states. The availability, terms and conditions and pricing of such bonding capacity are dependent on, among other things, continued financial strength and stability of the insurance company affiliates providing the bonding capacity, general availability of such capacity and our off-balance sheet arrangements.

Subsequent Events

On October 13, 2017, we acquiredcorporate credit rating. We have commitments from surety providers in the amount of $303 million as of September 30, 2022 which primarily consist of escrow and construction related bonds.

Guarantor Financial Information
Certain subsidiaries, which are listed on Exhibit 22 of this Quarterly Report on Form 10-Q, have guaranteed our obligations related to our senior unsecured 2029 Notes and 2031 Notes (together, “the Notes”). The 2029 Notes were issued in June 2021 with an 83-unit, ski-in mountain lodgeaggregate principal balance of $850 million, an interest rate of 5 percent, and maturity in Park City, Utah, known as “The Sunrise Lodge, aJune 2029. The 2031 Notes were issued in June 2021 with an aggregate principal balance of $500 million, an interest rate of 4.875 percent, and maturity in July 2031.
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The Notes were co-issued by Hilton Grand Vacations Club.”  PriorBorrower LLC and Hilton Grand Vacations Borrower Inc. (the “Issuers”) and are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by Hilton Grand Vacations Inc. (the “Parent”), Hilton Grand Vacations Parent LLC, the Issuers, and each of the Issuer’s existing and future wholly owned domestic restricted subsidiaries (all entities that guarantee the Notes, collectively, the “Obligor group”).
The Notes rank equally in right of payment with all of the Issuers’ and each guarantor’s existing and future senior indebtedness, are subordinated to all of the Issuers’ and guarantors’ existing and future secured indebtedness to the acquisition, HGV was providing marketing, salesextent of the value of the collateral securing such indebtedness, including the Senior Secured Credit Facilities, rank senior in right of payment to all of the Issuers’ and resort management servicesguarantors’ future subordinated indebtedness and other obligations that expressly provide for their subordination to the seller Sunrise Park City, LLC undernotes and the related guarantees, and are structurally subordinated to all existing and future indebtedness claims of holders of preferred stock and other liabilities of the Issuer’s subsidiaries that do not guarantee the Notes.
The guarantee of each guarantor subsidiary is limited to a fee-for-service agreement.  

maximum amount, subject to applicable U.S. and non-U.S. laws. The guarantees can also be released upon the sale or transfer of a guarantor subsidiary’s capital stock or substantially all of its assets, becoming designated as an unrestricted subsidiary, or upon its consolidation into a co-Issuer or another subsidiary Guarantor.


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Table of Contents
The following tables provide summarized financial information of the Obligor group on a combined basis after elimination of (i) intercompany transactions and balances between the Parent and the subsidiary Guarantors and (ii) investments in and equity in the earnings of non-Guarantor subsidiaries and unconsolidated affiliates:
Summarized Financial Information
($ in millions)September 30,
2022
December 31,
2021
Assets
Cash and cash equivalents$299 $333 
Restricted cash207 165 
Accounts receivable, net - due from non-guarantor subsidiaries37 45 
Accounts receivable, net - due from related parties14 20 
Accounts receivable, net - other295 231 
Timeshare financing receivables, net526 678 
Inventory1,014 727 
Property and equipment, net747 693 
Operating lease right-of-use assets, net54 66 
Investments in unconsolidated affiliates69 59 
Goodwill1,416 1,377 
Intangible assets, net1,318 1,441 
Land and Infrastructure held for sale— 41 
Other assets366 263 
Total assets$6,362 $6,139 
Liabilities
Accounts payable, accrued expenses and other - due from non-guarantor subsidiaries$37 $45 
Accounts payable, accrued expenses and other - other878 592 
Advanced deposits135 111 
Debt, net2,612 2,912 
Operating lease liabilities72 83 
Deferred revenues185 150 
Deferred income tax liabilities681 649 
Total liabilities$4,600 $4,542 
($ in millions)Nine Months Ended September 30, 2022
Total revenues - transactions with non-guarantor subsidiaries$
Total revenues - other2,478 
Operating income338 
Net income155 
Subsequent Events
Management has evaluated all subsequent events through November 9, 2022 the date the unaudited consolidated financial statements were available to be issued. The results of management’s analysis indicated no significant subsequent events have occurred that required consideration or adjustments to our disclosures in the unaudited financial statements.
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Critical Accounting Policies and Estimates

The preparation of our unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts and related disclosures. We have discussed those policies and estimates that we believe are critical and require the use of complex judgment in their application in our Annual Report on Form 10-K for the year ended December 31, 2016. Since the date of our Annual Report on Form 10-K, there have been no material changes to our critical accounting policies or the methods or assumptions we apply under them.

2021.

ITEM 3.

ITEM 3.    Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk from changes in interest rates and currency exchange rates and debt prices.rates. We manage our exposure to these risks by monitoring available financing alternatives and through pricing policies that may take into account currency exchange rates. Our exposure to market risk has not materially changed from what we previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.

2021.

Interest Rate Risk

We are exposed to interest rate risk on our variable-rate debt, comprised of the term loansTerm Loan, Revolver and our timeshare facility,Timeshare Facility, of which the timeshare facilityTimeshare Facility, is without recourse to us. The interest rate isrates are primarily based on one-month LIBOR and we are most vulnerable to changes in this rate.

The interest rate for our Timeshare Facility is based on one-month term SOFR, for which we are also vulnerable to fluctuations in this rate. We intend to securitize timeshare financing receivables in the asset-backed financing market periodically. We expect to secure fixedprimarily use interest rate funding to matchswaps as part of our fixedinterest rate timeshare financing receivables. However, if werisk management strategy for our variable-rate debt.

Our interest rate swaps have floating rate debt in the future, we will monitor thebeen designated and qualify as cash flow hedges of interest rate risk and evaluate opportunities to mitigate such risk through the use of derivative instruments.

To the extent we utilize variable rate indebtednessrecorded as an asset in the future, any increaseOther Assets in interest rates beyond amounts covered under any corresponding derivative financial instruments, particularly if sustained, could have an adverse effect on our net income, cash flows and financial position. Hedging transactions we enter into may not adequately mitigate the adverse effects of interest rate increases or that counterparties in those transactions will honor their obligations.


The following table sets forth the contractual maturities, weighted average interest rates and the total fair valuesunaudited condensed consolidated balance sheets as of September 30, 2017, for our financial instruments that are materially affected by interest rate risk:

 

 

 

 

 

 

 

Maturities by Period

 

($ in millions)

 

Weighted

Average

Interest

Rate(1)

 

 

2017

 

 

2018

 

 

2019

 

 

2020

 

 

2021

 

 

There-

after

 

 

Total(2)

 

 

Fair

Value

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-rate securitized timeshare

   financing receivables

 

 

11.901

%

 

$

19

 

 

$

76

 

 

$

75

 

 

$

72

 

 

$

67

 

 

$

197

 

 

$

506

 

 

$

595

 

Fixed-rate unsecuritized timeshare

   financing receivables

 

 

12.272

%

 

 

28

 

 

 

56

 

 

 

60

 

 

 

65

 

 

 

70

 

 

 

408

 

 

 

687

 

 

 

799

 

Liabilities:(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-rate debt

 

 

3.836

%

 

 

30

 

 

 

134

 

 

 

99

 

 

 

120

 

 

 

32

 

 

 

374

 

 

 

789

 

 

 

817

 

Variable-rate debt(4)

 

 

3.103

%

 

 

3

 

 

 

10

 

 

 

139

 

 

 

10

 

 

 

160

 

 

 

 

 

 

322

 

 

 

326

 

(1)

Weighted average interest rate as of September 30, 2017.

2022 and December 31, 2021. For further information regarding these swaps, see Note 13: Debt and Non-recourse Debt and Note 14: Fair Value Measurements.

(2)

Amount excludes unamortized deferred financing costs.

(3)

Includes debt and non-recourse debt.

(4)

Variable-rate debt includes principal outstanding debt of $193 million and non-recourse debt of $129 million as of September 30, 2017. See Note 8: Debt & Non-recourse debt in our unaudited condensed consolidated financial statements for additional information.

Foreign Currency Exchange Rate Risk

Though the majority of our operations are conducted in United States dollar (“U.S. dollar”), we are exposed to earnings and cash flow volatility associated with changes in foreign currency exchange rates. Our principal exposure results from our sales of VOIs in Japanese Yen and timeshare financing receivables denominated in Japanese yen and Canadian dollars, the value of which could change materially in reference to our reporting currency, the U.S. dollar. A 10 percent increase in the foreign exchange rate of Japanese yen to U.S. dollar would increase our gross timeshare financing receivables by less than $1 million.

ITEM 4.

ITEM 4.    Controls and Procedures

Disclosure Controls and Procedures

As

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) or our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of the controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error and mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of effectiveness of controls and procedures to future periods are subject to the risk that the controls and procedures may become inadequate because of changes in conditions, or that the degree of compliance with the controls and procedures may have deteriorated.
In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q, we evaluated,quarterly report, an evaluation was carried out 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 operationeffectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (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 noteprocedures. Based on 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 our disclosure controls and procedures, as of the end of the period covered by this quarterly report, were effective and operating to provide reasonable assurance that we record, process, summarize and report the information we are required to disclosebe disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed,
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summarized and reported within the time periods specified in theSEC rules and forms of the SEC, and to provide reasonable assurance that we accumulateis accumulated and communicate such informationcommunicated to our management, including ourthe Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions aboutregarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

reporting, other than changes in control over financial reporting to integrate the business we acquired in the Diamond Acquisition. In the third quarter of 2022, we integrated Diamond into our general ledger system.

PART II OTHER INFORMATION

Item 1.

Item 1.    Legal Proceedings

We are involved in litigation arising from the normal course of business, some of which includes claims for substantial sums.sums as detailed above in Note 21: Commitments and Contingencies. Management has also identified certain otherevaluated these legal matters whereand we believe ancertain unfavorable outcome isoutcomes are reasonably possible and/orprobable and estimable. We have accrued liabilities for these matters which no estimate of possible losses can be made.are included in the September 30, 2022 unaudited condensed consolidated financial statements. While the ultimate results of claims and litigation cannot be predicted with certainty, we expect that the ultimate resolution of all pending or threatened claims and litigation as of September 30, 20172022 will not have a material effect on our unaudited condensed consolidated results of operations, financial position or cash flows.

statements.

Item 1A.

Item 1A.    Risk Factors

Set forth below are the material changes

The following represents important updates to the risk factors discussedpreviously disclosed in Item 1A1A. of Part 1I of the Annual Report on Form 10-K for the year ended December 31, 2016. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed below and in Item 1A of Part 1 of the Annual Report on Form 10-K for the year ended December 31, 2016, which could materially and adversely affect our business, financial condition, results of operations and stock price. The risks described below and in the Annual Report on Form 10-K are not the only risks facing HGV. Additional risks and uncertainties not presently known to management or that management presently believes not to be material may also result in material and adverse effects on our business, financial condition, results of operations and stock price.

Partnership or joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on partners’ or co-venturers’ financial condition, disputes between us and our partners or co-venturers and our obligation to guaranty certain obligations beyond the amount of our investments.

We may co-invest in the future with other third parties through partnerships, joint ventures or other entities, acquiring non-controlling interests in, or sharing responsibility for managing the affairs, of a timeshare property, partnership, joint venture or other entity. For example, we recently entered into the Joint Venture Agreement with BRE Ace Holdings, an affiliate of Blackstone, pursuant to which we acquired a non-managing 25 percent interest in BRE Ace LLC, which owns a 1,201-key timeshare resort property and related operations, commonly known as “Elara, by Hilton Grand Vacations,” located in Las Vegas, Nevada (the “Elara Joint Venture.”) Consequently, with respect to any such third-party arrangements, we would not be in a position to exercise sole decision-making authority regarding the property, partnership, joint venture or other entity, and may, under certain circumstances, be exposed to risks not present if a third party were not involved, including the possibility that partners or co-venturers might become bankrupt or fail to fund their share of required capital contributions, and we may be forced to make contributions to maintain the value of the property. Such investments may also have the potential risk of impasses on decisions, such as a sale, because neither we nor the partner or co-venturer may have full control over the partnership or joint venture. We and our respective partners or co-venturers may each have the right to trigger a buy-sell right or forced sale arrangement, which could cause us to sell our interest, or acquire our partners’ or co-venturers’ interest, or to sell the underlying asset, either on unfavorable terms or at a time when we otherwise would not have initiated such a transaction. In addition, a sale or transfer by us to a third party of our interests in the partnership or joint venture may be subject to consent rights or rights of first refusal in favor of our partners or co-venturers, which would in each case restrict our ability to dispose of our interest in the partnership or joint venture. For example, our joint venture partner in the Elara Joint Venture generally has exclusive authority to manage the business and affairs of the Elara Joint Venture, and has the discretion to call for additional capital contributions at any time. In addition, it has certain rights to transfer or sell some or all of its interests in the Elara Joint Venture and/or the Property without our consent or, in certain situations, require us to sell our interests at the same time, while we are not permitted to sell or transfer our interest without their consent. Any or all of these factors could adversely affect the value of our investment, our ability to exit, sell or dispose of our investment at times that are beneficial to us, or our financial commitment to maintaining our interest in the joint ventures.

Our joint ventures may be subject to debt and the refinancing of such debt, and we may be required to provide certain guarantees or be responsible for the full amount of the debt in certain circumstances in the event of a default beyond the amount of our equity investment. Our joint venture partners may take actions that are inconsistent with the interests of the partnership or joint venture, or in violation of the financing arrangements and trigger our guaranty, which may expose us to substantial financial obligation and commitment that are beyond our ability to fund. In addition, partners or co-venturers may have economic or other business interests or goals that are inconsistent with our business interests or goals and may be in a position to take action or withhold consent contrary to our policies or objectives. In some instances, partners or co-venturers may have competing interests in our markets that could create conflict of interest issues. Disputes between us and partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers from focusing their time and effort on our business. Consequently, actions by or disputes with partners or co-venturers might result in subjecting assets owned by the partnership or joint venture to additional risk. In addition, we may, in certain circumstances, be liable for the actions of our third-party partners or co-venturers.


A significant percentage of our revenue is derived from our fee-for-service agreements with respect to two properties that are owned by a third party, and any termination of such arrangements could have a materially adverse impact on our revenues and financial results.

We derived approximately 20 percent and 14 percent of our revenues for the quarter and nine months ended September 30, 2017, respectively, from fee-for-service fees with respect two of our properties that are owned single third party and for which we have entered into fee-for-service agreements. If these fee-for-service agreements are terminated by the property owner, if one or both properties are sold to another party without the continuation of such arrangement, or if there is any occurrence or existence of any adverse economic development, adverse acts of natural or manmade disasters, or any other conditions (as more fully described in our Risk Factors contained in our Annual Report on Form 10-K for the year ended December 31, 2017, as updated2021 (our “2021 Form 10-K”). The risk factors included in our 2021 Form 10-K are important to understanding our business, operation, results of operations, financial condition, prospects, and our statements generally in this Form 10-Q. Therefore, they should be read in conjunction with the unaudited condensed consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q.

In addition, the following risks and those risks described in our 2021 Form 10-K contain forward-looking statements, and they may not be the only risks facing the Company. The future business, results of operations and financial condition of the Company can be affected by the risk factors described in such reports and by other factors currently unknown, that management presently believes not to be material, that management has made certain forward-looking projections, estimates or assumptions on, or that may rapidly evolve, develop or change. Any one or more of such factors could, directly or indirectly, cause our actual financial condition and results of operations to vary materially and adversely from time to time) that negativelypast, or disproportionately adversely affects either or bothfrom anticipated future financial condition and results of operations. Any of these two properties,factors, in whole or in part, could materially and adversely affect our revenues,business, results of operations and financial condition and the trading price of our common stock. Because of these factors affecting our financial condition, key business operational metrics, and operating results, and ourpast financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.
We cannot guarantee that we will repurchase our common stock pursuant to our share repurchase program or that our share repurchase program will enhance long-term shareholder value. Share repurchases could also increase the volatility of the price of our common stock and diminish our cash reserves.
On May 4, 2022, our Board of Directors authorized a share repurchase program (the “Repurchase Program”), pursuant to which we may repurchase up to $500 million of our common stock over a two year period. The timing and amount of repurchases of shares of our common stock, if any, will depend upon several factors, such as the market price of our common stock, general market and economic conditions, our working capital requirements and corporate strategy, the terms of our financing arrangements and applicable legal requirements. We are not obligated to repurchase any specific number or amount of shares of common stock pursuant to the Repurchase Program, and we may modify, suspend or terminate the Repurchase Program at any time without prior notice. Repurchases of our common stock pursuant to the Repurchase Program could impact our stock price and increase its volatility. The existence of the Repurchase Program could cause our stock price to be materially adversely impacted.


higher than it would be in the absence of such a program. Additionally, the Repurchase Program could diminish our cash reserves, which may impact our ability to finance future growth and to pursue possible

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

51

None.


Table of Contents
future strategic opportunities. There can be no assurance that any share repurchases will enhance long-term stockholder value, and the market price of our common stock may decline below the levels at which we repurchased shares of stock.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

(c) Issuer Purchases of Equity Securities

On May 4, 2022, our Board of Directors approved a share repurchase program authorizing the Company to repurchase up to an aggregate of $500 million of its outstanding shares of common stock over a two-year period. The timing and actual number of shares repurchased will depend on a variety of factors, including the stock price, corporate and regulatory requirements and other market and economic conditions. The stock repurchase program may be suspended or discontinued at any time and will automatically expire at the end of the two-year term. During the three months ended September 30, 2022, we repurchased the following shares:

PeriodTotal Number of Shares PurchasedAverage Price Paid Per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsApproximate Dollar Value of Shares that May Yet Be Purchased Under Plan
July 1 – July 31, 2022728,559 $37.44 728,559 $389,967,660 
August 1 – August 31, 2022525,000 43.45 525,000 367,155,259 
September 1 – September 30, 20221,071,944 36.62 1,071,944 327,896,968 
Total2,325,503 $38.42 2,325,503 

Item 3.

Item 3.    Defaults Upon Senior Securities

None.

Item 4.

Item 4.    Mine Safety Disclosures

Not applicable.

Item 5.

Item 5.    Other Information

None.


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Table of Contents
Item 6.    Exhibits

Item 6.

Exhibits

Exhibit

No.

Description

Exhibit
No.

Description

3.1

3.1

3.2

10.1

3.3

11.1

22

31.1

31.1*

31.2

31.2*

32.1

32.1*

32.2

32.2*

101.INS

101.NS

Inline XBRL Instance Document.

Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

Inline XBRL Taxonomy Calculation Linkbase Document.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

Inline XBRL Taxonomy Label Linkbase Document.

101.PRE

Inline XBRL Taxonomy Presentation Linkbase Document.

104

The cover page for the Company’s Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101

*

Denotes management contract or compensatory plan or arrangement.

_____________________


*Filed herewith

53

Table of ContentsSIGNATURES

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 2nd9th day of November 2017.

2022.

HILTON GRAND VACATIONS INC.

By:

By:

/s/ Mark D. Wang

Name:

Name:

Mark D. Wang

Title:

Title:

President and Chief Executive Officer

By:
/s/ Daniel J. Mathewes

By:

/s/ James E. Mikolaichik 

Name:
Daniel J. Mathewes

Name:

James E. Mikolaichik

Title:

Senior Executive Vice President and Chief Financial Officer

54