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

☒

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

For the quarterly period ended ~~September~~June 30, ~~2020~~2021

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

☐

~~TRANSITION 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
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	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)~~ (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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	HGV	New 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☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes☒ No ☐

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.


Large Accelerated Filer	☒	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller Reporting Company	☐
Emerging Growth Company	☐

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. ☐

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

The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, as of ~~October 23, 2020~~July 26, 2021 was ~~85,106,483.~~85,752,632.

HILTON GRAND VACATIONS INC.

FORM 10-Q TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION

Item 1.		Financial Statements	21
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	2623
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	4542
Item 4.		Controls and Procedures	4643

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings		4744
Item 1A.	Risk Factors		4744
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		5052
Item 3.	Defaults Upon Senior Securities		5052
Item 4.	Mine Safety Disclosures		5053
Item 5.	Other Information		5053
Item 6.	Exhibits		5154
	Signatures		5356

PART I FINANCIAL INFORMATION

Item 1.Financial Statements

~~Item 1.~~

~~Financial Statements~~

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data)


	September 30,		December 31,		June 30,		December 31,
	2020		2019		2021		2020
	(unaudited)				(unaudited)
ASSETS
Cash and cash equivalents	$	625	$	67	$	318	$	428
Restricted cash		92		85		1,462		98
Accounts receivable, net of allowance for credit losses of $18 and $21		109		174
Accounts receivable, net of allowance for doubtful accounts of $19 and $20						220		119
Timeshare financing receivables, net		1,012		1,156		927		974
Inventory		933		558		730		702
Property and equipment, net		488		778		508		501
Operating lease right-of-use assets, net		55		60		45		52
Investments in unconsolidated affiliates		49		44		57		51
Intangible assets, net		80		77		80		81
Land and infrastructure held for sale						41		41
Other assets		101		80		119		87
TOTAL ASSETS (variable interest entities - $866 and $748)	$	3,544	$	3,079
TOTAL ASSETS (variable interest entities - $686 and $800)					$	4,507	$	3,134
LIABILITIES AND EQUITY
Liabilities:
Accounts payable, accrued expenses and other	$	264	$	298	$	335	$	252
Advanced deposits		119		115		117		117
Debt, net		1,262		828		2,431		1,159
Non-recourse debt, net		837		747		650		766
Operating lease liabilities		70		76		59		67
Deferred revenues		261		186		372		262
Deferred income tax liabilities		209		259		147		137
Total liabilities (variable interest entities - $842 and $750)		3,022		2,509
Total liabilities (variable interest entities - $654 and $771)						4,111		2,760
Commitments and contingencies - see Note 19
Equity:
Preferred stock, $0.01 par value; 300,000,000 authorized shares, NaN issued or outstanding as of September 30, 2020 and December 31, 2019		—		—
Common stock, $0.01 par value; 3,000,000,000 authorized shares, 85,086,548 shares issued and outstanding as of September 30, 2020 and 85,535,501 shares issued and outstanding as of December 31, 2019		1		1
Preferred stock, $0.01 par value; 300,000,000 authorized shares, NaN issued or outstanding as of June 30, 2021 and December 31, 2020						—		—
Common stock, $0.01 par value; 3,000,000,000 authorized shares, 85,752,632 shares issued and outstanding as of June 30, 2021 and 85,205,012 shares issued and outstanding as of December 31, 2020						1		1
Additional paid-in capital		186		179		212		192
Accumulated retained earnings		335		390		183		181
Total equity		522		570		396		374
TOTAL LIABILITIES AND EQUITY	$	3,544	$	3,079	$	4,507	$	3,134

See notes to unaudited condensed consolidated financial statements.

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 June 30,						Six Months Ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
Revenues
Sales of VOIs, net	$	24		$	138		$	80		$	383		$	76		$	—		$	109		$	56
Sales, marketing, brand and other fees		52			143			171			429			81			13			134			119
Financing		40			43			127			127			37			43			74			87
Resort and club management		39			45			122			130			48			39			93			83
Rental and ancillary services		20			54			77			173			54			5			86			57
Cost reimbursements		33			43			105			128			38			23			73			72
Total revenues		208			466			682			1,370			334			123			569			474
Expenses
Cost of VOI sales		8			24			21			92			21			(1	)		24			13
Sales and marketing		79			188			297			544			116			61			198			218
Financing		13			14			39			39			11			13			24			26
Resort and club management		9			11			27			34			11			6			19			18
Rental and ancillary services		24			36			85			108			36			24			67			61
General and administrative		22			30			65			87			44			22			80			43
Depreciation and amortization		11			12			34			32			12			11			23			23
License fee expense		11			26			39			75			19			6			33			28
Impairment expense														—			—			1			—
Cost reimbursements		33			43			105			128			38			23			73			72
Total operating expenses		210			384			712			1,139			308			165			542			502
Interest expense		(10	)		(12	)		(32	)		(33	)		(17	)		(12	)		(32	)		(22	)
Equity in (losses) earnings from unconsolidated affiliates		(1	)		1			3			4
Other gain (loss), net		1			(1	)		—			(3	)
(Loss) Income before income taxes		(12	)		70			(59	)		199
Income tax benefit (expense)		5			(20	)		12			(55	)
Net (loss) income	$	(7	)	$	50		$	(47	)	$	144
(Loss) Earnings per share:
Equity in earnings from unconsolidated affiliates														4			1			6			4
Other loss, net														(1	)		(3	)		(2	)		(1	)
Income (loss) before income taxes														12			(56	)		(1	)		(47	)
Income tax (expense) benefit														(3	)		8			3			7
Net income (loss)													$	9		$	(48	)	$	2		$	(40	)
Earnings (loss) per share:
Basic	$	(0.08	)	$	0.59		$	(0.55	)	$	1.61		$	0.10		$	(0.56	)	$	0.02		$	(0.47	)
Diluted	$	(0.08	)	$	0.59		$	(0.55	)	$	1.60		$	0.10		$	(0.56	)	$	0.02		$	(0.47	)

See notes to unaudited condensed consolidated financial statements.

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in millions)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2020			2019			2021			2020
Operating Activities
Net (loss) income	$	(47	)	$	144
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Net income (loss)							$	2		$	(40	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		34			32			23			23
Amortization of deferred financing costs, contract costs, and other		13			12
Amortization of deferred financing costs, contract costs and other								10			9
Provision for financing receivables losses		57			60			28			45
Impairment expense								1			—
Other loss, net		—			3			2			1
Share-based compensation		10			18			18			4
Deferred income tax benefit		(50	)		(21	)
Deferred income tax expense (benefit)								9			(31	)
Equity in earnings from unconsolidated affiliates		(3	)		(4	)		(6	)		(4	)
Net changes in assets and liabilities:
Accounts receivable, net		65			17			(101	)		100
Timeshare financing receivables, net		87			(79	)		18			58
Inventory		(59	)		(6	)		(29	)		(36	)
Purchases and development of real estate for future conversion to inventory		(27	)		(107	)		(17	)		(19	)
Other assets		(25	)		(24	)		(35	)		(33	)
Accounts payable, accrued expenses and other		(48	)		20			59			(72	)
Advanced deposits		4			11			0			1
Deferred revenues		75			70			110			82
Net cash provided by operating activities		86			146			92			88
Investing Activities
Capital expenditures for property and equipment		(6	)		(25	)		(4	)		(4	)
Software capitalization costs		(16	)		(17	)		(9	)		(11	)
Investments in unconsolidated affiliates		(2	)		(2	)
Net cash used in investing activities		(24	)		(44	)		(13	)		(15	)
Financing Activities
Issuance of debt		495			455			1,350			495
Issuance of non-recourse debt		495			365			0			495
Repayment of debt		(62	)		(272	)		(55	)		(60	)
Repayment of non-recourse debt		(403	)		(327	)		(118	)		(313	)
Debt issuance costs		(8	)		(6	)		(3	)		(6	)
Repurchase and retirement of common stock		(10	)		(283	)		0			(10	)
Payment of withholding taxes on vesting of restricted stock units		(3	)		(3	)		(5	)		(2	)
Proceeds from employee stock plan purchases		1			2			1			—
Proceeds from stock option exercises								6			—
Other financing activity		(2	)		(2	)		(1	)		(1	)
Net cash provided by (used in) financing activities		503			(71	)
Net cash provided by financing activities								1,175			598
Net increase in cash, cash equivalents and restricted cash		565			31			1,254			671
Cash, cash equivalents and restricted cash, beginning of period		152			180			526			152
Cash, cash equivalents and restricted cash, end of period	$	717		$	211		$	1,780		$	823

Supplemental disclosure of non-cash operating activities:
Non-cash transfers from Property and Equipment to Inventory⁽²⁾	$	301		$	—
Non-cash transfers from Other Assets to Inventory⁽¹⁾					2
Non-cash transfers from Inventory to Property and Equipment⁽²⁾					16
Non-cash transfers from Other Assets to Property and Equipment⁽²⁾					40
Supplemental disclosure of non-cash financing activities:
Issuance of other debt	$	—		$	23
Non-cash transfer from Inventory to Property and Equipment							$	0		$	301

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(in millions)


						Additional			Accumulated
	Common Stock					Paid-in			Retained			Total
	Shares			Amount		Capital			Earnings			Equity
Balance as of December 31, 2020		84		$	1	$	192		$	181		$	374
Net loss		—			—		—			(7	)		(7	)
Activity related to share-based compensation		—			—		2			—			2
Balance as of March 31, 2021		84		$	1	$	194		$	174		$	369
Net income		—			—		—			9			9
Activity related to share-based compensation		1			—		18			—			18
Balance as of June 30, 2021		85			1		212			183			396

						Additional			Accumulated
	Common Stock					Paid-in			Retained			Total
	Shares			Amount		Capital			Earnings			Equity
Balance as of December 31, 2019		85		$	1	$	179		$	390		$	570
Net income		—			—		—			8			8
Activity related to share-based compensation		—			—		(5	)		—			(5	)
Repurchase and retirement of common stock		(1	)		—		(2	)		(8	)		(10	)
Balance as of March 31, 2020		84		$	1	$	172		$	390		$	563
Net loss		—			—		—			(48	)		(48	)
Activity related to share-based compensation		—			—		8			—			8
Balance as of June 30, 2020		84		$	1	$	180		$	342		$	523

⁽¹⁾

~~See Note 7:~~ ~~Inventory~~ ~~for more information.~~

⁽²⁾	~~See Note 8:~~ ~~Property and Equipment~~ ~~for more information.~~

See notes to unaudited condensed consolidated financial statements.

~~HILTON GRAND VACATIONS INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)~~

~~(in millions)~~4

Additional

Accumulated

Common Stock

Paid-in

Retained

Total

Shares

Amount

Capital

Earnings

Equity

Balance as of December 31, 2019

85

$
1

$
179

$
390

$
570

Net income

0

0

0

8

8

Activity related to share-based compensation

0

0

(5
)

0

(5
)
Repurchase and retirement of common stock

(1
)

0

(2
)

(8
)

(10
)
Balance as of March 31, 2020

84

1

172

390

563

Net loss

0

0

0

(48
)

(48
)
Activity related to share-based compensation

0

0

8

0

8

Balance as of June 30, 2020

84

1

180

342

523

Net loss

0

0

0

(7
)

(7
)
Activity related to share-based compensation

0

0

6

0

6

Balance as of September 30, 2020

84

1

$
186

$
335

$
522

Additional

Accumulated

Common Stock

Paid-in

Retained

Total

Shares

Amount

Capital

Earnings

Equity

Balance as of December 31, 2018

94

$
1

$
174

$
441

$
616

Net income

0

0

0

55

55

Activity related to share-based compensation

0

0

1

0

1

Repurchase and retirement of common stock

(3
)

0

(5
)

(92
)

(97
)
Balance as of March 31, 2019

91

1

170

404

575

Net income

0

0

0

39

39

Activity related to share-based compensation

0

0

10

0

10

Repurchase and retirement of common stock

(5
)

0

(11
)

(163
)

(174
)
Balance as of June 30, 2019

86

1

169

280

450

Net income

0

0

0

50

50

Activity related to share-based compensation

0

0

6

0

6

Repurchase and retirement of common stock

(1
)

0

(1
)

(11
)

(12
)
Balance as of September 30, 2019

85

1

$
174

$
319

$
494

~~See notes to unaudited condensed consolidated financial statements.~~

HILTON GRAND VACATIONS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Organization

Our Business

Hilton Grand Vacations Inc. (“Hilton Grand Vacations,” “we,” “us,” “our,” “HGV” or the “Company”) is a global timeshare company engaged in developing, marketing, selling and managing timeshare resorts primarily under the Hilton Grand Vacations brand. Our operations primarily consist of: selling vacation ownership intervals (“VOIs”) for us and third parties; financing and servicing loans provided to consumers for their timeshare purchases; operating resorts; and managing our points-based Hilton Grand Vacations Club and Hilton Club exchange program (collectively the “Club”). As of ~~September~~June 30, ~~2020,~~2021, we had 6062 properties, comprised of ~~9,594 units,~~500,968 VOIs, located in the United States (“U.S.”), Japan, the United Kingdom, Italy, Barbados and ~~Barbados.~~Mexico. A significant number of our properties and ~~units~~VOIs are concentrated in Florida, Hawaii, Nevada, New York, and South ~~Carolina, with particular concentration of our units in Florida, Hawaii and New York.~~Carolina.

Note 2: Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements presented herein include 100 percent of our assets, liabilities, revenues, expenses and cash flows as well as all entities in which we have a controlling financial interest. In our opinion, the accompanying unaudited condensed consolidated financial statements 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.

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, ~~2019,~~2020, included in our Annual Report on Form 10-K filed with the SEC on March ~~2, 2020.~~1, 2021.

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.

Impact of the COVID-19 Pandemic

The novel coronavirus (“COVID-19”) pandemic ~~continues to~~that started in early 2020 significantly negatively ~~impact~~impacted the hospitality, travel and leisure industries due to various mandates and orders to close non-essential businesses, impose travel restrictions, require “stay-at-home” and/or ~~self-quarantine, and require similar actions.~~self-quarantine. Such restrictions and directives have resulted in cancellations and significant reductions in travel around the world ~~as well as the~~and caused various other negative global economic ~~conditions resulting from the impact of the COVID-19 pandemic. As a result of the reduction in travel, during the first quarter of 2020~~conditions. In response to these events, we closed substantially all of our resorts and sales ~~centers.~~ centers during early 2020, but began a phased reopening of resorts and resumption of our business activities during the second quarter of 2020 under new operating guidelines and with enhanced safety measures as mandates and orders for business closures, quarantine and travel restrictions began to ease. With the expectation that the pandemic will continue to recede as COVID-19 vaccinations become more widespread, such mandates and orders have continued to ease, resulting in increasing consumer confidence in resuming normal activities, including travel and leisure, and more businesses resuming normal operations.

Accordingly, the positive trends in leisure travel and stays at our properties have continued. For example, as of June 30, 2021, nearly all of our resorts and sales centers which previously closed due to the COVID-19 pandemic are open and operating, although some are still operating in markets with various capacity constraints, social distancing requirements and other safety measures, which are impacting consumer demand for resorts in those markets. We plan to continue our normal business as conditions permit, but there can be no assurance that such positive trends will continue or that there will not be any increases of new infections or new variants that may impede or reverse recovery and such positive trends.

In ~~addition, in~~ response to the impact of COVID-19, we ~~have taken~~took a variety of actions in 2020 and to date in 2021 to ensure the continuity of our business and operations ~~including workforce furlough, implementing temporary salary reductions for~~and to secure our liquidity position to provide financial flexibility. These actions include amending certain financial covenant ratios in the ~~remaining active employees primarily during the second~~fourth quarter of 2020 ~~eliminating all discretionary spending, and reducing our planned investment in new inventory by approximately $200 million. Further, during~~through the ~~first~~third quarter of ~~2020, we drew down on the availability under our credit facility as a precautionary measure to ensure liquidity for a sustained period and~~ on May 8, 2020, we amended our Credit Agreement which amended certain terms of the credit facilities (“Senior Secured Credit Facilities”) to provide us with both near-term and long-term flexibility with respect to satisfying certain negative and financial covenant ratios2021, as may be needed due to the ongoing and uncertain future impact of the COVID-19 pandemic on our business and operations. ~~See Note 11:~~ ~~Debt~~ We also furloughed team members beginning in the second quarter of 2020 and ~~Non-recourse debt~~ ~~for additional actions taken with respect to our financial flexibility. Recently, we announced~~completed a workforce reduction plan in the fourth quarter of 2020 that ~~will affect~~impacted approximately ~~1,600~~1,500 team members. As of June 30, 2021, approximately 500 team members ~~in order~~continue to ~~better align our workforce with the Company’s needs in light of the current environment. In addition, approximately~~be furloughed. ~~2,000 of our team members remain furloughed.~~

Prior to re-opening our resorts and sales centers, we introduced the HGV Enhanced Care Guidelines, designed to provide owners, guests and team members with the highest level of cleaning protocols and safety standards recommended by the Center for Disease Control and Prevention and cleaning solutions approved by the Environmental Protection Agency in response to the COVID-19 pandemic. ~~Along with providing personal protective equipment~~

While we believe that conditions in the hospitality and travel industries continue to team members, these Enhanced Care Guidelines include low-touch arrivals and departures, frequent and thorough cleaning, reduction of paper items, reduced capacity for our pool decks and fitness centers, and new technologies. While operations were suspended, essential resort personnel worked diligently maintainingreflect the ~~resorts for a safe re-opening. Annual deep cleanings, typically scheduled during slower seasons, were moved up and completed, allowing the resorts to be in top shape when owners and guests arrive.~~

~~Beginning in May 2020, various states and counties started to allow gradual relaxation of restrictions on activities and a resumption of businesses. In response,~~improvement that we ~~began a phased reopening of resorts and resumption of our business activities~~saw during the ~~second quarter~~first half of ~~2020, but under new operating guidelines and with safety measures.~~ As of September 30, 2020, we have over three quarters of our resorts and sales centers open and currently operating however, many of our resorts and sales centers are operating with significant capacity constraints and subject to various safety measures. In addition, ongoing strict travel and other restrictions in regions and locations where we have a significant number of resorts and concentration of units, in particular, Hawaii and New York, are significantly impacting consumer demand for our resorts in those areas.

~~While we plan to continue to reopen our resorts and resume our business as conditions permit,~~2021, the pandemic continues to severely impact certain areas outside the United States and be unprecedented and rapidly changing, ~~and has~~with unknown duration and severity. F~~urther,~~ Further, various state and local government officials may issue new or revised orders that are different than current ones under which we are operating. Accordingly, there remains significant uncertainty as to the degree of continuing impact and duration of the conditions stemming from the ongoing pandemic on our revenues, net income and other operating results, as well as our business and operations generally. Any significantly extended duration or worsening of the conditions associated with the pandemic may adversely impact our liquidity in the longer term, including our ability to finance our day-to-day business and operations, and may adversely affect our ability to comply with our maintenance and financial covenants and ratios under our debt obligations notwithstanding the recent amendments discussed above. However, we believe that prior to triggering an event of default, if any, in connection with the financial covenants under our debt agreements we would be able to reach an agreement with our lenders to amend such covenants in advance of any potential default.

Additionally, as a result of the ongoing COVID-19 pandemic, we are performing a review over certain of our long-lived assets in order to determine our optimal strategic direction with regards to these assets. These assets include undeveloped parcels of land and certain unallocated infrastructure costs related to future phases of existing resorts. The result of this review could have a material impact on the carrying value of certain assets, which could result in non-cash impairments.

~~Summary of Significant Accounting Policies~~

~~Accounts Receivable and Allowance for Credit Losses~~

Accounts receivable primarily consists of trade receivables and is reported at the customers’ outstanding balances, less any allowance for credit losses. The expected credit losses are measured using an expected-loss model that reflects the risk of loss and considers the losses expected over the outstanding period of the receivable.

~~Cloud Computing Arrangements~~

~~We capitalize certain costs associated with cloud computing arrangements (“CCAs”). These costs are included in~~ ~~Other assets~~ in our condensed consolidated balance sheets and are expensed in the same line as the hosting arrangement in our condensed consolidated statements of operations using the straight-line method over the assets’ estimated useful lives, which is generally three to five years. We review the CCAs for impairment when circumstances indicate that their carrying amounts may not be recoverable. If the carrying value of an asset group is not recoverable, we recognize an impairment loss for the excess of carrying value over the fair value in our condensed consolidated statements of operations.

~~Derivative Instruments~~

We use derivative instruments as part of our overall strategy to manage our exposure to market risks primarily associated with fluctuations in interest rates and do not use derivatives for trading or speculative purposes. We record the derivative instrument at fair value either as an asset or liability. We assess the effectiveness of our hedging instruments

quarterly and record changes in fair value in accumulated other comprehensive income (“AOCI”) for the effective portion of the hedge and record the ineffectiveness of a hedge immediately in earnings in our condensed consolidated statements of operations. We release the derivative’s gain or loss from AOCI to match the timing of the underlying hedged items’ effect on earnings.

Recently Issued Accounting Pronouncements

Adopted Accounting Standards

On January 1, ~~2020,~~2021 we adopted Accounting Standards Update ~~(ASU) No. 2016-13, (“ASU 2016-13”),~~ ~~Financial Instruments-Credit Losses~~ ~~(Topic 326):~~ ~~Measurement of Credit Losses on Financial Instruments~~ (“ASC 326”), using the modified retrospective approach. The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis are measured using an expected-loss model, replacing the current incurred-loss model, and recorded through an allowance for credit losses. The adoption of ASU 2016-13 did not have a material impact on our condensed consolidated financial statements and related disclosures and no cumulative adjustment was recorded primarily as our timeshare financing receivables are recorded net of an allowance that is calculated in accordance with ASC 606, ~~Revenue from Contracts with Customers~~.

~~On January 1, 2020, we adopted ASU 2018-15 (“ASU 2018-15”),~~ ~~Customer’s Accounting Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract~~, which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an asset. ASU 2018-15 generally aligns the guidance on recognizing implementation costs incurred in a cloud computing arrangement that is a service contract with that for implementation costs incurred to develop or obtain internal-use software, including hosting arrangements that include an internal-use software license. This ASU has been adopted using the retrospective approach. Accordingly, previously reported financial information has been restated to reflect the application of the new standard to the comparative periods presented. The adoption of ASU 2018-15 did not have a material impact on our condensed consolidated financial statements.

~~In March 2020, the SEC issued a final rule,~~ ~~Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities, which simplifies the disclosure requirements related to registered securities under Rule 3-10 of Regulation S-X. The~~rule replaces the requirement for a parent entity to provide detailed disclosures with regard to guarantors of registered debt offerings within the footnotes to the consolidated financial statements. Under the final rule, a parent entity is required to present summarized financial information ofthe issuers’ and guarantors’ balance sheets and statements of operations on a consolidated basis. It also requires qualitative disclosures with respect to information about guarantors and the terms and conditions of guarantees. These disclosures may be provided outside the footnotes to the Company’s consolidated financial statements. We early adopted the reporting requirements of the rule in the second quarter of 2020 and elected to provide these disclosures in Item 2: ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~

~~Accounting Standards Not Yet Adopted~~

~~In December 2019, the FASB issued ASU~~ 2019-12 (“ASU 2019-12”), Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 ~~is intended to simplify~~simplifies various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and ~~which also~~ clarifies and amends existing guidance to improve consistent application. The ~~provisions~~adoption of ~~this~~ ASU ~~are effective for reporting periods after December 15, 2020. We are currently evaluating the effect that this ASU will~~2019-12 did not have a material impact on our unaudited condensed consolidated financial ~~statements.~~statements and related disclosures.

Accounting Standards Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04 (“ASU 2020-04”), Reference Rate Reform(Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying ~~U.S. GAAP~~U.S.GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered ~~Rate (“~~Rate(“LIBOR”) or by another reference rate expected to be discontinued. The ~~amendments are~~guidance was effective ~~for all entities~~ as of March 12, 2020 and will apply through December 31, 2022. We are currently evaluating the effect ~~that~~of this ASU ~~will~~but we do not expect it to have a material impact on our ~~condensed~~ consolidated financial statements.

Note 3: Revenue from Contracts with Customers

Disaggregation of Revenue

The following tables show our disaggregated revenues by segment from contracts with customers. We operate our business in the following 2 segments: (i) Real estate sales and financing and (ii) Resort operations and club management. Please refer to Note 18: Business Segments below for more details related to our segments.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
($ in millions)	2020		2019		2020		2019		2021		2020		2021		2020
Real Estate and Financing Segment
Real Estate Sales and Financing Segment
Sales of VOIs, net	$	24	$	138	$	80	$	383	$	76	$	0	$	109	$	56
Sales, marketing, brand and other fees		52		143		171		429		81		13		134		119
Interest income		34		37		108		109		31		36		62		74
Other financing revenue		6		6		19		18		6		7		12		13
Real estate and financing segment revenues	$	116	$	324	$	378	$	939	$	194	$	56	$	317	$	262


	Three Months Ended June 30,				Six Months Ended June 30,
($ in millions)	2021		2020		2021		2020
Resort Operations and Club Management Segment
Club management	$	29	$	22	$	56	$	47
Resort management		19		17		37		36
Rental(1)		50		5		80		52
Ancillary services		4		0		6		5
Resort operations and club management segment revenues	$	102	$	44	$	179	$	140

(1) Excludes intersegment eliminations. See Note 18: Business Segments for additional information.

Three Months Ended September 30,

Nine Months Ended September 30,

($ in millions)

2020

2019

2020

2019

Resort Operations and Club Management Segment

Club management

$
23

$
28

$
70

$
80

Resort management

16

17

52

50

Rental⁽¹⁾

19

48

71

153

Ancillary services

1

6

6

20

Resort operations and club management segment revenues

$
59

$
99

$
199

$
303

⁽¹⁾	~~Excludes intersegment eliminations. See Note 18:~~ ~~Business Segments~~ ~~for additional information.~~

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 balance sheets:


	September 30,		December 31,		June 30,		December 31,
($ in millions)	2020		2019		2021		2020
Receivables	$	67	$	129	$	109	$	64

The following table presents the composition of our contract liabilities.


	September 30,		December 31,		June 30,		December 31,
($ in millions)	2020		2019		2021		2020
Contract liabilities:
Advanced deposits	$	119	$	115	$	117	$	117
Deferred Sales of VOIs of projects under construction		148		84
Deferred sales of VOIs of projects under construction						242		169
Club activation fees, annual dues and other		96		86		113		77
Club Bonus Point incentive liability⁽¹⁾		60		59		38		48

(1) Amounts related to the Club 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.

⁽¹⁾

~~Amounts related to the Club Bonus Point incentive liability are included in~~ ~~Accounts payable, accrued expenses and other~~ on our 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~~six months ended ~~September~~June 30, ~~2020~~2021 that was included in the contract liabilities balance at December 31, ~~2019~~2020 was approximately ~~$10~~$55 million and ~~$63~~$90 million, respectively.

Our accounts receivables 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 (“HOA”) 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 6: 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 target 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.

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 Club 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.

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) Club activation fees paid at closing of a VOI purchase, (iii) customers’ advanced deposits on prepaid vacation packages and (iv) Club Bonus Points that may be redeemed in the future.

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~~June 30, ~~2020:~~2021:


	September 30,		December 31,		June 30,		December 31,
($ in millions)	2020		2019		2021		2020
Sales of VOIs, net	$	148	$	84	$	242	$	169
Cost of VOI sales⁽¹⁾		44		27		73		50
Sales and marketing expense		21		12		35		25

(1) Includes anticipated Cost of VOI sales related to inventory associated with Sales of VOIs under construction that will be acquired under a just-in-time arrangement once construction is complete.

⁽¹⁾	~~Includes anticipated Cost of VOI sales related to inventory associated with Sales of VOIs under construction that will be acquired under a just-in-time arrangement once construction is complete.~~

We expect to recognize the revenue, costs of VOI sales and direct selling costs upon completion of the projects inthroughout the remainder of 2021.

The following table includes the remaining transaction price related to Advanced deposits, Club activation fees and Club Bonus Points as of ~~September~~June 30, ~~2020:~~2021:


($ in millions)	Remaining Transaction Price		Recognition Period	Recognition Method
Advanced deposits	$	117	18 months	Upon customer stays
Club activation fees		62	7 years	Straight-line basis over average inventory holding period
Club Bonus Points		38	24 months	Upon redemption

($ in millions)

Remaining
Transaction Price

Recognition Period

Recognition Method
Advanced deposits

$
119

18 months

Upon customer stays
Club activation fees

66

7 years

Straight-line basis over average inventory holding
period
Club Bonus Points

60

24 months

Upon redemption

Note 4: Restricted Cash

Restricted cash was as follows:


	June 30,		December 31,
($ in millions)	2021		2020
Escrow deposits on VOI sales	$	85	$	69
Reserves related to non-recourse debt(1)		27		29
Escrow deposits for recourse debt(2)		1,350		—
	$	1,462	$	98

(1) See Note 11: Debt & Non-recourse Debt for further discussion.

(2) In June 2021, we entered into indentures in connection with the issuance of senior notes relating to the recently announced Agreement and Plan of Merger, as amended ("Merger Agreement") with Dakota Holdings, Inc. ("Diamond"). The gross proceeds of the offerings were deposited and will be held in an escrow account until the date that certain escrow conditions are satisfied, which are substantially upon closing of the Merger. See Note 11: Debt & Non-recourse Debt and Note 20: Planned Acquisition for further discussion.

September 30,

December 31,

($ in millions)

2020

2019

Escrow deposits on VOI sales

$
61

$
59

Reserves related to non-recourse debt⁽¹⁾

31

26

$
92

$
85

⁽¹⁾	~~See Note 11:~~ ~~Debt & Non-recourse Debt~~ ~~for further discussion.~~

Note 5: Accounts Receivable

The following table represents our accounts receivable, net of allowance for credit losses. ~~Following the adoption of ASC 326 on January 1, 2020, accounts~~Accounts receivable within the scope of ASC 326 are measured at amortized cost.


			June 30,
($ in millions)	September 30, 2020		2021
Fee-for-service commissions⁽¹⁾	$	23	$	38
Real estate and financing	8			31
Resort and club operations	32			33
Tax receivables	42			109
Other receivables⁽²⁾		4		9
Total	$	109	$	220

(1) Net of allowance.

(2) Primarily includes individually insignificant accounts receivable recognized in the ordinary course of business, the allowances for which are also individually insignificant.

⁽¹⁾	~~Net of allowance.~~

⁽²⁾	~~Primarily includes individually insignificant accounts receivable recognized in the ordinary course of business, the allowances for which are individually insignificant.~~

Our accounts receivable are all 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:


	June 30,
($ in millions)	2021
Balance as of December 31, 2020	$	18
Current period provision for expected credit losses		4
Write-offs charged against the allowance		(5	)
Balance at June 30, 2021		17

($ in millions)
September 30,
2020

Balance as of December 31, 2019
$
19

Current period provision for expected credit losses
5

Write-offs charged against the allowance

(8
)
Balance at September 30, 2020
$
16

Note 6: Timeshare Financing Receivables

Timeshare financing receivables were as follows:


	September 30, 2020									June 30, 2021
($ in millions)	Securitized			Unsecuritized⁽¹⁾			Total			Securitized			Unsecuritized(1)			Total
Timeshare financing receivables	$	879		$	350		$	1,229		$	684		$	446		$	1,130
Less: allowance for financing receivables losses		(70	)		(147	)		(217	)		(47	)		(156	)		(203	)
	$	809		$	203		$	1,012		$	637		$	290		$	927


	December 31, 2020
($ in millions)	Securitized			Unsecuritized(1)			Total
Timeshare financing receivables	$	805		$	380		$	1,185
Less: allowance for financing receivables losses		(63	)		(148	)		(211	)
	$	742		$	232		$	974

(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.

December 31, 2019

($ in millions)

Securitized

Unsecuritized⁽¹⁾

Total

Timeshare financing receivables

$
758

$
582

$
1,340

Less: allowance for financing receivables losses

(54
)

(130
)

(184
)

$
704

$
452

$
1,156

⁽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.

As of ~~September~~June 30, 2021 and December 31, 2020, we had timeshare financing receivables with a carrying value of ~~$19~~$36 million and $17 million, respectively, securing the Timeshare Facility in anticipation of future financing activities. ~~As of December 31, 2019, we had 0 timeshare receivables pledged to 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. ~~During~~For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, we recorded an adjustment to our estimate of variable consideration of ~~$57 million, which includes a $23 million revenue reduction related to changes in estimates primarily driven by economic factors surrounding the COVID-19 pandemic.~~$28 million.

In June 2020, we completed a securitization of $300 million of gross timeshare financing receivables, which included a $15 million cash deposit that was subsequently released during the third quarter of 2020 upon pledging of qualified collateral, and issued approximately $186 million of 2.74 percent notes, $66 million of 4.22 percent notes and $48 million of 6.42 percent notes, which have a stated maturity date of February 25, 2039. The securitization transaction did not qualify as a sale 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”). The proceeds were primarily used to pay down the remaining borrowings on our Timeshare Facility and general corporate operating expenses. See Note 11: ~~Debt and Non-recourse Debt~~ ~~for additional information.~~

Our timeshare financing receivables as of ~~September~~June 30, ~~2020~~2021 mature as follows:


($ in millions)	Securitized			Unsecuritized			Total			Securitized			Unsecuritized			Total
Year
2020 (remaining)	$	25		$	9		$	34
2021		103			32			135
2021 (remaining)										$	45		$	21		$	66
2022		107			33			140			92			38			130
2023		110			35			145			94			41			135
2024		113			36			149			96			44			140
2025											93			47			140
Thereafter		421			205			626			264			255			519
		879			350			1,229			684			446			1,130
Less: allowance for financing receivables losses		(70	)		(147	)		(217	)		(47	)		(156	)		(203	)
	$	809		$	203		$	1,012		$	637		$	290		$	927

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 quality~~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 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.

We recognize interest income on our timeshare financing receivables as earned. As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, we had interest receivable outstanding of $8$6 million and $9$7 million, respectively, included in our unaudited condensed consolidated balance sheets. The interest rate charged on the notes correlates to the risk profile of the customer at the time of purchase and the percentage of the purchase that is financed, among other factors. As of ~~September~~June 30, ~~2020,~~2021, our timeshare financing receivables had interest rates ranging from ~~3.90~~1.5 percent to ~~20.50~~21.0 percent, a weighted-average interest rate of ~~12.60~~12.62 percent, a weighted-average remaining term of ~~7.6~~ 7.4 years and maturities through ~~2035.~~2036.

Our gross timeshare financing receivables balances by average FICO score were as follows:


	June 30,		December 31,
($ in millions)	2021		2020
FICO score
700+	$	675	$	711
600-699		251		266
<600		35		36
No score(1)		169		172
	$	1,130	$	1,185

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

September 30,

December 31,

($ in millions)

2020

2019

FICO score

700+

$
669

$
818

600-699

291

292

<600

51

39

No score⁽¹⁾

218

191

$
1,229

$
1,340

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

The following table details the origination year of our gross timeshare financing receivables by the origination year and average FICO score as of ~~September~~June 30, ~~2020:~~2021:


($ in millions)	2020		2019		2018		2017		2016		Prior		Total		2021		2020		2019		2018		2017		Prior		Total
FICO score
700+	$	86	$	209	$	142	$	91	$	61	$	80	$	669	$	97	$	101	$	176	$	118	$	78	$	105	$	675
600-699		40		91		62		39		23		36		291		31		39		66		43		28		44		251
<600		7		16		11		6		4		7		51		4		6		9		5		4		7		35
No score⁽¹⁾		34		67		40		27		18		32		218		23		29		42		29		14		32		169
	$	167	$	383	$	255	$	163	$	106	$	155	$	1,229	$	155	$	175	$	293	$	195	$	124	$	188	$	1,130

(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 timeshare financing receivables, including those in non-accrual status, to amounts due in the following order: servicing fees; interest; principal; and late charges. Once a receivable is 91 days past due, we cease accruing interest and reverse the accrued interest recognized up to that point. 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 receive the deed for the foreclosed unit.

As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, we had ceased accruing interest on timeshare financing receivables with an aggregate principal balance of ~~$117~~$108 million and ~~$74~~$117 million, respectively. The following tables detail an aged analysis of our gross timeshare receivables balance:


	June 30, 2021
($ in millions)	Securitized		Unsecuritized		Total
Current	$	671	$	338	$	1,009
31 - 90 days past due		7		6		13
91 - 120 days past due		2		2		4
121 days and greater past due		4		100		104
	$	684	$	446	$	1,130


	December 31, 2020
($ in millions)	Securitized		Unsecuritized		Total
Current	$	783	$	265	$	1,048
31 - 90 days past due		11		9		20
91 - 120 days past due		5		3		8
121 days and greater past due		6		103		109
	$	805	$	380	$	1,185

September 30, 2020

($ in millions)

Securitized

Unsecuritized

Total

Current

$
858

$
230

$
1,088

31 - 90 days past due

12

12

24

91 - 120 days past due

5

3

8

121 days and greater past due

4

105

109

$
879

$
350

$
1,229

December 31, 2019

($ in millions)

Securitized

Unsecuritized

Total

Current

$
743

$
502

$
1,245

31 - 90 days past due

9

12

21

91 - 120 days past due

3

4

7

121 days and greater past due

3

64

67

$
758

$
582

$
1,340

The changes in our allowance for financing receivables losses were as follows:


	June 30, 2021
($ in millions)	Securitized			Unsecuritized			Total
Balance as of December 31, 2020	$	63		$	148		$	211
Provision for financing receivables losses(1)		(16	)		44			28
Write-offs		0			(36	)		(36	)
Balance as of June 30, 2021	$	47		$	156		$	203


	June 30, 2020
($ in millions)	Securitized			Unsecuritized			Total
Balance as of December 31, 2019	$	54		$	130		$	184
Provision for financing receivables losses(1)		(12	)		57			45
Write-offs		0			(19	)		(19	)
Securitization		36			(36	)		0
Balance as of June 30, 2020	$	78		$	132		$	210

(1) Includes incremental provision for financing receivables losses, net of activity related to the repurchase of defaulted and upgraded securitized timeshare financing receivables.

September 30, 2020

($ in millions)

Securitized

Unsecuritized

Total

Balance as of December 31, 2019

$
54

$
130

$
184

Provision for financing receivables losses⁽¹⁾

(17
)

74

57

Write-offs

—

(24
)

(24
)
Securitization

33

(33
)

—

Balance as of September 30, 2020

$
70

$
147

$
217

September 30, 2019

($ in millions)

Securitized

Unsecuritized

Total

Balance as of December 31, 2018

$
43

$
129

$
172

Provision for financing receivables losses⁽¹⁾

(12
)

72

60

Write-offs

—

(53
)

(53
)
Securitization

29

(29
)

—

Balance as of September 30, 2019

$
60

$
119

$
179

~~(1)~~

~~Includes incremental provision for financing receivables losses, net of activity related to the repurchase of defaulted and upgraded securitized timeshare financing receivables.~~

Note 7: Inventory

Inventory was ~~as follows:~~

September 30,

December 31,

($ in millions)

2020

2019

Completed unsold VOIs

$
402

$
241

Construction in process

273

59

Land, infrastructure and other

258

258

$
933

$
558

~~During~~comprised of the ~~nine months ended September 30, 2020, we recorded non-cash operating activity transfers from Property and equipment to Inventory. See Note 8:~~ ~~Property and Equipment.~~following:


	June 30,		December 31,
($ in millions)	2021		2020
Completed unsold VOIs	$	527	$	515
Construction in process		202		186
Land, infrastructure and other		1		1
	$	730	$	702

~~Shown~~

The table below ~~are~~presents costs of sales true-ups relating to VOI products and the related impacts to the carrying value of inventory.


	Six months ended June 30,
($ in millions)	2021		2020
Cost of sales true-up(1)	$	4	$	5

(1) Costs of sales true-up reduced costs of VOI sales and increased inventory in the periods presented.

Nine Months Ended September 30,

($ in millions)

2020

2019

Cost of sales true-up⁽¹⁾

$
4

$
14

⁽¹⁾	~~Costs of sales true ups reduced costs of VOI sales and increased inventory in the periods presented.~~

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.


	Three months ended June 30,				Six months ended June 30,
($ in millions)	2021		2020		2021		2020
Cost of VOI sales related to fee-for-service upgrades	$	2	$	—	$	3	$	5

Three Months Ended September 30,

Nine Months Ended September 30,

($ in millions)

2020

2019

2020

2019

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

$
2

$
8

$
7

$
24

Note 8: Property and Equipment

Property and equipment ~~was as follows:~~were comprised of the following:


	June 30,			December 31,
($ in millions)	2021			2020
Land	$	108		$	109
Building and leasehold improvements		253			250
Furniture and equipment		63			65
Construction in progress		225			208
		649			632
Accumulated depreciation		(141	)		(131	)
	$	508		$	501

September 30,

December 31,

($ in millions)

2020

2019

Land

$
104

$
154

Building and leasehold improvements

247

286

Furniture and equipment

68

65

Construction in progress

198

383

617

888

Accumulated depreciation

(129
)

(110
)

$
488

$
778

During the nine months ended September 30, 2020, we recorded non-cash operating activity transfers of $301 million related to the registrations for timeshare units under construction from Property and equipment to Inventory. Non-cash transfers are reflected in our unaudited condensed consolidated statements of cash flows.

Note 9: Consolidated Variable Interest Entities

As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, we consolidated44 variable interest entities (“VIEs”), respectively, that issued non-recourse debt backed by pledged assets consisting primarily of a pool of timeshare financing receivables which is without recourse to us. We are the primary beneficiaries of these 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 to~~often 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.

Our unaudited condensed consolidated balance sheets included the assets and liabilities of these entities, which primarily consisted of the following:


	September 30,		December 31,		June 30,		December 31,
($ in millions)	2020		2019		2021		2020
Restricted cash	$	30	$	26	$	26	$	28
Timeshare financing receivables, net		809		704		637		742
Non-recourse debt⁽¹⁾		837		747		650		766

(1) Net of deferred financing costs.

⁽¹⁾

~~Net of deferred financing costs.~~

During the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, we did 0t0t 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.

Note 10: Investments in Unconsolidated Affiliates

As of ~~September~~June 30, ~~2020,~~2021, we have 25 percent and 50 percent ownership interests in BRE Ace LLC and 1776 Holding LLC, respectively, that are deemed as VIEs. We do not consolidate BRE Ace LLC and 1776 Holding LLC because we are not the primary beneficiary. Our investment interests in and equity earned from both VIEs are included in the consolidated balance

sheets as Investments in unconsolidated affiliates and in the consolidated statements of operations as Equity in ~~earnings(losses)~~earnings from unconsolidated affiliates, respectively.

~~We held investments in our~~ Our 2 unconsolidated affiliates ~~with~~have aggregated debt balances of $~~458~~425 million and ~~$479~~$454 million as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The debt is secured by their assets and is without recourse to us. Our maximum exposure to loss as a result of our investment interests in the two unconsolidated affiliates is primarily limited to (i) the carrying amount of the investments which totals ~~$49~~$57 million and ~~$44~~$51 million as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively and (ii) receivables for commission and other fees earned under fee-for-service arrangements. See Note 17: Related Party Transactions for additional information.

Note 11: Debt & Non-recourse Debt

Debt

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


	June 30,			December 31,
($ in millions)	2021			2020
Debt(1)
Senior secured credit facilities:
Term loan with a rate of 3.75%, due 2023	$	172		$	177
Revolver with a weighted average rate of 3.75%, due 2023		610			660
Senior notes with a rate of 6.125%, due 2024		300			300
Senior notes with a rate of 5.000%, due 2029		850			0
Senior notes with a rate of 4.875%, due 2031		500			0
Other debt		27			27
		2,459			1,164
Less: unamortized deferred financing costs and discount(2)(3)		(28	)		(5	)
	$	2,431		$	1,159

(1) As of June 30, 2021 and December 31, 2020, weighted-average interest rates were 4.737 percent and 3.357 percent, respectively.

September 30,

December 31,

($ in millions)

2020

2019

Debt⁽¹⁾

Senior secured credit facilities:

Term loan with a rate of 2.000%, due 2023

$
180

$
187

Revolver with a weighted average rate of 2.000%, due 2023

760

320

Senior notes with a rate of 6.125%, due 2024

300

300

Other debt

28

27

1,268

834

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

(6
)

(6
)

$
1,262

$
828

(2) Amount includes deferred financing costs related to our term loan and senior notes of $1 million and $27 million, respectively, as of June 30, 2021 and $1 million and $4 million, respectively, as of December 31, 2020.

(3) Amount does not include deferred financing costs of $3 million and $4 million as of June 30, 2021 and December 31, 2020, respectively, related to our revolving facility included in Other assets in our unaudited condensed consolidated balance sheets.

⁽¹⁾	~~As of September 30, 2020 and December 31, 2019, weighted-average interest rates were 3.082 percent and 4.571 percent, respectively.~~

⁽²⁾	~~Amount includes deferred financing costs related to our term loan of $1 million and senior notes of $5 million, respectively, as of September 30, 2020 and December 31, 2019.~~

⁽³⁾	~~Amount does not include deferred financing costs of $4 million as of September 30, 2020 and $5 million as of December 31, 2019, relating to our revolving facility included in~~ ~~Other Assets~~ ~~in our condensed consolidated balance sheets.~~

In ~~May 2020,~~March 2021, we amended our Credit Agreement ~~which amended~~to amend certain terms related to financial covenants to permit the previously announced proposed acquisition of Dakota Holdings, Inc., (“Diamond”), which indirectly owns all of the ~~Senior Secured Credit Facilities~~interests in Diamond Resorts International Inc. (the “Merger”, "Acquisition"), pursuant to ~~provide flexibility with respect~~that certain Agreement and Plan of Merger dated March 10, 2021. Refer to ~~satisfying certain negative and financial covenants and ratios as may be needed due to~~Note 20: Planned Acquisition for further information regarding the ~~ongoing and uncertain future impact of the COVID-19 pandemic on our business and operations.~~Merger. The borrowing capacity under the Credit Agreement remained the same. In connection with the ~~Amendment~~amendment, we incurred $1$1 million in debt issuance costs. In addition, we obtained a revolving credit facility commitment in connection with the Merger and incurred $2 million in debt issuance costs which were amortized over the term of the commitment in the first quarter of 2021. This was included in Interest expense in our unaudited condensed consolidated statements of operations.

In June 2021, we entered into indentures in connection with the issuance and sale of senior notes, $850 million aggregate principal amount of 5.00% senior notes due 2029 ("Notes 2029") and $500 million aggregate principal amount of 4.875% senior notes due 2031 ("Notes 2031"). We intend to use the net proceeds from Notes 2029 and Notes 2031 to finance the repayment of certain indebtedness in connection with the Merger. The gross proceeds of the offerings were deposited and will be held in an escrow account until the date that certain escrow conditions are satisfied, which are substantially upon closing of the Merger. As of June 30, 2021, the gross proceeds are included in Restricted cash in our unaudited condensed consolidated balance sheet. In connection with the offerings, we incurred $23 million in debt issuance costs for the notes which are accrued as of June 30, 2021 and included within net cash provided by operating activities in our unaudited condensed consolidated statement of cash flows.

In connection with the Merger, we obtained a financing commitment to provide a new $1.3 billion seven-year secured term loan B facility to fund the repayment of certain existing indebtedness of both HGV and Diamond. The term loan B will be effective and available in a single drawing upon consummation of the Acquisition. As of June 30, 2021, we incurred approximately $3 million in debt issuance costs for term loan B. As of June 30, 2021, these costs are included in Other assets in our unaudited condensed consolidated balance sheet and will be reclassified as debt issuance costs within Debt, net in our unaudited condensed consolidated balance sheet upon the debt issuance.

During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, we ~~borrowed $495 million and~~ repaid ~~$62~~$55 million (including recurring payments) under the senior secured credit facilities with an interest rate based on one month LIBOR plus ~~1.75~~3.50 percent, subject to a 0.25 percent floor.

We primarily use interest rate swaps as part of our interest rate risk management strategy for our variable-rate debt. As of ~~September~~June 30, ~~2020,~~2021, we had approximately ~~$180~~$172 million of our Term Loan subject to interest rate ~~swap.~~swaps. Such interest rate swaps converted the LIBOR-based variable rates on our Term Loan to an average fixed annual rate of 0.53 percent per annum through November 2023. Our interest rate swaps have been designated and qualify as cash flow hedges of interest rate risk and recorded as a liability in Accounts payable, accrued expenses and other in our unaudited condensed consolidated balance sheets as of ~~September~~June 30, 2021 and December 31, 2020. 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. For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, we recorded less than $1$1 million in accumulated other comprehensive loss related to the cash flow hedge.

As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, we had $1$1 million of outstanding letters of credit under the revolving credit facility. We were in compliance with all applicable maintenance and financial covenants and ratios as of ~~September~~June 30, ~~2020.~~2021.

Non-recourse Debt

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

September 30,

December 31,

($ in millions)

2020

2019

Non-recourse debt⁽¹⁾

Securitized Debt with an average rate of 1.810%, due 2026

$
—

$
46

Securitized Debt with an average rate of 2.711%, due 2028

116

149

Securitized Debt with an average rate of 3.602%, due 2032

220

275

Securitized Debt with an average rate of 2.431%, due 2033

238

285

Securitized Debt with an average rate of 3.658%, due 2039

273

—

847

755

Less: unamortized deferred financing costs⁽²⁾

(10
)

(8
)

$
837

$
747


	June 30,			December 31,
($ in millions)	2021			2020
Non-recourse debt(1)
Securitized Debt with a weighted average rate of 2.711%, due 2028	$	87		$	106
Securitized Debt with a weighted average rate of 3.602%, due 2032		172			202
Securitized Debt with a weighted average rate of 2.431%, due 2033		183			216
Securitized Debt with a weighted average rate of 3.658%, due 2039		215			251
		657			775
Less: unamortized deferred financing costs(2)		(7	)		(9	)
	$	650		$	766

⁽¹⁾	~~As of September 30, 2020 and December 31, 2019, weighted-average interest rates were 3.169 percent and 2.876 percent, respectively.~~

⁽²⁾

~~Amount relates to securitized debt only and does not include deferred financing costs of$3 million as of September 30, 2020 and December 31, 2019~~

(1) As of June 30, 2021 and December 31, 2020, weighted-average interest rates were 3.176 percent and 3.173 percent, respectively.

(2) Amount relates to Securitized Debt only and does not include deferred financing costs of$2 million and $3 million as of June 30, 2021 and December 31, 2020, respectively, relating to ~~our Timeshare Facility which are included in~~ ~~Other Assets~~ ~~in our condensed consolidated balance sheets.~~

In June 2020, we completed a securitization of $300 million of gross timeshare financing receivables, which included a $15 million cash deposit that was subsequently released during the third quarter of 2020 upon pledging of qualified collateral, and issued approximately $186 million of 2.74 percent notes, $66 million of 4.22 percent notes and $48 million of 6.42 percent notes due February 2039. 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 interests. 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 our Timeshare Facility ~~and general corporate operating expenses. In connection with the securitization we incurred $5 million~~included in ~~debt issuance costs.~~Other Assets in our unaudited condensed consolidated balance sheets.

In September 2020, we exercised our call option on the remaining outstanding principal balance on our securitized debt with an average rate of 1.810%, due 2026 (“2014-A Notes”) and prepaid the remaining balance in accordance with the terms of the arrangement.

The Timeshare Facility is a non-recourse obligation with a borrowing capacity of ~~$450~~$450 million and is payable solely from the pool of timeshare financing receivables pledged as collateral and related assets. As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, we had ~~$450~~$450 million remaining borrowing capacity under our Timeshare Facility. ~~During the second quarter of 2020,~~In March 2021, we amended ~~the Timeshare Facility, temporarily changing certain covenant requirements pricing and advance rates to be consistent with the amended Credit Agreement. On August 14, 2020, we amended the~~our Timeshare Facility to ~~extend the maturity date from~~ ~~April 2022~~ to ~~August 2023. Additionally, the amendment reduces the maximum advance rate, replaces LIBOR~~align with a successor benchmark interest rate, increases the excess spread percentage level that will trigger interest hedging obligations, and increases certain used and unused fees. In connection with the Amendment we incurred $2 million in debt issuance costs.our amended Credit Agreement, as described above.

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 ~~$31~~$27 million and ~~$26~~$29 million as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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~~June 30, ~~2020~~2021 were as follows:


($ in millions)	Debt		Non-recourse Debt		Total
Year
2021 (remaining)	$	6	$	91	$	97
2022		11		168		179
2023		769		158		927
2024		300		76		376
2025		0		79		79
Thereafter		1,373		85		1,458
	$	2,459	$	657	$	3,116

($ in millions)

Debt

Non-recourse
Debt

Total

Year

2020 (remaining)

$
3

$
72

$
75

2021

12

292

304

2022

12

130

142

2023

918

131

1,049

2024

300

74

374

Thereafter

23

148

171

$
1,268

$
847

$
2,115

Note 12: Fair Value Measurements

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


	September 30, 2020						June 30, 2021
			Hierarchy Level						Hierarchy Level
($ in millions)	Carrying Amount		Level 1		Level 3		Carrying Amount		Level 1		Level 3
Assets:
Timeshare financing receivables, net⁽¹⁾	$	1,012	$	—	$	1,293	$	927	$	—	$	1,141
Liabilities:
Debt, net⁽²⁾		1,262		311		965		2,431		1,682		821
Non-recourse debt, net⁽²⁾		837		—		835		650		—		611


	December 31, 2020
			Hierarchy Level
($ in millions)	Carrying Amount		Level 1		Level 3
Assets:
Timeshare financing receivables, net(1)	$	974	$	—	$	1,248
Liabilities:
Debt, net(2)		1,159		315		871
Non-recourse debt, net(2)		766		—		732

(1) Carrying amount net of allowance for financing receivables losses.

(2) Carrying amount net of unamortized deferred financing costs and discount.

⁽¹⁾	~~Carrying amount net of allowance for financing receivables losses.~~

⁽²⁾	~~Carrying amount net of unamortized deferred financing costs and discount.~~

December 31, 2019

Hierarchy Level

($ in millions)

Carrying
Amount

Level 1

Level 3

Assets:

Timeshare financing receivables, net⁽¹⁾

$
1,156

$
—

$
1,446

Liabilities:

Debt, net⁽²⁾

828

326

544

Non-recourse debt, net⁽²⁾

747

—

749

⁽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 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 estimated fair values of our timeshare financing receivables were determined using a discounted cash flow model. Our model incorporates default rates, coupon rates, credit quality and ~~borrowing~~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~~were based on prices in active debt markets. The estimated fair ~~value~~values of our Level 3 debt and non-recourse debt were ~~as follows:~~based on the following:

•

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

•

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

•

~~Non-recourse debt - based on projected future cash flows discounted at risk-adjusted rates.~~

•

Non-recourse debt - based on projected future cash flows discounted at risk-adjusted rates.

~~We do 0t have any~~

Non-recurring fair value measurements

Our assets ~~or liabilities~~that are measured at fair value on a ~~recurring or~~ non-recurring basis include land and infrastructure held for sale. These assets were measured to their estimated fair value as of ~~September~~December 31, 2020. We utilized the market approach for the land and

cost approach for the infrastructure to determine their respective fair values. The fair value determinations involve judgement and are sensitive to key assumptions utilized, including comparative sales for land (level 2) and replacement costs for infrastructure (level 3). As of June 30, ~~2020.~~2021 and December 31, 2020, the estimated fair value of these assets were as follows and their carrying values were reflected in Land and infrastructure held for sale in our condensed consolidated balance sheets.


	Hierarchy Level
($ in millions)	Level 2		Level 3
Land held for sale	$	47	$	—
Infrastructure held for sale		—		5

Note 13: Leases

We lease sales centers, office space and equipment under operating leases. Our leases expire at various dates from 2021 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.

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 was $5 million for both the three months ended ~~September~~June 30, 2021 and 2020, and ~~2019 was $5~~$9 million and ~~$6 million, respectively, and $15 million and $16~~$10 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. These amounts include $1$1 million of short-term and variable lease costs for the three months ended ~~September~~June 30, 2021 and 2020, respectively, and ~~2019 and $2 million and $4~~$2 million for the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, ~~and 2019,~~ respectively.

Supplemental cash flow information related to operating leases was as follows:


	Six months ended June 30,
($ in millions)	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases	$	9	$	9
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases		0		5

Nine Months Ended September 30,

($ in millions)

2020

2019

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash outflows from operating leases

$
14

$
12

Right-of-use assets obtained in exchange for new lease liabilities:

Operating Leases

4

9

Supplemental balance sheet information related to operating leases was as follows:


	June 30,			December 31,
	2021			2020
Weighted-average remaining lease term of operating leases (in years)		5.2		5.4
Weighted-average discount rate of operating leases		5.03	%		4.95	%

September 30

December 31,

2020

2019

Weighted-average remaining lease term of operating leases (in years)

5.6

6.1

Weighted-average discount rate of operating leases

4.93
%

5.34
%

~~Future~~The future minimum lease payments under noncancelable operating leases, due in each of the next five years and thereafter as of ~~September~~June 30, ~~2020,~~2021, are as follows:


($ in millions)	Operating Leases
Year
2021 (remaining)		8
2022		13
2023		13
2024		11
2025		10
Thereafter		12
Total future minimum lease payments	$	67
Less: imputed interest		(8	)
Present value of lease liabilities	$	59

($ in millions)

Operating
Leases

Year

2020 (remaining)

$
5

2021

17

2022

13

2023

12

2024

11

Thereafter

22

Total future minimum lease payments

$
80

Less: imputed interest

(10
)
Present value of lease liabilities

$
70

Note 14: Income Taxes

At the end of each quarter, we estimate the effective tax rate expected to be applied for the full year. The estimated annual effective tax rate is determined by the level and composition of pre-tax ordinary income or loss, which is subject to federal, foreign and state and local income taxes. The estimated annual effective tax rate for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 was approximately 2030 percent and 2812 percent, respectively. The ~~decrease in the~~estimated annual effective tax rate is higher primarily due to the ~~tax benefit on~~change in earnings mix of our worldwide ~~estimated ordinary loss being reduced by~~income through the ~~incremental~~second quarter of 2021 as compared to the second quarter of 2020. The actual effective tax ~~expense from~~rate for the ~~estimated ordinary income in our foreign jurisdictions, the interest~~six months ended June 30, 2021 and 2020 was approximately 300 percent and 15 percent, respectively. The actual effective tax rate is higher primarily due ~~on income deferred related~~ to ~~installment sales, and~~ the impact of ~~estimated permanent differences between financial reporting~~non-recurring discrete items and ~~taxable income.~~share-based compensation awards relative to the actual pre-tax loss through the second quarter of 2021 as compared to the second quarter of 2020.

We have considered the income tax accounting and disclosure implications of the relief provided by the ~~Coronavirus Aid, Relief, and Economic Security (CARES)~~American Rescue Plan Act of 2021 enacted on March 27, 2020. The effect of tax law changes is required to be recognized either in the interim period in which the legislation is enacted or reflected in the computation of the annual effective tax rate, depending on the nature of the change.11, 2021. As of ~~September~~June 30, ~~2020,~~2021, we evaluated the income tax provisions of the ~~CARES~~American Rescue Plan Act and have determined there to be no effect on either the ~~September~~June 30, ~~2020~~2021 tax rate or the computation of the estimated effective tax rate for the year. We will continue to evaluate the income tax provisions of the ~~CARES~~American Rescue Plan Act and monitor the developments in the jurisdictions where we have significant operations for tax law changes that could have income tax accounting and disclosure implications.

We have requested a change in accounting method effective for the taxable year beginning on January 1, 2020 and ending on December 31, 2020 which is pending IRS review as of September 30, 2020. The impact of the requested method change will be included in the financial statements upon IRS consent.

Note 15: Share-Based Compensation

Stock Plan

We issue service-based restricted stock units (“Service RSUs”), service and performance-based restricted stock units (“Performance RSUs”) and nonqualified stock options (“Options”) to certain employees and directors. We recognized share-based compensation expense of $6$14 million and $6 million for the three months ended ~~September~~June 30, 2021 and 2020, respectively, and ~~2019, and $10~~$18 million and ~~$18~~$4 million for the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, ~~and 2019,~~ respectively. In the prior year, certain expenses related to Performance RSUs were reversed as the related RSUs were not expected to achieve certain performance targets, resulting in a credit to expense in the prior period. As of ~~September~~June 30, ~~2020,~~2021, unrecognized compensation costs for unvested awards were approximately ~~$19~~$35 million, which is expected to be recognized over a weighted average period of ~~1.8~~ 1.6 years. As of ~~September~~June 30, ~~2020,~~2021, there were ~~5,213,524~~ 4,026,124shares of common stock available for future issuance under this plan.

Service RSUs

During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, we issued ~~652,583~~583,077 Service RSUs with a grant date fair value of ~~$25.24,~~$38.46, which generally vest in equal annual installments over three years from the date of grant.

Options

During the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021, we issued ~~566,401~~542,793 Options with an exercise price of ~~$25.80,~~$38.22, which vest over three years from the date of the grant.

The weighted-average grant date fair value of these options was ~~$9.14,~~$13.30, which was determined using the Black-Scholes-Merton option-pricing model with the following assumptions:


Expected volatility	~~35.4~~34.2	%
Dividend yield	0	%
Risk-free rate	~~1.0~~1.1	%
Expected term (in years)	~~6.0~~		6.0

As of ~~September~~June 30, ~~2020,~~2021, we had ~~1,102,064~~1,264,836 Options outstanding that were exercisable.

Performance Shares

During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, we issued ~~172,620~~124,711 Performance RSUs with a grant date fair value of ~~$25.80.~~$38.22. The Performance RSUs are settled at the end of a three-year performance period, with 7050 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 3050 percent of the Performance RSUs are subject to the achievement of certain

contract sales targets. ~~In March 2020, we~~We determined that the performance conditions for ~~the 2018, 2019, and 2020 Performance RSU~~these awards were improbable of achievement due to the significantly negative impact of the COVID-19 pandemic on the global economy, demand for travel and leisure, and our business. As a result, we reversed $8 million of previously recognized share-based compensation expense related to our 2018 and 2019 Performance RSUs and ceased accruing expense related to Performance RSUs granted in 2018, 2019, and 2020, during the three months ended March 31, 2020. As of September 30, 2020, we determined the performance conditions continue to be improbableare probable of achievement and, ~~therefore no~~as of June 30, 2021, we recognized compensation expense ~~was recognized in~~based on the ~~current period.~~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 Plan, 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~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, we recognized less than $1$1 million of compensation expense related to this plan.

Note 16: Earnings (Loss) ~~Earnings~~ Per Share

The following table presents the calculation of our basic and diluted earnings (loss) ~~earnings~~ per share (“EPS”). The ~~weighted-~~weighted average shares outstanding used to compute basic EPS and diluted EPS for the three months ended ~~September~~June 30, ~~2020~~2021 was ~~85,082,124~~85,650,144 and 86,838,601, respectively, and85,002,791 for the ~~nine~~three months ended ~~September~~June 30, ~~2020 was 85,198,910.~~2020. The ~~weighted-average~~weighted average shares outstanding used to compute basic EPS and diluted EPS for the six months ended June 30, 2021 were 85,479,870 and 86,539,505, respectively, and 85,258,963 for the six months ended June 30, 2020.


	Three Months Ended June 30,					Six Months Ended June 30,
($ and shares outstanding in millions, except per share amounts)	2021		2020			2021		2020
Basic EPS:
Numerator:
Net income (loss)(1)	$	9	$	(48	)	$	2	$	(40	)
Denominator:
Weighted average shares outstanding		86		85			85		85
Basic EPS	$	0.10	$	(0.56	)	$	0.02	$	(0.47	)
Diluted EPS:
Numerator:
Net income (loss)(1)	$	9	$	(48	)	$	2	$	(40	)
Denominator:
Weighted average shares outstanding		87		85			87		85
Diluted EPS	$	0.10	$	(0.56	)	$	0.02	$	(0.47	)

(1) Net income (loss) for the three months ended ~~September~~June 30, ~~2019~~2021 and 2020 was ~~85,704,321~~$8,700,776 and ~~86,272,979,~~$(47,751,330), respectively, and $1,929,361 and $(39,924,584) for the ~~nine~~six months ended ~~September~~June 30, ~~2019 was 89,863,807~~2021 and ~~90,348,418,~~2020, respectively.

Three Months Ended September 30,

Nine Months Ended September 30,

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

2020

2019

2020

2019

Basic EPS:

Numerator:

Net (loss) income⁽¹⁾

$
(7
)

$
50

$
(47
)

$
144

Denominator:

Weighted average shares outstanding

85

86

85

90

Basic EPS

$
(0.08
)

$
0.59

$
(0.55
)

$
1.61

Diluted EPS:

Numerator:

Net (loss) income⁽¹⁾

$
(7
)

$
50

$
(47
)

$
144

Denominator:

Weighted average shares outstanding

85

86

85

90

Diluted EPS

$
(0.08
)

$
0.59

$
(0.55
)

$
1.60

⁽¹⁾	Net (loss) income for the three months ended September 30, 2020 and 2019 was $(6,846,654) and $50,659,927, respectively, and for the nine months ended September 30, 2020 and 2019 was $(46,771,239) and $144,352,584, 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. Potentially dilutive shares of ~~308,441~~175,635 and ~~332,883~~357,912, for the three and ~~nine~~six months ended ~~September~~June 30, 2020, respectively, were excluded from the calculation of diluted weighted average shares outstanding and diluted earnings per share as a result of our net loss position.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, we excluded788,168 ~~2,816,707~~ and ~~2,506,497,~~568,891, respectively, and3,027,069 and 2,429,811 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019, we excluded 887,859 and 979,779~~2020, respectively, of share-based compensation awards, ~~respectively,~~ because their effect would have been anti-dilutive under the treasury stock method.

Note 17: Related Party Transactions

BRE Ace LLC and 1776 Holding, LLC

We hold a 25 percent ownership interest in BRE Ace LLC, 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 1776 Holding, LLC, a VIE, which ~~will construct~~owns a timeshare resort property and related operations, known as “Liberty Place Charleston, by Hilton Club.”

We record Equity in earnings ~~(losses)~~ from our unconsolidated affiliates in our unaudited condensed consolidated statements of operations. See Note 10: Investments in Unconsolidated Affiliates for additional information. Additionally, we earn commissions and other fees related to fee-for-service agreements with the investees to sell VOIs at Elara, by Hilton Grand Vacations and Liberty Place Charleston, by Hilton Club. These amounts are summarized in the following table and are included in our unaudited condensed consolidated statements of operations as of the date they became related parties.


	Three Months Ended June 30,				Six Months Ended June 30,
($ in millions)	2021		2020		2021		2020
Equity in earnings from unconsolidated affiliates	$	4	$	1	$	6	$	4
Commissions and other fees		24		4		37		27

Three Months Ended September 30,

Nine Months Ended September 30,

($ in millions)

2020

2019

2020

2019

Equity in (losses) earnings from unconsolidated affiliates

$
(1
)

$
1

$
3

$
4

Commissions and other fees

16

31

43

99

We also ~~have $7~~had $13 million and ~~$25~~$7 million of outstanding receivables related to the fee-for-service agreements as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

Note 18: Business Segments

We operate our business through the following 2 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 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. We also earn revenue from food and beverage, retail and spa outlets at our timeshare properties.

•

~~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 receivables to customers to finance their purchase of VOIs and revenue from servicing the timeshare financing receivables. We also generate fee revenue from servicing the timeshare financing receivables provided by third-party developers to purchasers of their VOIs.

•

~~Resort operations and club management –~~ We manage the Club 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. In addition, we generate rental revenue from unit rentals of unsold inventory and inventory made available due to ownership exchanges under our Club program. Our timeshare properties also earn revenue from food and beverage, retail and spa outlets.

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)~~translations; (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 and ~~(viii)~~ other ~~items.~~non-cash and one-time charges.

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

The following table ~~present~~presents revenues for our reportable segments reconciled to consolidated amounts:


	Three Months Ended June 30,					Six Months Ended June 30,
($ in millions)	2021			2020		2021			2020
Revenues:
Real estate sales and financing	$	194		$	56	$	317		$	262
Resort operations and club management(1)(2)		107			44		187			148
Total segment revenues		301			100		504			410
Cost reimbursements		38			23		73			72
Intersegment eliminations(1)(2)		(5	)		0		(8	)		(8	)
Total revenues	$	334		$	123	$	569		$	474

(1) Includes charges to the real estate sales and financing segment from the resort operations and club management segment for fulfillment of discounted marketing package stays at resorts. These charges totaled $5 million for the three months ended June 30, 2021. There were 0 such charges related to this for three months ended June 30, 2020. For the six months ended June 30, 2021 and 2020, these charges totaled $8 million.

(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 to show prospective buyers. These charges totaled less than $1 million for the three and six months ended June 30, 2021 and 2020.

Three Months Ended September 30,

Nine Months Ended September 30,

($ in millions)

2020

2019

2020

2019

Revenues:

Real estate sales and financing

$
116

$
324

$
378

$
939

Resort operations and club management⁽¹⁾⁽²⁾

61

108

209

332

Total segment revenues

177

432

587

1,271

Cost reimbursements

33

43

105

128

Intersegment eliminations⁽¹⁾⁽²⁾

(2
)

(9
)

(10
)

(29
)
Total revenues

$
208

$
466

$
682

$
1,370

⁽¹⁾

Includes charges to the real estate sales and financing segment from the resort operations and club management segment for fulfillment of discounted marketing package stays at resorts. These charges totaled $2 million and $9 million for the three months ended September 30, 2020 and 2019, and $10 million and $29 million for the nine months ended September 30, 2020 and 2019, respectively.

⁽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 to show prospective buyers. These charges totaled less than $1 million for the three and nine months ended September 30, 2020 and 2019.

The following table presents ~~Segment~~ Adjusted EBITDA for our reportable segments reconciled to net income (loss) ~~income:~~:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
($ in millions)	2020			2019			2020			2019			2021			2020			2021			2020
Adjusted EBITDA:
Real estate sales and financing⁽¹⁾	$	15		$	94		$	16		$	243		$	45		$	(14	)	$	72		$	1
Resort operations and club management⁽¹⁾		30			62			100			193			61			15			103			70
Segment Adjusted EBITDA		45			156			116			436			106			1			175			71
General and administrative		(22	)		(30	)		(65	)		(87	)		(44	)		(22	)		(80	)		(43	)
Depreciation and amortization		(11	)		(12	)		(34	)		(32	)		(12	)		(11	)		(23	)		(23	)
License fee expense		(11	)		(26	)		(39	)		(75	)		(19	)		(6	)		(33	)		(28	)
Other gain (loss), net		1			(1	)		—			(3	)
Other loss, net														(1	)		(3	)		(2	)		(1	)
Interest expense		(10	)		(12	)		(32	)		(33	)		(17	)		(12	)		(32	)		(22	)
Income tax benefit (expense)		5			(20	)		12			(55	)
Equity in (losses) earnings from unconsolidated affiliates		(1	)		1			3			4
Income tax (expense) benefit														(3	)		8			3			7
Equity in earnings from unconsolidated affiliates														4			1			6			4
Impairment expense														—			—			(1	)		—
Other adjustment items⁽²⁾		(3	)		(6	)		(8	)		(11	)		(5	)		(4	)		(11	)		(5	)
Net (loss) income	$	(7	)	$	50		$	(47	)	$	144
Net income (loss)													$	9		$	(48	)	$	2		$	(40	)

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

(2) For the three and six months ended June 30, 2021 and 2020, this amount includes costs associated with restructuring, one-time charges and other non-cash items included within our reportable segments.⁽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, 2020 and 2019, this amount includes costs associated with restructuring, one-time charges and other non-cash items.~~

Note 19: Commitments and Contingencies

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~~June 30, ~~2020,~~2021, we were committed to purchase approximately ~~$457~~$436 million of inventory and land over a period of 10 years and ~~$16~~$10 million of other commitments ~~under~~in the normal course of business. Additionally, we have committed to develop additional vacation ownership units at an existing resort in Japan. ~~During the second quarter of 2020, we entered into~~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 actual amount and timing of the acquisitions is subject to change pursuant to the terms of the respective arrangements, which could also allow for cancellation in certain circumstances. During the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, ~~and 2019,~~ we ~~purchased $16~~completed $18 million and ~~$66~~$9 million, respectively, asof purchases required under our inventory-related purchase commitments. As of ~~September~~June 30, ~~2020,~~2021, our remaining obligation pursuant to these arrangements were expected to be incurred as follows:


($ in millions)	2021 (remaining)		2022		2023		2024		2025		Thereafter		Total
Inventory purchase obligations	$	209	$	114	$	58	$	40	$	3	$	12	$	436
Other commitments(1)		7		3		—		—		—		—		10
Total	$	216	$	117	$	58	$	40	$	3	$	12	$	446

(1) Primarily relates to commitments related to information technology and brand licensing in the normal course of business.

($ in millions)

2020
(remaining)

2021

2022

2023

2024

Thereafter

Total

Inventory purchase obligations

$
10

$
225

$
110

$
58

$
40

$
14

$
457

Other commitments⁽¹⁾

1

10

3

2

—

—

16

Total

$
11

$
235

$
113

$
60

$
40

$
14

$
473

⁽¹⁾	~~Primarily relates to commitments related to information technology and brand licensing under the normal course of business.~~

We are involved in litigation arising from the normal course of business, some of which includes claims for substantial sums. Management has evaluated these legal matters and we believe that possible losses derived from an unfavorable outcome that is reasonably possible ~~or remote~~ is not reasonably estimable. While the actual results of claims and litigation cannot be predicted with certainty, we expect that the resolution of all pending or threatened claims and litigation as of ~~September~~June 30, ~~2020,~~2021, will 0t0t materially affect our unaudited condensed consolidated financial statements.

Note 20: Planned Acquisition

On March 10, 2021, we and our wholly-owned subsidiary Hilton Grand Vacations Borrower LLC entered into an Agreement and Plan of Merger, as amended (“Merger Agreement”), with Dakota Holdings, Inc. (“Diamond”), which is controlled by certain investment funds and vehicles managed by affiliates of Apollo Global Management Inc. (“Apollo”) and certain stockholders of Diamond, under which we agreed to acquire Diamond, in a stock transaction with an equity fair value of approximately $1.4 billion as of that date. Under the Merger Agreement, Apollo and other Diamond stockholders are expected to receive approximately 34.7 million shares (based on calculations as of June 1, 2021) of our common stock, par value $0.01 per share, subject to customary adjustments. Upon transaction close, existing HGV stockholders are expected to own approximately 72% of our shares of common stock on a fully-diluted basis and Apollo is expected to own approximately 28% of our shares of common stock on a fully-diluted basis. The transaction has been approved by the Board of Directors for both companies. Consummation of this transaction is subject to customary conditions, including approval from stockholders of both us and Diamond, receipt of any required regulatory approvals and other customary closing conditions.

We intend to finance the transaction through a combination of cash on hand, assumption of debt and incremental debt financing. As of June 30, 2021, we have entered into debt agreements to provide incremental financing. See Note 11: Debt & Non-recourse Debt for further discussion. The transaction is expected to close in August 2021.

Note ~~20:~~21: Subsequent Events

~~On October 15, 2020, we announced~~As disclosed in our press release issued on July 28, 2021 and in our Current Report on Form 8-K filed with the SEC on July 28, 2021, at a ~~workforce reduction plan~~special meeting held on the same day, our stockholders voted to approve the issuance of our common stock in ~~response to~~connection with the ~~continuing adverse impact~~proposed acquisition of ~~the COVID-19 pandemic and related government orders and mandates restricting travel and operations on our business and the travel and leisure industry in general.~~Diamond. The ~~reduction in force~~transaction is expected to ~~reduce~~close in early August 2021, and remains subject to customary closing conditions.

In July 2021, we also executed the following transactions:



we entered into an Amendment to the Purchase and Sale Agreement (the “Amendment”) for the Central at 5th by Hilton Club development project. The Amendment shifted the timing of payments of our ~~workforce by approximately 1,600 team members~~inventory purchase obligations for the project from 2021 and ~~better align~~2022 to 2023. Additionally, we completed the ~~workforce with the evolving business needs.~~

The reduction in force is estimated to result in approximately $10 million to $12 million in restructuring and related expenses and charges, primarily related to employee severance, benefits and related costs. We expect to incur a majority of these costs during the last quarter of 2020. Allpurchase of the ~~restructuring and related expenses and charges are expected to result in cash expenditures.~~

~~Additionally, in October 2020,~~ first phase of timeshare units for $53 million



we ~~repaid $100~~borrowed $96 million under our ~~revolving credit facility.~~

Timeshare Facility to finance the repayment of certain indebtedness in connection with the Merger



we terminated the waiver period obtained in December 2020 for certain financial covenants required under our Credit Agreement.

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, ~~2019.~~2020.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q ~~(this “Report”)~~ 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. Forward-looking statements convey management’s expectations as to ~~our~~the future of HGV, and are based on management’s beliefs, expectations, assumptions and such plans, estimates, projections and other information available to management at the time ~~we make~~HGV makes such statements. Forward-looking statements include all statements that are not historical facts ~~including those related to our revenues, earnings, cash flow and operations,~~ and may be identified by terminology such as the words “outlook,” “believe,” “expect,” “potential,” “goal,” “continues,” “may,” “will,” “should,” “could,”, “would”, “seeks,” “approximately,” “projects,” predicts,” “intends,” “plans,” “estimates,” “anticipates” “future,” “guidance,” “target,” or the negative version of these words or other comparable words, 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.

~~We caution~~HGV cautions you that our forward-looking statements involve known and unknown risks, uncertainties and other factors, including those that are beyond ~~our~~HGV’s control, that may cause ~~our~~the actual results, performance or achievements to be materially different from the future results. Factors that could cause ~~our~~HGV’s actual results to differ materially from those contemplated by ~~our~~its forward-looking statements include: the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement; the inability to complete the proposed Merger due to the failure to obtain stockholder approval for the proposed Merger or the failure to satisfy other conditions to completion of the proposed Merger, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transaction; risks related to disruption of management’s attention from HGV’s ongoing business operations due to the transaction; the effect of the announcement of the proposed Merger on HGV’s relationships, operating results and business generally; the risk that the proposed Merger will not be consummated in a timely manner; exceeding the expected costs of the Merger; the material impact of the COVID-19 pandemic on ~~our~~HGV’s business, operating results, and financial condition; the extent and duration of the impact of the COVID-19 pandemic on global economic conditions; ~~our~~HGV’s ability to meet ~~our~~its liquidity needs; risks related to ~~our~~HGV’s indebtedness; inherent business risks, market trends and competition within the timeshare and hospitality industries; ~~our~~HGV’s ability to successfully source inventory and market, sell and finance VOIs; default rates on our financing receivables; the reputation of and our ability to access Hilton brands and programs, including the risk of a breach or termination of our license agreement with Hilton; compliance with and changes to United States and global laws and regulations, including those related to anti-corruption and privacy; risks related to ~~our~~HGV’s acquisitions, joint ventures, and other partnerships; ~~our~~HGV’s dependence on third-party development activities to secure just-in-time inventory; the performance of ~~our~~HGV’s information technology systems and our ability to maintain data security; regulatory proceedings or litigation; adequacy of our workforce to meet ~~our~~HGV’s business and operation needs; ~~our~~HGV’s ability to attract and retain key executives and employees with skills and capacity to meet our needs; and natural disasters or adverse geo-political conditions. Any one or more of the foregoing factors could adversely impact ~~our~~HGV’s operations, revenue, operating profits and margins, financial condition and/or credit rating.

For additional information regarding factors that could cause ~~our~~HGV’s actual results to differ materially from those expressed or implied in the forward-looking statements in this Quarterly Report on Form 10-Q, please see the risk factors discussed in “Part I—Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019,~~2020, as supplemented and updated by the risk factors discussed in “Part II-Item 1A. Risk Factors” of this Report, and in our Quarterly ~~Reports~~Report on ~~Forms~~Form 10-Q for the quarter ended March 31, ~~2020, June 30, 2020~~2021, and ~~this Report, as well as~~ those described from time to time in other periodic reports that we file with the 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. Except for ~~our~~HGV’s ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to publicly update or ~~revise~~review any forward-looking statement, whether as a result of new information, future developments, changes in management’s expectations, or 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. Except where the context requires otherwise, references to our “properties” or “resorts” and ~~“units”~~“VOIs” refer to the timeshare properties that we manage or own. Of these resorts and ~~units,~~VOIs, a portion is directly owned by us or our joint ventures in which we have an interest and the remaining resorts and ~~units~~VOIs are owned by our third-party owners.

“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.

“VOI” refers to vacation ownership intervals.

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 earnings before interest expense (excluding interest expense relating to our non-recourse debt), taxes and depreciation and amortization (“EBITDA”), and Adjusted ~~EBITDA, free cash flow and adjusted free cash flow.~~EBITDA.

Operational Metrics

This Quarterly Report on Form 10-Q includes discussion of key business operational metrics including contract sales, sales revenue, real estate ~~margin,~~profit, tour flow, and volume per ~~guest.~~ guest (“VPG”).

See “Key Business and Financial Metrics and Terms Used by Management” and “-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~~

Overview

Our Business

We are a 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~~June 30, ~~2020,~~2021, we have 6062 properties, representing ~~9,594 units,~~500,968 VOIs, that are primarily located in vacation destinations such as Orlando, Las Vegas, the Hawaiian Islands, New York City, Washington D.C., ~~and~~ South Carolina, Barbados and Mexico and feature spacious, condominium-style accommodations with superior amenities and quality service. As of ~~September~~June 30, ~~2020,~~2021, we have approximately ~~328,000~~328,500 Hilton Grand Vacations Club and Hilton Club (collectively the “Club”) members. 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 18 industry-leading brands across approximately ~~6,200~~6,500 properties, as well as numerous experiential vacation options, such as cruises and guided tours. Our business has been and continues to be adversely impacted by the COVID-19 pandemic and its effects on the global economy, including the various government orders and mandates for closures of non-essential businesses. Please see, “Recent ~~Events”~~Events Related to the COVID-19 Pandemic and Impact on Our Results of Operations, Financial Condition, and Business During the Three and Six Months Ended June 30, 2021” and other discussions throughout this Report for additional information regarding such impacts.

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 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 on 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. We source VOIs through fee-for-service and just-in-time agreements with third-party developers and have 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 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 with the sale to purchasers. Sales of owned, including 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.

For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, sales from fee-for-service, just-in-time and developed inventory sources were 5541 percent, 2225 percent and 2334 percent, respectively, of contract sales. See “Key Business and Financial Metrics and Terms Used by Management——Real Estate Sales Operating Metrics” for additional discussion of contract sales. The estimated contract sales value related to our inventory 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 $10 billion at current pricing.

Capital efficient arrangements, ~~represent~~comprised of our fee-for-service and just-in-time inventory, represented approximately 52 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 sell our vacation ownership products under the Hilton Grand Vacations brand 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 and the Asia-Pacific region. 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 sales distribution centers in Las Vegas, Orlando, Oahu, Japan, New York, Myrtle Beach, Waikoloa, Washington D.C., Hilton Head, Park City, Chicago, Korea, Carlsbad and ~~Carlsbad.~~Los Cabos. 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 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 Metrics.” Additionally, the quality of tour flow impacts sales revenue and the collectability of our timeshare financing receivables. For the ~~nine~~six months ended ~~September~~June 30, ~~2020, 60~~2021, 65 percent of our contract sales were to our existing owners.

We provide financing for members purchasing our developed and acquired inventory and generate interest income. Our timeshare 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 94 percent to 18 percent per annum. Financing propensity was 6566 percent and 6763 percent for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. 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-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,

2020

2019

Weighted-average FICO score

734

735


	Six Months Ended June 30,
	2021		2020
Weighted-average FICO score		738		735

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.

Some of our timeshare financing receivables have been pledged as collateral in our securitization transactions, 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 6: Timeshare Financing Receivables in our unaudited condensed consolidated financial statements.

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

Resort Operations and Club Management

We enter into management agreements with the 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 comprised 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 from three to five years and the agreements are subject to periodic renewal for one to three-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 points-based Hilton Grand Vacations Club and Hilton Club exchange programs, which provide exclusive exchange, leisure travel and reservation services to our Club members. When owners purchase a

VOI, they are generally enrolled in the Club and given an annual allotment of points that allow the member to exchange their annual usage rights in the VOI that they own 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 club 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

We measure our performance using the following key operating metrics:

•

Contract sales represents the total amount of VOI products (fee-for-service and developed) 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 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. We consider contract sales to be an important operating measure because it reflects the pace of sales in our 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.

•

~~Contract sales~~ represents the total amount of VOI products (fee-for-service and developed) 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 differ from revenues from the ~~Sales of VOIs, net~~ that we report in our condensed consolidated statements of operations due to the requirements for revenue recognition, as well as adjustments for incentives. We consider contract sales to be an important operating measure because it reflects the pace of sales in our 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 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 and developed) is most appropriate for the purpose of the operating metric, additional information regarding the split of contract sales, is included in “—Real Estate” below. See Note 2: Basis of Presentation and Summary of Significant Accounting Policies in our audited consolidated financial statements included in Item 8 in our Annual Report on form 10-K for the year ended December 31, ~~2019,~~2020, for additional information on Sales of VOI, net.

•

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

•

Real estate profit represents sales revenue less the cost of VOI sales, 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 Contract sales, excluding telesales, by tour flow. We consider VPG to be an important operating measure because it measures the effectiveness of our sales process, combining the average transaction price with the closing rate.

•

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

•

~~Real estate margin~~ represents sales revenue less the cost of VOI sales, 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 Contract sales, excluding telesales, by tour flow. We consider VPG to be an important operating measure because it measures the effectiveness of our sales process, combining the average transaction price with the closing rate.

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, ~~2019.~~2020.

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.

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)~~translations; (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 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.

•

~~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 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.

Recent Events Related to the COVID-19 Pandemic and Impact on Our Results of Operations, Financial Condition, and Business During the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020.~~2021.

In March 2020, a National Public Health Emergency was declared in response to the coronavirus, known as COVID-19. As a result, many local, county and state government officials have issued, and continue to issue or reinstate, various mandates and orders to close non-essential businesses, impose travel restrictions, and require “stay-at-home” and/or self-quarantine in certain cases, all in an effort to protect the health and safety of individuals and aimed at slowing and ultimately stopping the spread and transmission of the ~~virus~~.

virus. Accordingly, commencing in March 2020, we started to temporarily close substantially all of our properties and suspended our U.S sales operations and closed such sales offices. ~~We took a number of other actions to reduce our expenses and preserve liquidity, including workforce furlough, implementing salary reductions for the remaining active employees primarily during~~In the second quarter of 2020, ~~implementing hiring freezes, eliminating all discretionary spending,~~we began a phased reopening of resorts and reducing our planned investment in new inventory by approximately $200 million. Recently, we announced a workforce reduction plan that will impact approximately 1,600 team members, and approximately 2,000resumption of our ~~team members remain furloughed.~~

~~Furthermore, we believe~~business activities, but under new operating guidelines and with safety measures as mandates and orders for business closures, quarantine and travel restrictions began to ease. With the ~~following actions will provide adequate capital to meet our short-and long-term liquidity requirements for anticipated operating expenses~~ and other expenditures, including payroll and related benefits, legal costs, and additional costs related to complying with various regulatory requirements and best practices for opening under the current environment resulting fromexpectation that the pandemic will continue to recede as COVID-19 vaccinations become more widespread, such mandates and orders have continued to ease, resulting in increasing consumer confidence in resuming normal activities, including travel and leisure, and more businesses resuming normal operations. We plan to continue our normal business as conditions permit, but there can be no assurance that such positive trends will continue or that there will not be any increases of new infections or new variants that may impede or reverse recovery and such positive trends.

In response to the impact of the COVID-19 pandemic, we took a variety of actions to ensure the continuity of our business and operations and to ~~finance~~secure our ~~long-term growth plan~~liquidity position to provide financial flexibility. These actions include amending certain financial covenant ratios through the third quarter of 2021, as may be needed due to the ongoing and ~~capital expenditures for~~uncertain future impact of the ~~foreseeable future.~~COVID-19 pandemic on our business and operations.

•

In March 2020, we drew down the substantial remainder of our borrowing capacity under our revolver facility through net borrowings of $445 million as a precautionary measure to ensure liquidity for a sustained period in the economic environment resulting from the COVID-19 pandemic. We expect the proceeds would be used for general corporate and working capital purposes in the ordinary course of business.

•

In April 2020, we amended certain key definitions related to delinquency level calculations of underlying timeshare loans that are used as collateral for borrowings under our Timeshare Facility, and generated added flexibility to manage any potential increase in the rate of delinquency as a result of the impact of the COVID-19 pandemic.

•

In May 2020, we amended our Credit Agreement which amended certain terms of the credit facilities (“Senior Secured Credit Facilities”) to provide us with both near-term and long-term flexibility with respect to satisfying certain negative and financial covenants and ratios as may be needed due to the ongoing and uncertain future impact of the COVID-19 pandemic on our business and operations.

•

In June 2020, we completed a securitization of $300 million of gross timeshare financing receivables and used the proceeds to pay down the $195 million outstanding balance on our Timeshare Facility and for general corporate operating expenses. As of September 30, 2020, we have $450 million remaining borrowing capacity under our Timeshare Facility. See Note 11: ~~Debt and Non-Recourse Debt~~ ~~for additional information.~~

•

In August 2020, we renewed and extended our Timeshare Facility and amended certain provisions relating to advance rate, successor benchmark interest rate, certain used and unused fees, and thresholds for interest rate hedging obligations and transactions.

The temporary closure of our resorts and sales centers, and the related suspensions of our operations, as well as various travel and other restrictions, expectedly have had a materially adverse impact on our revenues, net income (loss) and other operating results during the ~~third quarter,~~first six months of 2021, as well as our business and operations generally, as more fully discussed below. As discussed in further detail below, substantially all of the ~~unfavorable~~ changes in our operating results during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020 as compared to prior periods~~2021 were as a result of the ~~ongoing~~ impact of the COVID-19 pandemic on travel ~~demand, along with the temporary closure of substantially all of our properties and suspension of our sales and related operations during the first half of 2020.~~ demand.

~~Outlook~~

The COVID-19 pandemic has created an unprecedented and challenging ~~time.~~time, including for our business and industry. Our current focus is on ~~taking critical actions that are aimed at positioning~~continuing to position the Company to be in a sound position from an operational, liquidity, credit access, and compliance perspective for a strong recovery ~~when~~as the impact of COVID-19 subsides. As ~~discussed~~mentioned above, we have taken several steps to enhance our liquidity ~~preserve cash, reduce our expenditures~~ and provide financial flexibility. We will continue to assess the evolving COVID-19 pandemic, including the various ~~government mandates~~restrictions on travel, leisure and ~~orders that impact the re-opening of our properties~~other activities, and ~~any new recommended or required~~general business ~~practices,~~operations, and will take additional actions as appropriate.

As of June 30, 2021, nearly all of our resorts and sales centers which previously closed due to the COVID-19 pandemic are open and operating, although some are still operating in markets with various capacity constraints, social distancing requirements and other safety measures, which are impacting consumer demand for resorts in those markets. Prior to ~~re-opening~~reopening our resorts and sales centers, we introduced the HGV Enhanced Care Guidelines, designed to provide owners, guests and team members with the highest level of cleaning protocols and safety standards recommended by the Center for Disease Control and Prevention and cleaning solutions approved by the Environmental Protection Agency in response to the COVID-19 pandemic. Along with providing personal protective equipment to team members, these Enhanced Care Guidelines include low-touch arrivals and departures, frequent and thorough cleaning, reduction of paper items, reduced capacity for our pool decks and fitness centers, and new technologies. While operations were suspended,

essential resort personnel worked diligently maintaining the resorts for a safe re-opening. Annual deep cleanings, typically scheduled during slower seasons, were moved up and completed, allowing the resorts to be in top shape when owners and guests arrive.

Beginning in May 2020, various states and counties started to allow gradual relaxation of restrictions on activities and a resumption of businesses. In response, we began a phased reopening of resorts and resumption of our business activities during the second quarter of 2020, but under new operating guidelines and with safety measures. As of October 2020, we have over three quarters of our resorts and sales centers open and currently operating however, many of our resorts and sales centers are operating with significant capacity constraints and subject to various safety measures.

Although we have started re-opening our sales centers, they have initially been operating at lower levels of utilization than they were prior to the temporary shutdown. This includes lower levels of sales staff, modified operating schedules to stagger tours in compliance with social distancing rules, and running a reduced weekly operating calendar. As we respond to changes in tour flow, we intend to adjust our sales operations accordingly while complying with all applicable social distancing rules and our own safety measures.

~~While we~~We plan to continue ~~to reopen~~ our ~~resorts and resume our~~normal business as conditions permit, but there can be no assurance that such positive trends will continue or that there will not be any increases in new infections or new variants that may impede or reverse recovery and ~~applicable rules~~such positive trends.

While we hope that conditions in the hospitality and ~~regulations permit,~~travel industries continue to reflect the improvement that we saw during the first half of 2021, the pandemic continues to severely impact certain areas outside the United States and be unprecedented and rapidly changing, ~~and has~~with unknown duration and severity. F~~urther, ongoing strict travel~~ Further, various state and ~~other restrictions in regions and locations where~~local government officials may issue new or revised orders that are different than current ones under which we ~~have a significant concentration of our properties and units, in particular, Hawaii and New York,~~ are ~~significantly impacting consumer demand for our resorts in those areas.~~

operating. Accordingly, there remains significant uncertainty as to the continuing degree of impact and duration of the conditions stemming from the ongoing pandemic on our revenues, net income and other operating results, as well as our business and operations generally. Any significantly extended duration or worsening of the conditions associated with the pandemic may adversely impact our liquidity in the longer term, including our ability to finance our day-to-day business and operations, and may adversely affect our ability to comply with our maintenance and financial covenants and ratios under our debt obligations notwithstanding the recent amendments discussed above. However, we believe that prior to triggering an event of default, if any, in connection with the financial covenants under our debt agreements we would be able to reach an agreement with our lenders to amend such covenants in advance of any potential default.

Please carefully review ~~carefully~~ the risk factors contained in this quarterly report on Form 10-Q, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, in Item 1A of our Form 10-K for the year ended December 31, ~~2019~~2020 and those described from time to time in other periodic reports that ~~are included in our Forms 10-Q for~~we file with the ~~quarters ended March 31, 2020 and June 30, 2020 and this Report~~SEC for discussions of various factors and uncertainties related to the pandemic that may materially impact us.

Planned Acquisition of Diamond

On March 10, 2021, we and our wholly-owned subsidiary Hilton Grand Vacations Borrower LLC entered into an Agreement and Plan of Merger, as amended (“Merger Agreement”), with Dakota Holdings, Inc. (“Diamond”), which is controlled by certain investment funds and vehicles managed by affiliates of Apollo Global Management Inc. (“Apollo”) and certain stockholders of Diamond, under which we agreed to acquire Diamond, in a stock transaction with an equity fair value of approximately $1.4 billion as of that date. Under the Merger Agreement, Apollo and other Diamond stockholders will receive approximately 34.7 million shares (based on calculations as of June 1, 2021) of our common stock, par value $0.01 per share, subject to customary adjustments. Upon transaction close, existing HGV stockholders will own approximately 72% of our shares of common stock on a fully-diluted basis and Apollo will own approximately 28% of our shares of common stock on a fully-diluted basis. The transaction has been approved by the board of directors for both companies. Consummation of this transaction is subject to customary conditions, including approval from stockholders of both us and Diamond, receipt of any required regulatory approvals and other customary closing condition.

We intend to finance the transaction through a combination of cash on hand, assumption of debt and incremental debt financing. As of June 30, 2021, we have entered into debt agreements to provide incremental financing. See Note 11: Debt & Non-recourse Debt and "Liquidity and Capital Resources" below for further discussion. The transaction is expected to close in August 2021.

Results of Operations

Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 Compared with the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~ 2020

Segment Results

We evaluate our business segment operating performance using segment Adjusted EBITDA, as described in Note 18: Business Segments in our unaudited condensed consolidated financial statements. We do not include equity in earnings (losses) from unconsolidated affiliates in our measures of segment operating performance. For a discussion of our definition of EBITDA and Adjusted EBITDA, how management uses them to manage our business and material limitations on their usefulness, refer to “—Key Business and Financial Metrics and Terms Used by Management—EBITDA and Adjusted EBITDA.” The following tables set forth revenues and Adjusted EBITDA by segment:


	Three Months Ended September 30,						Variance						Nine Months Ended September 30,						Variance						Three Months Ended June 30,					Variance						Six Months Ended June 30,						Variance
($ in millions)	2020			2019			$			%			2020			2019			$			%			2021			2020		$			%			2021			2020			$		%
Revenues:
Real estate sales and financing	$	116		$	324		$	(208	)		(64.2	)%	$	378		$	939		$	(561	)		(59.7	)%	$	194		$	56	$	138		NM(1)			$	317		$	262		$	55		21.0	%
Resort operations and club management		61			108			(47	)		(43.5	)		209			332			(123	)		(37.0	)		107			44		63		NM(1)				187			148			39		26.4
Segment revenues		177			432			(255	)		(59.0	)		587			1,271			(684	)		(53.8	)		301			100		201		NM(1)				504			410			94		22.9
Cost reimbursements		33			43			(10	)		(23.3	)		105			128			(23	)		(18.0	)		38			23		15			65.2	%		73			72			1		1.4
Intersegment eliminations⁽¹⁾		(2	)		(9	)		7			(77.8	)		(10	)		(29	)		19			(65.5	)
Intersegment eliminations(2)																										(5	)		—		(5	)	NM(1)				(8	)		(8	)		—		—
Total revenues	$	208		$	466		$	(258	)		(55.4	)	$	682		$	1,370		$	(688	)		(50.2	)	$	334		$	123	$	211		NM(1)			$	569		$	474		$	95		20.0

(1) Fluctuation in terms of percentage change is not meaningful.

(2) Refer to Note 18: Business Segments in our unaudited condensed consolidated financial statements for details on the intersegment eliminations.

⁽¹⁾

~~Refer to Note 18:~~ ~~Business Segments~~ ~~in our unaudited condensed consolidated financial statements for details on the intersegment eliminations.~~

The following table reconciles net income (loss) ~~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)

2020

2019

$

%

2020

2019

$

%

Net (loss) income

$
(7
)

$
50

$
(57
)

NM⁽¹⁾

$
(47
)

$
144

$
(191
)

NM⁽¹⁾

Interest expense

10

12

(2
)

(16.7
)%

32

33

(1
)

(3.0
)%
Income tax (benefit) expense

(5
)

20

(25
)

NM⁽¹⁾

(12
)

55

(67
)

NM⁽¹⁾

Depreciation and amortization

11

12

(1
)

(8.3
)

34

32

2

6.3

Interest expense, depreciation
   and amortization included in
   equity in (losses) earnings from
   unconsolidated affiliates

1

—

1

NM⁽¹⁾

2

2

—

—

EBITDA

10

94

(84
)

(89.4
)

9

266

(257
)

(96.6
)
Other (gain) loss, net

(1
)

1

(2
)

NM⁽¹⁾

—

3

(3
)

(100.0
)
Share-based compensation
   expense⁽²⁾

6

6

—

—

10

18

(8
)

(44.4
)
Other adjustment items⁽³⁾

4

10

(6
)

(60.0
)

14

16

(2
)

(12.5
)
Adjusted EBITDA

$
19

$
111

$
(92
)

(82.9
)

$
33

$
303

$
(270
)

(89.1
)


	Three Months Ended June 30,					Variance						Six Months Ended June 30,						Variance
($ in millions)	2021		2020			$			%			2021			2020			$		%
Net income (loss)	$	9	$	(48	)	$	57		NM(1)			$	2		$	(40	)	$	42	NM(1)
Interest expense		17		12			5			41.7	%		32			22			10		45.5	%
Income tax expense (benefit)		3		(8	)		11		NM(1)				(3	)		(7	)		4		(57.1	)
Depreciation and amortization		12		11			1			9.1			23			23			—		—
Interest expense, depreciation and amortization included in equity in earnings from unconsolidated affiliates		—		—			—		NM(1)				1			1			—		—
EBITDA		41		(33	)		74		NM(1)				55			(1	)		56	NM(1)
Other loss, net		1		3			(2	)		(66.7	)		2			1			1		100.0
Share-based compensation expense		14		6			8		NM(1)				18			4			14	NM(1)
Impairment expense		—		—			—		NM(1)				1			—			1	NM(1)
Other adjustment items(2)		14		5			9		NM(1)				36			10			26	NM(1)
Adjusted EBITDA	$	70	$	(19	)	$	89		NM(1)			$	112		$	14		$	98	NM(1)

(1) Fluctuation in terms of percentage change is not meaningful.

(2) For the three and six months ended June 30, 2021 this amount includes $14 million and $29 million of acquisition and integration costs associated with the recently announced acquisition of Diamond. For the three and six months ended June 30, 2020, this amount includes costs associated with restructuring, one-time charges, and other non-cash items.

⁽¹⁾

~~Fluctuation in terms of percentage change is not meaningful.~~

⁽²⁾

As of March 31, 2020, we determined that the performance conditions for our 2018, 2019, and 2020 Performance RSUs were improbable of achievement therefore we reversed $8 million of share-based compensation expense recognized in prior years and ceased accruing expenses related to Performance RSUs granted in 2018, 2019, and 2020, during the three months ended March 31, 2020. As of September 30, 2020, we determined the performance conditions continue to be improbable of achievement and therefore no expense was recognized for our Performance RSUs in the current period.

⁽³⁾	~~For the three and nine months ended September 30, 2020 and 2019, this amount includes costs associated with restructuring, one-time charges and other non-cash items.~~

The following table reconciles our segment Adjusted EBITDA to Adjusted EBITDA:


	Three Months Ended September 30,						Variance						Nine Months Ended September 30,						Variance						Three Months Ended June 30,						Variance						Six Months Ended June 30,						Variance
($ in millions)	2020			2019			$			%			2020			2019			$			%			2021			2020			$			%			2021			2020			$			%
Adjusted EBITDA:
Real estate sales and financing⁽¹⁾	$	15		$	94		$	(79	)		(84.0	)%	$	16		$	243		$	(227	)		(93.4	)%
Resort operations and club management⁽¹⁾		30			62			(32	)		(51.6	)		100			193			(93	)		(48.2	)
Segment Adjusted EBITDA		45			156			(111	)		(71.2	)		116			436			(320	)		(73.4	)
Real estate sales and financing(2)																									$	45		$	(14	)	$	59		NM(1)			$	72		$	1		$	71		NM(1)
Resort operations and club management(2)																										61			15			46		NM(1)				103			70			33			47.1	%
Adjustments:																																		NM(1)
Adjusted EBITDA from unconsolidated affiliates		—			1			(1	)		(100.0	)		5			6			(1	)		(16.7	)		4			1			3		NM(1)				7			5			2			40.0
License fee expense		(11	)		(26	)		15			(57.7	)		(39	)		(75	)		36			(48.0	)		(19	)		(6	)		(13	)	NM(1)				(33	)		(28	)		(5	)		17.9
General and administrative⁽²⁾⁽³⁾		(15	)		(20	)		5			(25.0	)		(49	)		(64	)		15			(23.4	)		(21	)		(15	)		(6	)		40.0	%		(37	)		(34	)		(3	)		8.8
Adjusted EBITDA	$	19		$	111		$	(92	)		(82.9	)	$	33		$	303		$	(270	)		(89.1	)	$	70		$	(19	)	$	89		NM(1)			$	112		$	14		$	98		NM(1)

(1) 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.

⁽¹⁾

~~Includes intersegment transactions, share-based compensation, depreciation and other adjustments attributable to the segments.~~

⁽²⁾	~~Excludes segment related share-based compensation, depreciation and other adjustment items.~~

Real Estate Sales and Financing

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~~real estate sales and financing segment is 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,						Variance		Nine Months Ended September 30,						Variance			Three Months Ended June 30,						Variance			Six Months Ended June 30,						Variance
($ in millions)	2020			2019			$		2020			2019			$			2021			2020			$			2021			2020			$
Sales of VOIs (deferrals)	$	(13	)	$	(15	)	$	2	$	(64	)	$	(49	)	$	(15	)	$	(42	)	$	(4	)	$	(38	)	$	(74	)	$	(51	)	$	(23	)
Sales of VOIs recognitions		—			—			—		—			—			—			—			—			—			—			—			—
Net Sales of VOIs (deferrals) recognitions		(13	)		(15	)		2		(64	)		(49	)		(15	)		(42	)		(4	)		(38	)		(74	)		(51	)		(23	)
Cost of VOI sales (deferrals)⁽¹⁾		(4	)		(5	)		1		(17	)		(16	)		(1	)		(13	)		—			(13	)		(23	)		(13	)		(10	)
Cost of VOI sales recognitions		—			—			—		—			—			—			—			—			—			—			—			—
Net Cost of VOI sales (deferrals) recognitions⁽¹⁾		(4	)		(5	)		1		(17	)		(16	)		(1	)		(13	)		—			(13	)		(23	)		(13	)		(10	)
Sales and marketing expense (deferrals)		(1	)		(2	)		1		(9	)		(7	)		(2	)		(7	)		(1	)		(6	)		(11	)		(8	)		(3	)
Sales and marketing expense recognitions		—			—			—		—			—			—			—			—			—			—			—			—
Net Sales and marketing expense (deferrals) recognitions		(1	)		(2	)		1		(9	)		(7	)		(2	)		(7	)		(1	)		(6	)		(11	)		(8	)		(3	)
Net construction (deferrals) recognitions	$	(8	)	$	(8	)	$	—	$	(38	)	$	(26	)	$	(12	)	$	(22	)	$	(3	)	$	(19	)	$	(40	)	$	(30	)	$	(10	)

(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 six months ended June 30, 2021 and 2020.

⁽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, 2020 and 2019.

Real estate sales and financing segment revenues ~~decreased~~increased by ~~$208~~$138 million and $55 million for the three and six months ended ~~September~~June 30, ~~2020 and $561 million for the nine months ended September 30, 2020,~~2021, compared to the same periods in ~~2019,~~2020, primarily due to ~~decreases~~increases in sales revenue and marketing revenue as a result of the ~~ongoing impact~~reopening of nearly all of our resorts and sales centers by the end of the ~~COVID-19 pandemic on travel demand, along with the temporary closure~~second quarter of 2021. During early 2020, substantially all of our ~~properties~~resorts and ~~suspension~~sales centers were closed due to the COVID-19 pandemic, which significantly lowered our results for the three and six months ended June 30, 2020. We began a phased reopening of our ~~sales~~resorts and ~~related operations~~resumption of our business activities during the ~~first half~~second quarter of 2020.

Real estate sales and financing Adjusted EBITDA ~~decreased~~increased by ~~$79~~$59 million and $71 million for the three and six months ended ~~September~~June 30, ~~2020 and $227 million for the nine months ended September 30, 2020,~~2021, compared to the same periods in ~~2019, primarily~~2020, due to the ~~decreases~~increases in sales revenue and marketing segment revenues partially offset with the associated increase in cost of VOI sales and real estate operating expenses associated with segment performance discussed ~~herein partially offset by a decrease in related expenses.~~herein. In addition, for the three and six months ended June 30, 2021, real estate sales and financing segment Adjusted EBITDA was impacted favorably by $9a $1 million ~~in one-time payroll~~and $4 million net credit related ~~expenses, net of~~to government assistance from Japan and an employee retention credit granted ~~primarily~~ under the CARES Act, primarily ~~related to~~associated with payments made to employees as a result of operational closures caused by the COVID-19 pandemic, compared to $14 million and $15 million of net expenses for the ~~nine~~three and six months ended ~~September~~June 30, ~~2020.~~2020, respectively.

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 ~~decreased $47~~increased $63 million and ~~$123~~$39 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, respectively,~~2021, compared to the same periods in ~~2019,~~2020, primarily due to ~~decreases~~increases in rental revenues and ~~ancillary~~club management revenues as a result of the ~~ongoing impact~~reopening of nearly all of our resorts and sales centers by the end of the ~~COVID-19 pandemic on travel demand, along with~~second quarter of 2021, which has led to increased results as compared to the ~~temporary closure of~~prior periods. During early 2020, substantially all of our ~~properties~~resorts and ~~suspension~~sales centers were closed due to the COVID-19 pandemic, which significantly lowered our results for the three and six months ended June 30, 2020. We began a phased reopening of our ~~sales~~resorts and ~~related operations~~resumption of our business activities during the ~~first half~~second quarter of 2020.

Resort operations and club management segment Adjusted EBITDA ~~decreased $32~~increased $46 million and ~~$93~~$33 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, respectively,~~2021, compared to the same periods in ~~2019,~~2020, primarily due to the ~~decreases~~increases in rental and management revenues described above partially offset with the increases in segment ~~margin~~operating expenses associated with segment performance discussed herein.

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 June 30,						Variance						Six Months Ended June 30,						Variance
($ in millions, except Tour flow and VPG)	2021			2020			$			%			2021			2020			$			%
Contract sales	$	259		$	35		$	224		NM(1)			$	398		$	279		$	119			42.7	%
Adjustments:
Fee-for-service sales(2)		(109	)		(19	)		(90	)	NM(1)				(165	)		(149	)		(16	)		10.7
Provision for financing receivables losses		(12	)		(8	)		(4	)		50.0			(28	)		(45	)		17			(37.8	)
Reportability and other:
Net deferral (recognition) of sales of VOIs under construction(3)		(42	)		(4	)		(38	)	NM(1)				(74	)		(51	)		(23	)		45.1
Fee-for-service sale upgrades, net		3			1			2		NM(1)				5			9			(4	)		(44.4	)
Other(4)		(23	)		(5	)		(18	)	NM(1)				(27	)		13			(40	)	NM(1)
Sales of VOIs, net	$	76		$	—		$	76		NM(1)			$	109		$	56		$	53			94.6
Tour flow		56,345			5,810			50,535		NM(1)				84,293			72,775			11,518			15.8
VPG	$	4,385		$	4,786		$	(401	)		(8.4	)	$	4,472		$	3,608		$	864			23.9

(1) Fluctuation in terms of percentage change is not meaningful.

Three Months Ended September 30,

Variance

Nine Months Ended September 30,

Variance

($ in millions, except Tour flow and VPG)

2020

2019

$

%

2020

2019

$

%

Contract sales

$
117

$
360

$
(243
)

(67.5
)

$
396

$
1,045

$
(649
)

(62.1
)
Adjustments:

Fee-for-service sales⁽²⁾

(67
)

(194
)

127

(65.5
)

(216
)

(569
)

353

(62.0
)
Provision for financing receivables losses

(12
)

(22
)

10

(45.5
)

(57
)

(60
)

3

(5.0
)
Reportability and other:

Net deferral (recognition) of sales of VOIs under construction⁽³⁾

(13
)

(15
)

2

(13.3
)

(64
)

(49
)

(15
)

30.6

Fee-for-service sale upgrades, net

4

15

(11
)

(73.3
)

13

39

(26
)

(66.7
)
Other⁽⁴⁾

(5
)

(6
)

1

(16.7
)

8

(23
)

31

NM⁽¹⁾

Sales of VOIs, net

$
24

$
138

$
(114
)

(0.8
)

$
80

$
383

$
(303
)

(0.8
)
Tour flow

25,488

102,911

(77,423
)

(75.2
)

98,263

287,267

(189,004
)

(65.8
)
VPG

$
4,205

$
3,363

$
842

25.0

$
3,763

$
3,464

$
299

8.6

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

(3) Represents the net impact of deferred 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.

⁽¹⁾

~~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 impact of deferred 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 ~~decreased $243~~increased by $224 million and ~~$649~~$119 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, respectively,~~2021, compared to the same periods in ~~2019,~~2020, primarily due to ~~a decrease~~an increase in tour flow related to an increase in travel demand as the ongoing impact of the COVID-19 pandemic continues to decline. As of June 30, 2021, nearly all of our resorts and sales centers which had previously closed due to the COVID-19 pandemic were open and operating, although some are still operating in markets with various capacity constraints, social distancing requirements and other safety measures, which are impacting consumer demand for resorts in those markets.


	Three Months Ended June 30,						Variance					Six Months Ended June 30,						Variance
($ in millions)	2021			2020			$		%			2021			2020			$			%
Sales, marketing, brand and other fees	$	81		$	13		$	68	NM(1)			$	134		$	119		$	15			12.6	%
Less:
Marketing revenue and other fees		24			4			20	NM(1)				45			29			16			55.2
Commissions and brand fees		57			9			48	NM(1)				89			90			(1	)		(1.1	)
Sales of VOIs, net		76			—			76	NM(1)				109			56			53			94.6
Sales revenue		133			9			124	NM(1)				198			146			52			35.6
Less:
Cost of VOI sales		21			(1	)		22	NM(1)				24			13			11			84.6
Sales and marketing expense, net(2)		83			56			27		48.2	%		142			181			(39	)		(21.5	)
Real estate profit (loss)	$	29		$	(46	)	$	75	NM(1)			$	32		$	(48	)	$	80		NM(1)
Real estate profit margin		21.8	%	NM(1)									16.2	%		(32.9	)%

(1) 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.

Sales revenue increased for the three months ended June 30, 2021 compared to the same period in 2020, as a result of the reopening of nearly all of our resorts and sales centers by the end of the second quarter of 2021, which has led to increased results as compared to the prior periods. During early 2020, substantially all of our resorts and sales centers were closed due to the COVID-19 pandemic. We began a phased reopening of our resorts and resumption of our business activities during the second quarter of 2020. Compared to prior period, sales revenue increased for the six months ended June 30, 2021 due to increase in sales of VOI revenue as a result of the reduction of the impact of the COVID-19 pandemic on travel demand, ~~along with~~as discussed above in the ~~temporary closure of substantially all of our properties and suspension of our sales and~~discussion related ~~operations during the first half of 2020.~~

Beginning in May 2020, we began a phased reopening of resorts and resumption of our business activities, however many of our resorts and sales centers are operating with significant capacity constraints and are subject to ~~various safety measures. As of September 30, 2020, we have over three quarters of our resorts and sales centers open and currently operating.~~

Three Months Ended September 30,

Variance

Nine Months Ended September 30,

Variance

($ in millions)

2020

2019

$

%

2020

2019

$

%

Sales, marketing, brand and other fees

$
52

$
143

$
(91
)

(63.6
)%

$
171

$
429

$
(258
)

(60.1
)%
Less:

Marketing revenue and other fees

11

34

(23
)

(67.6
)

40

102

(62
)

(60.8
)
Commissions and brand fees

41

109

(68
)

(62.4
)

131

327

(196
)

(59.9
)
Sales of VOIs, net

24

138

(114
)

(82.6
)

80

383

(303
)

(79.1
)
Sales revenue

65

247

(182
)

(73.7
)

211

710

(499
)

(70.3
)
Less:

Cost of VOI sales

8

24

(16
)

(66.7
)

21

92

(71
)

(77.2
)
Sales and marketing expense, net⁽²⁾

66

145

(79
)

(54.5
)

247

415

(168
)

(40.5
)
Real estate margin

$
(9
)

$
78

$
(87
)

NM⁽¹⁾

$
(57
)

$
203

$
(260
)

NM⁽¹⁾

Real estate margin percentage

(13.8
)%

31.6
%

(27.0
)%

28.6
%

⁽¹⁾	~~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.~~

~~Sales revenue decreased for~~contract sales. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared to the same periods in ~~2019, due to decreases~~2020, cost of VOI sales increased consistent with the increase in sales ~~revenue, commissions~~revenue. For the same periods, sales and ~~brand fees and related~~marketing expense, net operating expenses ~~as a result of the ongoing impact of the COVID-19 pandemic on travel demand, along~~increased consistent with the ~~temporary closure of substantially all of our properties and suspension of our~~ sales ~~and related operations during the first half of 2020.~~revenue increase, offset by an increase in marketing program revenue.

Financing


	Three Months Ended June 30,						Variance						Six Months Ended June 30,						Variance
($ in millions)	2021			2020			$			%			2021			2020			$			%
Interest income	$	31		$	36		$	(5	)		(13.9	)%	$	62		$	74		$	(12	)		(16.2	)%
Other financing revenue		6			7			(1	)		(14.3	)		12			13			(1	)		(7.7	)
Financing revenue		37			43			(6	)		(14.0	)		74			87			(13	)		(14.9	)
Consumer financing interest expense		7			7			—			—			14			14			—			—
Other financing expense		4			6			(2	)		(33.3	)		10			12			(2	)		(16.7	)
Financing expense		11			13			(2	)		(15.4	)		24			26			(2	)		(7.7	)
Financing profit	$	26		$	30		$	(4	)		(13.3	)	$	50		$	61		$	(11	)		(18.0	)
Financing profit margin		70.3	%		69.8	%								67.6	%		70.1	%

Three Months Ended September 30,

Variance

Nine Months Ended September 30,

Variance

($ in millions)

2020

2019

$

%

2020

2019

$

%

Interest income

$
34

$
37

$
(3
)

(8.1
)

$
108

$
109

$
(1
)

(0.9
)%
Other financing revenue

6

6

—

—

19

18

1

5.6

Financing revenue

40

43

(3
)

(7.0
)

127

127

—

—

Consumer financing interest expense

9

8

1

12.5

23

22

1

4.5

Other financing expense

4

6

(2
)

(33.3
)

16

17

(1
)

(5.9
)
Financing expense

13

14

(1
)

(7.1
)

39

39

—

—

Financing margin

$
27

$
29

$
(2
)

(6.9
)

$
88

$
88

$
—

—

Financing margin percentage

67.5
%

67.4
%

69.3
%

69.3
%

Financing revenue decreased $3$6 million and $13 million for the three and six months ended ~~September~~June 30, ~~2020 and remained flat for the nine months ended September 30, 2020,~~2021, compared to the same periods in ~~2019~~2020 driven by a decrease in interest income primarily due to a decrease in the timeshare financing receivables portfolio ~~balance.~~balance partially offset by an increase in revenue resulting from an increase in the related weighted average interest rate for the portfolio. Financing expense decreased by $2 million for the three and six months ended June 30, 2021 as compared to the same periods in 2020 as a result of a decrease in other financing expense related to a reduction in operational costs.

Financing ~~margin~~profit decreased for the three and six months ended ~~September~~June 30, ~~2020,~~2021, compared to the same ~~period~~periods in ~~2019~~2020 primarily related to the aforementioned decrease in interest ~~income partially offset primarily by a decrease~~income.

Resort Operations and Club Management Segment

Resort and Club Management


	Three Months Ended June 30,						Variance					Six Months Ended June 30,						Variance
($ in millions)	2021			2020			$		%			2021			2020			$			%
Club management revenue	$	29		$	22		$	7		31.8	%	$	56		$	47		$	9			19.1	%
Resort management revenue		19			17			2		11.8			37			36			1			2.8
Resort and club management revenues		48			39			9		23.1			93			83			10			12.0
Club management expense		5			5			—		—			10			12			(2	)		(16.7	)
Resort management expense		6			1			5	NM(1)				9			6			3			50.0
Resort and club management expenses		11			6			5		83.3			19			18			1			5.6
Resort and club management profit	$	37		$	33		$	4		12.1		$	74		$	65		$	9			13.8
Resort and club management profit margin		77.1	%		84.6	%							79.6	%		78.3	%

(1) Fluctuation in ~~other financing expenses. Financing margin~~terms of percentage ~~remained relatively flat~~change is not meaningful.

Resort and club management revenues increased for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021, compared to the same periods in ~~2019.~~

~~Resort Operations and Club Management Segment~~

~~Resort and Club Management~~

Three Months Ended September 30,

Variance

Nine Months Ended September 30,

Variance

($ in millions)

2020

2019

$

%

2020

2019

$

%

Club management revenue

$
23

$
28

$
(5
)

(17.9
)%

$
70

$
80

$
(10
)

(12.5
)%
Resort management revenue

16

17

(1
)

(5.9
)

52

50

2

4.0

Resort and club management revenues

39

45

(6
)

(13.3
)

122

130

(8
)

(6.2
)
Club management expense

6

6

—

—

18

20

(2
)

(10.0
)
Resort management expense

3

5

(2
)

(40.0
)

9

14

(5
)

(35.7
)
Resort and club management expenses

9

11

(2
)

(18.2
)

27

34

(7
)

(20.6
)
Resort and club management margin

$
30

$
34

$
(4
)

(11.8
)

$
95

$
96

$
(1
)

(1.0
)
Resort and club management margin percentage

76.9
%

75.6
%

77.9
%

73.8
%

~~Resort and club management revenues decreased for~~2020, primarily due to an increase in the ~~three and nine months ended September 30, 2020,~~number of transactions compared to the same periods in ~~2019, primarily due to a decrease in club management revenue related to the refunding and waiving~~2020, as well as refunds of club transaction fees to accommodate our guests impacted by the COVID-19 ~~pandemic. For~~pandemic included in the ~~nine~~three and six months ended ~~September~~June 30, 2020 and not included in the ~~decrease~~three and six months ended June 30, 2021.

Resort and club management profit increased for the three and six months ended June 30, 2021, primarily due to the aforementioned increase in club management and resort management revenue, ~~was partially~~ offset by ~~(i) an increase of approximately 6,000 Club members and (ii)~~ an increase in resort management ~~revenue from~~expenses driven by the ~~launch~~opening of ~~new properties, compared~~nearly all of our resorts and sales centers which had previously closed due to the ~~same period~~COVID-19 pandemic by the end of the second quarter 2021.

Rental and Ancillary Services


	Three Months Ended June 30,						Variance					Six Months Ended June 30,						Variance
($ in millions)	2021			2020			$		%			2021			2020			$			%
Rental revenues	$	50		$	5		$	45	NM(1)			$	80		$	52		$	28			53.8	%
Ancillary services revenues		4			—			4	NM(1)				6			5			1			20.0
Rental and ancillary services revenues		54			5			49	NM(1)				86			57			29			50.9
Rental expenses		32			22			10		45.5	%		61			54			7			13.0
Ancillary services expense		4			2			2		100.0			6			7			(1	)		(14.3	)
Rental and ancillary services expenses		36			24			12		50.0			67			61			6			9.8
Rental and ancillary services profit (loss)	$	18		$	(19	)	$	37	NM(1)			$	19		$	(4	)	$	23		NM(1)
Rental and ancillary services profit margin		33.3	%	NM(1)									22.1	%		(7.0	)%

(1) Fluctuation in ~~2019.~~terms of percentage change is not meaningful.

~~Resort~~34

Rental and ~~club management margin~~ancillary services revenues, expenses, and profit percentage increased for the three and ~~nine~~six months ended ~~September~~June 30, 2021, compared to the same periods in 2020, ~~primarily~~ due to ~~a reduction~~an increase in ~~resort and club management expenses driven by~~travel demand as the ongoing impact of the COVID-19 pandemic ~~on travel demand, along with the temporary closure~~continues to decline. As of ~~substantially~~June 30, 2021, nearly all of our ~~resort operations during the first half of 2020.~~

~~Rental~~resorts and ~~Ancillary Services~~

Three Months Ended September 30,

Variance

Nine Months Ended September 30,

Variance

($ in millions)

2020

2019

$

%

2020

2019

$

%

Rental revenues

$
19

$
48

$
(29
)

(60.4
)%

$
71

$
153

$
(82
)

(53.6
)%
Ancillary services revenues

1

6

(5
)

(83.3
)

6

20

(14
)

(70.0
)
Rental and ancillary services revenues

20

54

(34
)

(63.0
)

77

173

(96
)

(55.5
)
Rental expenses

23

30

(7
)

(23.3
)

77

89

(12
)

(13.5
)
Ancillary services expense

1

6

(5
)

(83.3
)

8

19

(11
)

(57.9
)
Rental and ancillary services
expenses

24

36

(12
)

(33.3
)

85

108

(23
)

(21.3
)
Rental and ancillary services margin

$
(4
)

$
18

$
(22
)

NM⁽¹⁾

$
(8
)

$
65

$
(73
)

NM⁽¹⁾

Rental and ancillary services margin
percentage

(20.0
)%

33.3
%

(10.4
)%

37.6
%

⁽¹⁾	~~Fluctuation in terms of percentage change is not meaningful.~~

~~Rental and ancillary services revenues, expenses, and margin percentage decreased for the three and nine months ended September 30, 2020, compared to the same periods in 2019,~~sales centers which previously closed due to the ~~ongoing impact of the~~ COVID-19 pandemic ~~on travel demand, along~~are open and operating, although some are still operating in markets with ~~the temporary closure of substantially all of our resort operations during the first half of 2020.~~

~~Beginning in May 2020, we began a phased reopening of resorts and resumption of our business activities; however, many of our resorts are operating at significant~~various capacity constraints, social distancing requirements and other safety measures, which are ~~subject to various safety measures. As of September 30, 2020, we have over three quarters of our~~impacting consumer demand for resorts ~~open and currently operating.~~in those markets.

Other Operating Expenses


	Three Months Ended June 30,				Variance					Six Months Ended June 30,				Variance
($ in millions)	2021		2020		$		%			2021		2020		$		%
General and administrative	$	44	$	22	$	22	NM(1)			$	80	$	43	$	37		86.0	%
Depreciation and amortization		12		11		1		9.1	%		23		23		—		—
License fee expense		19		6		13	NM(1)				33		28		5		17.9

Three Months Ended September 30,

Variance

Nine Months Ended September 30,

Variance

($ in millions)

2020

2019

$

%

2020

2019

$

%

General and administrative

$
22

$
30

$
(8
)

(26.7
)%

$
65

$
87

$
(22
)

(25.3
)%
Depreciation and amortization

11

12

(1
)

(8.3
)

34

32

2

6.3

License fee expense

11

26

(15
)

(57.7
)

39

75

(36
)

(48.0
)

(1) Fluctuation in terms of percentage change is not meaningful.

The change in other operating expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared to the same periods in ~~2019,~~2020, is driven by ~~a decrease~~an increase in ~~General~~general and administrative expenses and an increase in license fee expense related to the corresponding increase in revenue. The increase in general and administrative expenses is related to (i) ~~decreases~~an increase in ~~salaries~~consulting and ~~wages from~~legal expenses related to the ~~furloughs~~planned acquisition of Diamond, and ~~pay decreases announced during the second quarter of 2020,~~ (ii) ~~the reversal of previously recognized~~an increase in expense related to ~~our 2018 and 2019~~share-based compensation. In the prior year, certain expenses related to Performance RSUs ~~which are~~were reversed as the related RSUs were not expected to achieve certain performance targets, ~~during~~resulting in a credit to expense in the ~~first quarter~~prior period.

Non-Operating Expenses


	Three Months Ended June 30,						Variance						Six Months Ended June 30,						Variance
($ in millions)	2021			2020			$			%			2021			2020			$			%
Interest expense	$	17		$	12		$	5			41.7	%	$	32		$	22		$	10			45.5	%
Equity in earnings from unconsolidated affiliates		(4	)		(1	)		(3	)	NM(1)				(6	)		(4	)		(2	)		50.0
Other loss, net		1			3			(2	)		(66.7	)		2			1			1			100.0
Income tax expense (benefit)		3			(8	)		11		NM(1)				(3	)		(7	)		4			(57.1	)

(1) Fluctuation in terms of ~~2020 and (iii) lower license fee expense related to the corresponding decrease in real estate sales and resort operations revenue.~~

~~Non-Operating Expenses~~

Three Months Ended September 30,

Variance

Nine Months Ended September 30,

Variance

($ in millions)

2020

2019

$

%

2020

2019

$

%

Interest expense

$
10

$
12

$
(2
)

(16.7
)%

$
32

$
33

$
(1
)

(3.0
)%
Equity in losses (earnings) from unconsolidated affiliates

1

(1
)

2

NM⁽¹⁾

(3
)

(4
)

1

(25.0
)
Other (gain) loss, net

(1
)

1

(2
)

NM⁽¹⁾

—

3

(3
)

(100.0
)
Income tax (benefit) expense

(5
)

20

(25
)

NM⁽¹⁾

(12
)

55

(67
)

NM⁽¹⁾

⁽¹⁾percentage change is not meaningful.

~~Fluctuation in terms of percentage change is not meaningful.~~

The change in non-operating expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared to the same periods in ~~2019,~~2020, is primarily due to an increase in interest expense as a ~~decrease~~result of an increase in related debt and increase in income tax expense due to ~~a decrease~~an increase in income before taxes combined with ~~a decrease~~an increase in the effective tax rate. See Note 14: Income Taxes for additional information.

Liquidity and Capital Resources

~~Overview~~

Overview

Our cash management objectives are to maintain the availability of liquidity, minimize operational costs, make debt payments and fund future acquisitions and 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.

We finance our short- and long-term liquidity needs primarily through 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 March 2020, we drew down the substantial remainder of our borrowing capacity under the revolver facility through net borrowings of $445 million as a precautionary measure to ensure liquidity for a sustained period in the economic environment resulting from the COVID-19 pandemic. We do not have a plan for the use of the proceeds other than for general corporate and working capital purposes in the ordinary course of business. As of September 30, 2020, we have $39 million remaining borrowing capacity under the revolver facility (“Revolver”).~~See Note 11:~~ ~~Debt and Non-Recourse Debt~~ ~~for additional information.~~



In March 2021, we amended our Credit Agreement to amend certain terms related to financial covenants to permit the Merger. The financial covenants were also amended to provide greater flexibility for the Company. The borrowing capacity under the Credit Agreement remained the same. In connection with the amendment, we incurred $1 million in debt issuance costs. We amended our Timeshare Facility to align with our amended Credit Agreement. In addition, we obtained a revolving credit facility commitment in connection with the Merger and incurred $2 million in debt issuance costs which were amortized over the term of the commitment in the first quarter of 2021. This was included in Interest expense in our unaudited condensed consolidated statements of operations.

•



•



As of June 30, 2021, we had total cash and cash equivalents of $1,780 million, including $1,462 million of restricted cash. In addition to the aforementioned debt proceeds in escrow, the restricted cash balance relates to escrowed cash from our sales of our VOIs and recourse debt as well as reserves related to our non-recourse debt.



As of June 30, 2021, we have $189 million remaining borrowing capacity under the revolver facility (“Revolver”) which includes $29 million of undrawn borrowing capacity available for letters of credit and $1 million available under short-term borrowings. In addition, we have $450 million remaining borrowing capacity under our Timeshare Facility.



We intend to finance the Merger through a combination of cash on hand, assumption of debt and the aforementioned incremental debt financing. The transaction is anticipated to close in August 2021.

In response to the impact of COVID-19, we have taken a variety of actions to ensure the continuity of our business and operations and to secure our liquidity position to provide financial flexibility. This included amending certain financial covenant ratios through the third quarter of 2021 as may be needed due to the ongoing and uncertain future ~~impact of the COVID-19 pandemic on our business and operations.~~

•

As of September 30, 2020, we had total cash and cash equivalents of $717 million, including $92 million of restricted cash. The restricted cash balance relates to escrowed cash from sales of our VOIs and reserves related to our non-recourse debt.

~~To optimize our liquidity and access to capital in light of the significant adverse~~ impact of the COVID-19 pandemic ~~particularly as substantially all~~on our business and operations.

As of our properties were temporarily closed and substantially all of our sales, operations and other activities were suspended during the first and second quarter of 2020, in addition to the steps discussed above,June 30, 2021, we have undertaken efforts to increase our capital and decrease our expenses. These include workforce furloughs, temporary salary reductions for employees primarily during the second quarter of 2020, eliminating discretionary spending, and reducing our planned investment in new inventory by approximately $200 million. We have also suspended the share repurchase program that was initially authorized by our Board in March 2020. Recently, we announced a workforce reduction plan that will impact approximately 1,600 team members for which we expect to incur between $10 million to $12 million in restructuring and related expenses and charges, primarily related to employee severance, benefits and related costs, primarily during the fourth quarter of 2020. In addition, approximately 2,000 of our workers remain furloughed.

We believe that these actions, together with drawing on available borrowings under our Revolver and preserving our capacity under our Timeshare Facility as described above, will provide adequate capital to meet our short- and long-term liquidity requirements for operating expenses and other expenditures, including payroll and related benefits, legal costs, and additional costs related to complying with various regulatory requirements and best practices for opening under the current environment resulting from the pandemic, and to finance our long-term growth plan and capital expenditures for the foreseeable future.

~~In addition, as noted previously,~~ beginning in May 2020, in response to various states and counties starting to allow gradual relaxation of restrictions on activities and a resumption of businesses, we began a phased reopening of resorts and resumption of our business activities, including our sales activities. However, we are operating under new guidelines and with safety measures that did not exist prior to the onset of the pandemic. ~~As of October 2020, we have over three quarters~~nearly all of our resorts and sales centers open and currently ~~operating; however, many~~operating. However, some of our resorts and sales centers are still operating in markets with ~~significant~~ capacity constraints and are subject to various safety ~~measures.~~ measures, which are impacting consumer demand for resorts in those markets. While we plan to continue ~~to reopen our resorts and resume our~~normal business as conditions permit, the pandemic continues to be unprecedented and rapidly changing, and has unknown duration and severity. ~~Accordingly, there remains significant uncertainty as~~

We believe that our capital allocation strategy provides adequate funding for our operations, is flexible enough to fund our development pipeline, securitizes the ~~degree~~optimal level of ~~impact~~receivables, and ~~duration of~~provides the conditions stemming from the ongoing pandemic on our revenues, net income (loss) and other operating results, as well as our business and operations generally and, accordingly, our future cash flows and our liquidityability to be strategically opportunistic in the ~~longer term. Any sustained material adverse impact on our revenues, net income (loss)~~marketplace. We have made commitments with developers to purchase vacation ownership units at a future date to be marketed and ~~other operating results due to COVID-19 could adversely affect our ability to comply with our maintenance and financial covenants and ratios~~sold under our ~~debt obligations.~~Hilton Grand Vacations brand. As of June 30, 2021, our inventory-related purchase commitments totaled $436 million over 10 years.

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			Six Months Ended June 30,
($ in millions)	2020			2019			$			2021			2020
Net cash provided by (used in):
Operating activities	$	86		$	146		$	(60	)	$	92		$	88
Investing activities		(24	)		(44	)		20			(13	)		(15	)
Financing activities		503			(71	)		574			1,175			598

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 operations and providing related rental and ancillary services. Cash flows used in operating activities primarily include spending for the purchase and development of real 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; 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.

The change in net cash flows provided by operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared to the same period in ~~2019~~2020 was primarily due to ~~a reduction~~an increase in ~~the purchase and development of real estate for future conversion to inventory, partially offset by decreased~~ sources of cash from working ~~capital.~~capital as a result of the increased operations in 2021 due to increase in travel demand.

The following table exhibits our VOI inventory spending:


	Nine Months Ended September 30,					Six Months Ended June 30,
($ in millions)	2020		2019			2021		2020
VOI spending - owned properties	$	70	$	61	VOI spending - owned properties	$	49	$	41
VOI spending - fee-for-service upgrades⁽¹⁾		11		36	VOI spending - fee-for-service upgrades(1)		4		9
Purchases and development of real estate for future conversion to inventory		27		107	Purchases and development of real estate for future conversion to inventory		17		19
Total VOI inventory spending	$	108	$	204	Total VOI inventory spending	$	70	$	69

(1) Includes expense related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects from developed projects of $3 million and $5 million recorded in Costs of VOI sales for the six months ended June 30, 2021 and 2020, respectively.

⁽¹⁾

Includes expense related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects from developed projects of $7 million and $24 million recorded in Costs of VOI sales for the nine months ended September 30, 2020 and 2019, respectively.

Investing Activities

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


	Nine Months Ended September 30,						Variance		Six Months Ended June 30,
($ in millions)	2020			2019			$		2021			2020
Capital expenditures for property and equipment	$	(6	)	$	(25	)	$	19	$	(4	)	$	(4	)
Software capitalization costs		(16	)		(17	)		1		(9	)		(11	)
Investments in unconsolidated affiliates		(2	)		(2	)		—
Net cash used in investing activities	$	(24	)	$	(44	)	$	20	$	(13	)	$	(15	)

The change in net cash used in investing activities for the nine months ended September 30, 2020, compared to the same period in 2019, was primarily due to a reduction of property and equipment spending.

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. 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 the six months ended June 30, 2021, compared to the same period in 2020, was primarily due to a reduction of software spending.

Financing Activities

The following table summarizes our net cash provided by financing activities:


	Nine Months Ended September 30,						Variance			Six Months Ended June 30,
($ in millions)	2020			2019			$			2021			2020
Issuance of debt	$	495		$	455		$	40		$	1,350		$	495
Issuance of non-recourse debt		495			365			130			—			495
Repayment of debt		(62	)		(272	)		210			(55	)		(60	)
Repayment of non-recourse debt		(403	)		(327	)		(76	)		(118	)		(313	)
Debt issuance costs		(8	)		(6	)		(2	)		(3	)		(6	)
Repurchase and retirement of common stock		(10	)		(283	)		273			—			(10	)
Payment of withholding taxes on vesting of restricted stock units		(3	)		(3	)		—			(5	)		(2	)
Proceeds from employee stock plan purchases		1			2			(1	)		1			—
Proceeds from stock option exercises											6			—
Other financing activity		(2	)		(2	)		—			(1	)		(1	)
Net cash provided by (used in) financing activities	$	503		$	(71	)	$	574
Net cash provided by financing activities										$	1,175		$	598

The change in net cash provided by ~~(used in)~~ financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared to the same period in ~~2019,~~2020, was primarily due to ~~(i)~~ the ~~change~~increase in debt borrowings ~~and repayments under our Revolver~~for the issuance of ~~$40 million and $210 million, respectively, (ii) additional~~senior notes in June 2021 offset by repayments of ~~$66~~debt and non-recourse debt and $3 million of ~~our securitized~~other debt ~~(iii) the additional net borrowing of $120 million on our Timeshare Facility, and (iv) a reduction in repurchases and retirement of common stock.~~issuance costs.

Contractual Obligations

The following table summarizes our significant contractual obligations as of ~~September~~June 30, ~~2020:~~2021:

	Payments Due by Period
($ in millions)	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years		Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Debt	$	1,268	$	12	$	23	$	1,210	$	23	$	2,459	$	12	$	774	$	300	$	1,373
Non-recourse debt		847		301		304		160		82		657		176		282		157		42
Interest on debt⁽¹⁾		222		63		104		40		15		765		135		233		150		247
Operating leases		80		18		26		23		13		67		14		25		19		9
Inventory purchase commitments		457		235		168		42		12		436		269		114		43		10
Other commitments⁽²⁾		16		5		9		1		1		10		7		3		—		—
Total contractual obligations	$	2,890	$	634	$	634	$	1,476	$	146	$	4,394	$	613	$	1,431	$	669	$	1,681

(1) Includes interest on our debt and non-recourse debt. For our variable-rate debt, we have assumed a constant 30-day LIBOR rate of 0.10 percent, subject to a 0.25 percent floor, as of June 30, 2021.

(2) Primarily relates to commitments related to information technology and brand licensing in the normal course of business.

₍₁₎

Includes interest on our debt and non-recourse debt. For our variable-rate debt, we have assumed a constant 30-day LIBOR rate of 0.15 percent, subject to a 0.25 percent floor, as of September 30, 2020.

₍₂₎	~~Primarily relates to commitments related to information technology and brand licensing under the normal course of business.~~

We have made commitments with developers to purchase vacation ownership units at a future date to be marketed and sold under our Hilton Grand Vacations brand. As of ~~September~~June 30, ~~2020,~~2021, our inventory-related purchase commitments totaled ~~$457~~$436 million over 10 years, ~~of which~~and we expect to purchase ~~$10~~$269 million ~~for~~of these commitments over the ~~remainder of 2020.~~ next twelve months.

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 corporate credit rating. We have commitments from surety providers in the amount of ~~$571~~$364 million as of ~~September~~June 30, ~~2020~~2021 which primarily consist of escrow and construction related bonds.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements as of ~~September~~June 30, ~~2020~~2021 consisted of ~~$457~~$436 million of certain commitments with developers whereby we have committed to purchase vacation ownership units at a future date to be marketed and sold under our Hilton Grand Vacations brand and ~~$16~~$10 million of other commitments under the normal course of business. The ultimate amount and timing of the acquisitions is subject to change pursuant to the terms of the respective arrangements, which could also allow for cancellation in certain circumstances. See Note 19: Commitments and Contingencies in our unaudited condensed consolidated financial statements for a discussion of our off-balance sheet arrangements.

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 notes (the “Notes”). The notes were issued in November 2016 with an aggregate principal balance of $300 million, an interest rate of 6.125 percent, and maturity in December 2024.

Our senior unsecured notes were co-issued by Hilton Grand Vacations Borrower 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 “Intermediate Parent”), 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”).

In June 2021, we entered into indentures in connection with the issuance and sale of senior notes, $850 million aggregate principal amount of 5.00% senior notes due 2029 ("Notes 2029") and $500 million aggregate principal amount of 4.875% senior notes due 2031 ("Notes 2031"). The gross proceeds of the offerings were deposited and will be held in an escrow account until the date that certain escrow conditions are satisfied, which are substantially upon closing of the Merger. Upon consummation of the Merger, the senior notes will be assumed and 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 “Intermediate Parent”), the Issuers (Hilton Grand Vacations Borrower LLC and Hilton Grand Vacations Borrower Inc.), and each of the Issuer’s existing and future wholly owned domestic restricted subsidiaries (all entities that guarantee the Notes 2029 and Notes 2031, collectively, the “Obligor group”).

The Notes rank equally in right of payment with all of our existing and future senior unsecured obligations, are senior in right of payment to any of our Guarantor’s subordinated indebtedness, and are subordinate to all existing and future liabilities of our entities that do not guarantee the Notes and our secured indebtedness, including our senior secured credit facilities and securitized non-recourse debt.

The guarantee of each guarantor subsidiary is limited to a 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.

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 ~~Company~~ 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)	June 30,		December 31,
Assets	2021		2020
Cash and cash equivalents	$	271	$	393
Restricted cash		85		69
Accounts receivable, net - due from non-guarantor subsidiaries		44		25
Accounts receivable, net - due from related parties		13		7
Accounts receivable, net - other		164		77
Timeshare financing receivables, net		238		207
Inventory		641		605
Property and equipment, net		496		490
Operating lease right-of-use assets, net		44		51
Intangible assets, net		80		81
Land and Infrastructure held for sale		41		41
Other assets		102		74
Total assets	$	2,219	$	2,120

Liabilities
Accounts payable, accrued expenses and other - due from non-guarantor subsidiaries	$	44	$	25
Accounts payable, accrued expenses and other - other		291		235
Advanced deposits		117		117
Debt, net		1,104		1,159
Operating lease liabilities		58		65
Deferred revenues		327		254
Deferred income tax liabilities		147		137
Total liabilities	$	2,088	$	1,992

September 30,

December 31,

($ in millions)

2020

2019

Assets

Cash and cash equivalents

$
587

$
35

Restricted cash

62

59

Accounts receivable, net - due from non-guarantor subsidiaries

19

41

Accounts receivable, net - due from related parties

7

25

Accounts receivable, net - other

85

126

Timeshare financing receivables, net

178

449

Inventory

843

524

Property and equipment, net

477

718

Operating lease right-of-use assets, net

53

58

Intangible assets, net

80

77

Other assets

88

69

Total assets

$
2,479

$
2,181

Liabilities

Accounts payable, accrued expenses and other - due from non-guarantor subsidiaries

$
19

$
41

Accounts payable, accrued expenses and other - other

254

288

Advanced deposits

119

115

Debt, net

1,262

828

Operating lease liabilities

69

74

Deferred revenues

261

186

Deferred income tax liabilities

209

259

Total liabilities

$
2,193

$
1,791


	Six months ended June 30,
($ in millions)	2021
Total revenues - transactions with non-guarantor subsidiaries	$	4
Total revenues - other		523
Operating income		7
Net income		(22	)

Nine Months Ended September 30,

($ in millions)

2020

Total revenues - transactions with non-guarantor subsidiaries

$
5

Total revenues - other

584

Operating loss

(83
)
Net loss

(103
)

Subsequent Events

In July 2021, we also executed the following transactions:



~~of these costs during the last quarter of 2020. All~~purchase of the ~~restructuring and related expenses and charges are expected to result in cash expenditures.~~first phase of timeshare units for $53 million



~~Additionally, in October 2020,~~

we ~~repaid $100~~borrowed $96 million under our ~~revolving credit facility.~~Timeshare Facility to finance the repayment of certain indebtedness in connection with the Merger



we terminated the waiver period obtained in December 2020 for certain financial covenants required under our Credit Agreement.

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, ~~2019.~~ 2020.

ITEM 3.Quantitative and Qualitative Disclosures about Market Risk

~~ITEM 3.~~

~~Quantitative and Qualitative Disclosures about Market Risk~~

We are exposed to market risk from changes in interest rates and currency exchange 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, ~~2019.~~2020.

Interest Rate Risk

We are exposed to interest rate risk on our variable-rate debt, comprised of the term loans, Revolver and our Timeshare Facility, of which the Timeshare Facility is without recourse to us. The interest rates are based on one-month LIBOR and we are most vulnerable to changes in this rate. We primarily use interest rate swaps as part of our interest rate risk management strategy for our variable-rate debt.

We intend to securitize timeshare financing receivables in the asset-backed financing market periodically. We expect to secure fixed-rate funding to match our fixed-rate timeshare financing receivables. However, if we have variable-rate debt in the future, we will monitor the interest rate risk and evaluate opportunities to mitigate such risk through the use of derivative instruments.

To the extent we continue to have variable-rate borrowings and continue to utilize variable-rate indebtedness in the future, any increase in interest rates beyond amounts covered under any corresponding derivative financial instruments, particularly if sustained, could have an adverse effect on our net income (loss), cash flows and financial position. While we have entered into certain hedging transactions to address such potential risk, such transactions and any future hedging transactions we may 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 values as of ~~September~~June 30, ~~2020,~~2021, for our financial instruments that are materially affected by interest rate risk:


				Maturities by Period																	Maturities by Period
($ in millions)	Weighted Average Interest Rate⁽¹⁾			2020		2021		2022		2023		2024		There- after		Total⁽²⁾		Fair Value		Weighted Average Interest Rate(1)	2021		2022		2023		2024		2025		There- after		Total(2)		Fair Value
Assets:
Fixed-rate securitized timeshare financing receivables		12.253	%	$	25	$	103	$	107	$	110	$	113	$	421	$	879	$	920	12.290%	$	45	$	92	$	94	$	96	$	93	$	264	$	684	$	694
Fixed-rate unsecuritized timeshare financing receivables		13.421	%		9		32		33		35		36		205		350		373	13.062%		21		38		41		44		47		255		446		447
Liabilities:⁽³⁾
Fixed-rate debt		4.011	%		72		294		132		131		374		171		1,174		1,181	4.629%		92		169		160		376		79		1,458		2,334		2,329
Variable-rate debt⁽⁴⁾		2.000	%		3		10		10		918		—		—		941		930	3.750%		5		10		767		—		—		—		782		785

(1) Weighted-average interest rate as of June 30, 2021.

(2) Amount excludes unamortized deferred financing costs.

(3) Includes debt and non-recourse debt.

(4) Variable-rate debt includes principal outstanding debt of $782 million as of June 30, 2021. See Note 11: Debt & Non-recourse Debt in our unaudited condensed consolidated financial statements for additional information.

⁽¹⁾

~~Weighted-average interest rate as of September 30, 2020.~~

⁽²⁾	~~Amount excludes unamortized deferred financing costs.~~

⁽³⁾	~~Includes debt and non-recourse debt.~~

⁽⁴⁾	~~Variable-rate debt includes principal outstanding debt of $940 million as of September 30, 2020. See Note 11:~~ ~~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 timeshare financing receivables denominated in Japanese yen and VAT receivables denominated in Mexican pesos, 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 the Japanese yen to U.S. dollar would change our gross timeshare financing receivables by less than $1$2 million. A 10 percent change in the foreign exchange rate of the Mexican ~~Peso~~peso to U.S. dollar would change our ~~gross~~ VAT ~~receivable~~receivables by ~~less than~~approximately $1 million.

ITEM 4.Controls and Procedures

~~ITEM 4.~~

~~Controls and Procedures~~

Disclosure Controls and Procedures

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, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on that 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 to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We will continue to assess the adequacy of our disclosure controls and procedures and make any appropriate changes given the various government mandates and orders of business closures and the resulting remote working conditions as a result of the COVID-19 pandemic.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the three months ended ~~September~~June 30, ~~2020,~~2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We will continue to assess the effectiveness of our internal controls over financial reporting consistent with past practice, particularly in light of the various government mandates and orders of business closures and the resulting remote working conditions as a result of the COVID-19 pandemic.

PART II OTHER INFORMATION

Item 1.Legal Proceedings

~~Item 1.~~

~~Legal Proceedings~~

We are involved in litigation arising from the normal course of business, some of which includes claims for substantial sums. Management has evaluated these legal matters and we believe an unfavorable outcome is either reasonably possible or remote and/or for which are not reasonably estimable. 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~~June 30, ~~2020~~2021 will not have a material effect on our unaudited condensed consolidated financial statements.

Item 1A. Risk Factors

~~Item 1A.~~

~~Risk Factors~~

The following represents important ~~changes and~~ updates to the risk factors previously disclosed in Item 1A. of Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2019 (our “2019 Form 10-K”) and Item 1A. of Part II of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30,~~ 2020 (our ~~“Prior Forms 10-Q”~~“2020 Form 10-K”). The risk factors discussed below and the risk factors included in our ~~2019 Form~~2020 all 10-K ~~and our Prior Forms 10-Q~~ are important to understanding our business, operation, results of operations, financial condition, ~~and~~ prospects, ~~especially during the current environment,~~ 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 ~~2019~~2020 Form 10-K ~~and our Prior Forms 10-Q~~ 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, or that may rapidly evolve, develop or ~~change, including those that are caused, directly or indirectly, by the COVID-19 pandemic.~~change. Any one or more of such factors could, directly or indirectly, cause our actual financial condition and results of operations to vary materially from past, or from anticipated future, financial condition and results of operations. Any of these factors, in whole or in part, could materially and adversely affect our business, results of operations and financial condition and the trading price of our common stock. Because of these factors affecting our financial condition and operating results, past 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.

Risks Relating to the Merger

The ~~COVID-19 pandemic~~exchange ratio will not be adjusted for changes in our stock price.

The calculation of the number of shares of our common stock that Diamond common stockholders will receive as consideration in the Merger (the “exchange ratio”) is pre-determined such that each share of Diamond common stock (other than Appraisal Shares (as defined in the Merger Agreement), treasury shares, and ~~related events,~~shares owned directly or indirectly by Diamond) is currently expected to be converted into the right to receive 0.32022 shares of our common stock in connection with the Merger (based on calculations as of June 1, 2021), subject to certain adjustments as a result of changes in certain liabilities and other items between signing and closing of the Merger. This exchange ratio will not be adjusted for changes in the market price of our common stock between the date of signing the Merger Agreement and completion of the Merger.

Changes in the price of our common stock before the closing of the Merger will affect the market value of our common stock that Diamond common stockholders will receive at the closing of the Merger. The price of our common stock at the closing of the Merger may vary from their prices on the date the Merger Agreement was executed and on the date of the special meeting of our stockholders held in connection with the issuance of HGV common stock in the Merger. As a result, the value represented by the exchange ratio will also vary.

These variations could result from changes in the business, operations or prospects of Diamond or HGV before or following the Merger, regulatory considerations, general market and economic conditions and other factors both within and beyond our and Diamond’s control. The Merger may be completed a considerable period after the date of the special meeting. Therefore, at the time of the special meeting, stockholders will not know with certainty the value of the shares of our common stock that will be issued upon completion of the Merger.

We are subject to various uncertainties and contractual restrictions, including the ~~various measures implemented~~risk of litigation, while the Merger is pending, which may cause disruption and may make it more difficult to maintain relationships with employees, suppliers, vendors, customers or ~~adopted~~others.

Uncertainty about the effect of the Merger on relationships with our employees, suppliers, vendors, customers, or others may have an adverse effect on us. Although we intend to ~~respond~~take steps designed to reduce any adverse effects, these uncertainties may impair Diamond’s and our ability to attract, retain and motivate key personnel until the Merger is completed and for a period of time thereafter, and could cause suppliers, vendors, customers, and others that deal with us to seek to change, not renew or discontinue existing business relationships with us.

Employee retention and recruitment may be challenging before the completion of the Merger, as employees and prospective employees may have uncertainty about their future roles with HGV after the Merger. If, despite our retention and recruiting efforts, key employees depart or prospective key employees are unwilling to accept employment with us because of issues relating to the ~~pandemic, have~~uncertainty and difficulty of integration or a desire not to remain with us, our business could be adversely affected.

The pursuit of the Merger and the preparation for the integration may place a significant burden on management and internal resources. The diversion of management’s attention away from day-to-day business concerns and any difficulties encountered in the transition and integration process could adversely affect our financial results.

In addition, the Merger Agreement restricts us and Diamond, without the other party’s consent, from making certain acquisitions and taking other specified actions until the Merger closes or the Merger Agreement terminates. These restrictions may prevent us and Diamond from pursuing otherwise attractive business opportunities and making other changes to our respective businesses before completion of the Merger or termination of the Merger Agreement.

One of the conditions to the closing of the merger is the absence of any judgment, order, decree, statute, law, ordinance, rule or regulation, having been entered, enacted, promulgated, enforced or issued by any court or other governmental entity of competent jurisdiction or other legal restraint or prohibition that prevents the consummation of the merger. We and our board of directors were named as defendants in lawsuits brought by purported HGV stockholders challenging the adequacy of the public disclosures related to the merger and seeking, among other things, injunctive relief to enjoin us from completing the merger. If a settlement or other resolution is not reached in these lawsuits and any of the plaintiffs in such pending litigation or in possible future lawsuits are successful in obtaining an injunction prohibiting the consummation of the merger, then such injunction may prevent the merger from being completed, or delay it from being completed within the expected time frame.

Failure to complete the Merger could negatively impact our stock price and the future of our business and financial results.

If the Merger is not completed, our ongoing business may be adversely affected, and we may be subject to several risks, including the following:


	•		being required to pay a termination fee to Diamond under certain circumstances as provided in the Merger Agreement;


	•		having to pay certain costs relating to the Merger, such as legal, accounting, financial advisor and other fees and expenses;


	•		our common stock price could decline to the extent that the current market price reflects a market assumption that the Merger will be completed; and


	•		having had the focus of our senior management on the Merger instead of on pursuing other opportunities that could have been beneficial to us and our stockholders.

If the Merger is not completed, we cannot assure you that these risks will not materialize and will ~~continue~~not materially adversely affect our business, financial results and stock price.

Our ability to complete the Merger is subject to certain closing conditions and the receipt of consents and approvals from government entities which may impose conditions that could adversely affect us or cause the Merger to be abandoned.

The Merger Agreement contains certain closing conditions, including, among others:


	•		the accuracy of the representations and warranties of the other party contained in the Merger Agreement, subject to the qualifications described in more detail herein;


	•		the other party having performed in all material respects all obligations required to be performed by it under the Merger Agreement;


	•		the absence of a “material adverse effect” impacting the other party;


	•		the approval of the stock issuance proposal by the affirmative vote of a majority of the votes cast by holders of our common stock at a stockholders’ meeting duly called and held for such purpose;


	•		the absence of any judgment, order, law or other legal restraint by a court or other governmental entity of competent jurisdiction that prevents the consummation of the Merger;


	•		the approval for listing by the NYSE of the shares of our common stock issuable in the Merger;


	•		the termination or expiration of any applicable waiting period under the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;


	•		the receipt of all authorizations, consents, orders or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, the Mexican Federal Economic Competition Commission under the Mexican Federal Economic Competition Law and the Federal Competition Authority under the Austrian Cartel Act and the Competition Act;


	•		certain ancillary agreements having been delivered and not having been rescinded or repudiated by certain parties; and


	•		the absence of defaults under Diamond’s unsecured notes and absence of defaults and sufficient availability under Diamond’s warehouse facilities.

We cannot assure you that the various closing conditions will be satisfied, or that any required conditions will not materially adversely affect us following the Merger or will not result in the abandonment or delay of the Merger.

We may be unable to realize anticipated cost savings and expect to incur substantial expenses related to the merger, which could have a material adverse effect on our business, financial condition and results of operations.

While we anticipate certain cost savings from the consummation of the merger, our ability to achieve such estimated cost savings in the timeframe described, or at all, is subject to various assumptions by our management, which may or may not be realized, as well as the incurrence of other costs in our operations that offset all or a portion of such cost savings. As a consequence, we may not be able to realize cost savings within the timeframe expected or at all. In addition, we may incur additional and/or unexpected costs in order to realize these cost savings. Failure to achieve the expected cost savings could significantly reduce the expected benefits associated with the merger and adversely affect us.

In addition, we have incurred and will incur substantial expenses in connection with the negotiation and consummation of the transactions contemplated by the merger agreement. We expect to continue to incur non-recurring costs associated with consummating the merger, combining the operations of the two companies and achieving the desired cost savings. These fees and costs have been, and will continue to be, substantial. The substantial majority of non-recurring expenses will consist of transaction costs related to the merger and include, among others, fees paid to financial, legal and accounting advisors, employee benefit costs and filing fees. These costs described above, as well as other unanticipated costs and expenses, could have a material adverse effect on our financial condition and operating results following the consummation of the merger and many of these costs will be borne by us even if the merger is not consummated.

Any delay in completing the Merger may reduce or eliminate the benefits that we expect to achieve.

The Merger is subject to a number of conditions beyond our control that may prevent, delay or otherwise materially adversely affect the completion of the Merger. We cannot predict whether and when these conditions will be satisfied. Any delay in completing the Merger could cause us not to realize some or all of the synergies that we expect to achieve if the Merger is successfully completed within the expected time frame.

Our directors and executive officers may have interests in the Merger that may be different from, or in addition to, the interests of our stockholders generally.

Certain of our directors and executive officers negotiated the terms of the Merger Agreement, and our board of directors unanimously recommended that our stockholders vote in favor of the proposals to be presented to our stockholders at the special meeting. These directors and executive officers may have interests in the Merger that are different from, or in addition

to, those of our stockholders. These interests include the continued employment of our executive officers after the Merger, the continued service of all of our directors following the Merger, and other rights held by our directors and executive officers. Our stockholders should be aware of these interests when they consider our board of directors’ recommendation that they vote in favor of the stock issuance proposal and the other proposals to be voted upon at the special meeting.

Our board of directors was aware of these potential interests and considered them in making its recommendations to approve the stock issuance proposal and the other proposals to be voted upon at the special meeting.

The opinion obtained by our board of directors from its financial advisor does not and will not reflect changes in circumstances after the date of such opinion.

On March 9, 2021, BofA Securities, Inc. (“BofA Securities”) delivered an opinion to our board of directors that, as of the date of such opinion, and based upon and subject to the assumptions, limitations, qualifications and conditions described in BofA Securities’ opinion, the Merger consideration was fair, from a financial point of view, to HGV. Changes in the operations and prospects of Diamond or HGV, general market and economic conditions and other factors that may be beyond our control, and on which the opinions of BofA Securities was based, may alter our or Diamond’s value or the price at which shares of our common stock are traded by the time the Merger is completed. We have not obtained, and we do not expect to request, an updated opinion from our financial advisor. BofA Securities’ opinion does not speak to the time when the Merger will be completed or to any date other than the date of such opinion. As a result, the opinion does not and will not address the fairness, from a financial point of view, of the Merger consideration to be paid by us in the Merger pursuant to the Merger Agreement at the time the Merger is completed or at any time other than the date when opinion was rendered.

Risks if the Merger is Completed

We may not be able to integrate successfully and many of the anticipated benefits of combining us and Diamond may not be realized.

We entered into the Merger Agreement with the expectation that the Merger will result in various benefits, including, among other things, operating efficiencies. Achieving the anticipated benefits of the Merger is subject to a number of uncertainties, including whether the businesses of HGV and Diamond can be integrated in an efficient and effective manner.

It is possible that the integration process could take longer than anticipated and could result in the loss of valuable employees, the disruption of each company’s ongoing businesses, processes and systems or inconsistencies in standards, controls, procedures, practices, policies and compensation arrangements, any of which could adversely affect our ability to achieve the anticipated benefits of the Merger. Our results of operations could also be adversely affected by any issues attributable to Diamond’s operations that arise or are based on events or actions that occur before the closing of the Merger. We may have difficulty addressing possible differences in corporate cultures and management philosophies. The integration process is subject to a number of uncertainties, and no assurance can be given that the anticipated benefits will be realized or, if realized, the timing of their realization. Failure to achieve these anticipated benefits could result in increased costs or decreases in the amount of expected net income and could adversely affect our future business, financial condition, operating results and prospects.

Furthermore, we have agreed with Hilton Worldwide Inc. (“Hilton”) to develop a mutually agreeable plan pursuant to which the Diamond properties are to be operated during the integration period, and with respect to those Diamond properties that will not be converted to our brand. If we fail to develop such a plan with Hilton, such properties may remain subject to a number of restrictions related to how they are operated, and such restrictions may reduce the efficiencies anticipated in connection with the Merger.

We will take on additional indebtedness to finance the Merger, which could adversely affect our business, financial condition and results of operations, including by decreasing our business flexibility, as well as our ability to meet payment obligations under our indebtedness.

In connection with the completion of the Merger, we intend to significantly increase our level of indebtedness. As part of such plan, we closed an unregistered offering of $850 million in aggregate principal amount of 5.000% senior notes due 2029 and an unregistered offering $500 million in aggregate principal amount of 4.875% senior notes due 2031. Our increased level of debt, together with certain covenants and restrictions that will be imposed on us in connection with incurring this indebtedness, will, among other things: (a) require us to dedicate a larger portion of our cash flow from operations to servicing and repayment of debt; (b) reduce funds available for strategic initiatives and opportunities, dividends, share repurchases,

working capital and other general corporate needs; (c) limit our ability to incur certain kinds or amounts of additional indebtedness, which could restrict our flexibility to react to changes in our business, industry and economic conditions and increase borrowing costs; (d) create competitive disadvantages relative to other companies with lower debt levels and (e) increase our vulnerability to the ~~foreseeable future.~~impact of adverse economic and industry conditions. These covenants and restrictions may limit how our business is conducted. We may not be able to maintain compliance with these covenants and restrictions and, if we fail to do so, we may not be able to obtain waivers thereto and/or amend these covenants and restrictions. Our failure to comply with the covenants and restrictions could result in an event of default,which, if not cured or waived, could result in our being required to repay such indebtedness before its due date or to have to negotiate amendments to or waivers thereof, which may have unfavorable terms or result in the incurrence of additional fees and expenses.

~~The global~~Our ability to make scheduled cash payments on and to refinance our indebtedness and to fund planned capital expenditures will depend on our ability to generate significant operating cash flow in the future, which, to a significant extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors, including the continued adverse impact of the COVID-19 pandemic on our business, that are beyond our control. We may not be able to maintain a sufficient level of cash flow from operating activities to permit us to pay the principal, premium, if any, and interest on our indebtedness.

In addition, our credit ratings will impact the ~~various measures taken~~cost and availability of future borrowings and, accordingly, our cost of capital. Our ratings will reflect each rating organization’s opinion of our financial strength, operating performance and ability to meet our debt obligations on a combined basis with Diamond. Downgrades in our ratings could adversely affect our businesses, cash flows, financial condition, operating results and share and debt prices, as well as our obligations with respect to our capital efficient inventory acquisitions.

Following the completion of the Merger, our vacation ownership business will depend on the quality and reputation of the brands associated with the portfolios of each of HGV and Diamond, and any deterioration in the quality or ~~implemented~~reputation of these brands could adversely affect our market share, reputation, business, financial condition and results of operations.

Following completion of the Merger, we intend to offer vacation ownership products and services under the Hilton Vacation Club brand, a new upscale HGV sub-brand that will consist of rebranded Diamond properties, all pursuant to the Amended and Restated License Agreement with Hilton ( the “A&R Hilton license agreement”). If the quality of any of these brands deteriorates, or the reputation of these brands declines, including as the result of actions by ~~governments~~Hilton, our market share, reputation, business, financial condition or results of operations could be materially adversely affected. See “Risks Related to our Relationship with Hilton” below.

The maintenance and refurbishment of vacation ownership properties depends on maintenance fees paid by the owners of VOIs.

The maintenance fees that are levied on owners of our and Diamond’s VOIs by property owners’ association boards are used to maintain and refurbish the vacation ownership properties, to maintain reserves for capital expenditures, and to keep the properties in compliance with applicable brand standards. Property owners’ association boards may elect to not levy sufficient maintenance fees, or owners of VOIs may fail to pay their maintenance fees for reasons such as financial hardship, dissatisfaction with the Merger or because of damage to their VOIs from natural disasters such as hurricanes. In these circumstances, not only could our and Diamond’s management fee revenue be adversely affected, but the vacation ownership properties could fall into disrepair and fail to comply with applicable brand standards. If a resort fails to comply with applicable brand standards, Hilton could terminate our right under the A&R Hilton license agreement to use its trademarks at the non-compliant resort, which could result in the loss of management fees, decreased customer satisfaction and impairment of our ability to market and sell products at the non-compliant locations. See “Risks Related to Our Relationship with Hilton” below.

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

The maintenance fees that are levied on owners of our and Diamond’s VOIs by property owners’ association boards may increase as the costs to maintain and refurbish the vacation ownership properties, to maintain reserves for capital expenditures, and to keep the properties in compliance with brand standards increase. A similar situation may arise with respect to fees imposed on owners of VOIs with respect to new properties added to our portfolio following the completion of the Merger. Increased maintenance fees could make our or Diamond’s products less desirable, which could have a negative

impact on sales of our or Diamond’s products and could also cause an increase in defaults with respect to our or Diamond’s vacation ownership notes receivable portfolio.

We will incur substantial transaction costs in connection with the Merger.

We expect to incur a number of non-recurring expenses both before and after completing the Merger, including fees for third party legal, investment banking and advisory services, the costs and expenses of filing, printing and mailing our merger proxy statement and all filing and other ~~authorities~~fees paid to the SEC in connection with the Merger, obtaining necessary consents and approvals and combining the operations of the two companies. These fees and costs will be substantial. Additional unanticipated costs may be incurred in our integration of Diamond. Although it is expected that the elimination of certain duplicative costs, as well as the realization of other efficiencies related to the integration of the two businesses, will offset the incremental transaction related costs over time, this net benefit may not be achieved in the ~~United States~~near term, or at all. Further, if the Merger is not completed, we would have to recognize these expenses without realizing the expected benefits of the Merger.

Our stockholders will have a reduced ownership and ~~around~~voting interest after the ~~world, businesses, organizations~~completion of the Merger and ~~individuals~~will exercise less influence over management of us as compared to currently.

Our stockholders currently have ~~had,~~the right to vote in the election of the board of directors and on other matters affecting us. Upon the completion of the Merger, each Diamond stockholder who receives shares of our common stock will become our stockholder. It is currently expected that the former Diamond stockholders as a group will receive shares in the Merger constituting approximately 28% of the shares of our common stock on a fully diluted basis immediately after the completion of the Merger. As a result, our current stockholders as a group will own approximately 72% of the shares of our common stock on a fully diluted basis immediately after the completion of the Merger. Because of this, our stockholders will have less influence on the management and policies of the combined company than they now have on the management and policies of us prior to the Merger.

Our future results will suffer if we do not effectively manage our expanded operations following the completion of the Merger.

Following the completion of the Merger, the size of our business will increase significantly beyond the current size of either our or Diamond’s current operations. Our future success depends, in part, upon our ability to manage this expanded business, including in non-US jurisdictions where we do not currently have operations, which will pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. We may also need to obtain approvals of developers or HOAs in various instances to include additional resorts in the multi-resort trusts marketed, sold and managed by Diamond (the “Diamond Collections”) or increase maintenance fees or impose additional requirements in order to meet our brand and operating standards. There can be no assurances that we will be successful or that we will realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the transactions. In addition, there will be increased compliance and regulatory risk as a result of the expanded size of our business.

We may not be able to retain our and/or Diamond personnel successfully after the Merger is completed.

The success of the Merger will depend in part on our ability to retain the talents and dedication of key employees currently employed by us and Diamond. It is possible that these employees may decide not to remain with us or Diamond, as applicable, while the Merger is pending or with us after the Merger is consummated.

If key employees terminate their employment, or if an insufficient number of employees are retained to maintain effective operations, our business activities may be adversely affected and management’s attention may be diverted from successfully integrating Diamond to hiring suitable replacements, all of which may cause our business to suffer. In addition, we may not be able to locate suitable replacements for any key employees who leave either company, or offer employment to potential replacements on reasonable terms.

We and Diamond may be subject to complaints, litigation or reputational harm due to dissatisfaction with, or concerns related to, the Merger from our current owners.

Our current owners may be concerned about the actual or perceived impact of the Merger on their VOIs, including related to a reduced quality of resorts and product offerings due to the increased size of the business and addition of new owners, or increase or change in HOA or other fees. Diamond’s current owners may have similar concerns related to a decline in the quality of product offerings or increase in fees as a result of the Merger and increase in size of the business. Complaints

or litigation brought by existing owners following the completion of the Merger could harm our reputation, discourage potential new owners and adversely impact our results of operations

Risks Related to Diamond’s Business

The COVID-19 pandemic has impacted, and will likely continue to have a significant adverse impact on, ~~domestic~~the business, financial condition and ~~international travel, consumer demand~~results of operations of Diamond for ~~travel, commercial activities across~~ the ~~travel, lodging~~foreseeable future.

Tourism and ~~hospitality~~travel-related industries ~~businesses generally,~~continue to face significant disruption as a result of the COVID-19 pandemic. It may be an extended period of time before the business operations of Diamond and ~~consequently,~~its affiliates return to full operational capacity or occupancy, particularly if there remains lingering actual and/or perceived concern and perception of significant transmission and infection risk due to the COVID-19 pandemic. Diamond has implemented new social distancing, hygiene protocols, and enhanced cleaning measures at its resorts, sales centers, and corporate offices in accordance with guidelines from federal, state and local authorities. Diamond and its subsidiaries’ management implemented and trained team members on ~~our business~~the “Diamond Standard of Clean.” These measures, which are intended to protect human life, may result in additional costs, operational inefficiencies, and ~~operations. The~~fewer revenue opportunities.

As a result of the COVID-19 pandemic ~~also has had,~~ and ~~will continue to have, significant adverse impacts on global economic, capital market, financial, healthcare, societal, and government regulatory conditions. In response to~~ the ~~growing pandemic and~~ various governmental mandates and orders ~~we took certain significant actions to ensure the continuity of our~~for business ~~and operations beginning at the end of the first quarter 2020, including~~closure, Diamond temporarily ~~closing~~closed operations at substantially all of ~~our~~their resorts ~~closing~~and closed substantially all of ~~our~~their sales centers. With the lifting or easing of such restrictions in certain locations in the United States, Diamond has re-opened the majority of its resorts and sales centers, ~~implementing salary reductions~~albeit at reduced capacity levels and ~~workforce furloughs, implementing hiring freezes, drawing down substantial amounts under our credit facility as a precautionary measure~~revenue has not returned to ~~ensure liquidity~~pre-pandemic levels. However, any re-opening of the resorts may be delayed, interrupted or reversed depending on government orders or recommendations or based on assessments of the state of the pandemic. It may be an extended period of time before the resorts return to pre-pandemic operational capacity or occupancy, particularly if there remains lingering actual and/or perceived concern and ~~amending both our credit facility~~perception of significant transmission and ~~our warehouse facility~~infection risk due to ~~provide near-term flexibility~~the COVID-19 pandemic.

Any sustained materially adverse impact on ~~certain maintenance~~Diamond’s revenues, net income and other operating results due to the impact of the COVID-19 pandemic could cause Diamond to breach its operating and financial covenants under certain of its debt obligations, which may mean lenders have the right to terminate their commitments under certain debt agreements and ~~ratios. On October 15, 2020,~~declare outstanding loans immediately due and payable.

Diamond operates in a number of locations outside the United States and is subject to certain additional risks related to international operations that are not applicable to our ~~board~~current business.

Diamond manages resorts in and sells VOIs in countries outside of ~~directors approved~~the United States, including in Mexico, Canada, the United Kingdom and several countries in the European Union, which are subject to a ~~workforce reduction plan~~number of risks, including compliance with local regulations and laws, regulations restricting the sale of VOIs, compliance with anti-corruption laws and regulations such as the Foreign Corrupt Practices Act, exposure to local economic conditions, potential adverse changes in the political or economic relation of foreign countries with the United States, withholding and restrictions on taxes and fluctuations in foreign currency exchange rates. Diamond is and may in the future be subject to litigation in foreign jurisdictions.

In Mexico, the developer of certain of Diamond’s resorts have agreed to requirements that they consider themselves as Mexican nationals with respect to certain property and agree to not invoke the protection of their governments in matters relating to the property. Generally, rules in Mexico limit ownership of land near Mexico’s borders and beaches to Mexican citizens and companies, unless granted the right by the Mexican government. If the developer of Diamond’s resort in Mexico fails to comply with the agreement with the Mexican government, it would forfeit the land back to Mexico.

We do not currently have operations in several of the non-US jurisdictions in which Diamond operates and may lack knowledge or familiarity with the rules and regulations, as well as experience and resources, related to operating such business in these countries.

Interests in Diamond’s resorts are offered through a trust system, which is subject to a number of regulatory and other requirements.

The Diamond Collections located in the United States are alternatives to traditional deeded timeshare ownership, inasmuch as they create a network of available resort accommodations at multiple locations. For those United States-based Diamond Collections, title to the units available through the Diamond Collections is held in a trust or similar arrangement that is ~~expected~~administered by an independent trustee (the “Collection Trustee”). A purchaser of a timeshare interest in a Collection does not receive a deeded interest in any specific resort or resort accommodation, but acquires a membership in the timeshare plan which is denominated by an annual or biennial allotment of points. Owners of Diamond’s timeshare interests are allowed to use their allocated points to reserve accommodations at the various component site(s)/participating resort(s) within the Diamond Collections, thereby giving the members greater flexibility to plan their vacations. Owners may also elect to reserve accommodations at resorts that are not part of their Collection through Diamond’s exchange programs.

The Diamond Collections are registered pursuant to, exempted from, or otherwise in compliance with, the applicable statutory requirements for the sale of timeshare plans in a growing number of jurisdictions. Such registrations and formal exemption determinations for the Diamond Collections confirm the substantial compliance with the filing and disclosure requirements of the respective timeshare statutes by the developer of the applicable Diamond Collection. It does not constitute the endorsement of the creation, sale, promotion or operation of the Diamond Collections by any regulatory body nor relieve the developer of a Diamond Collection or any affiliates of such developer of any duty or responsibility under other statutes or any other applicable laws. Registration under a respective timeshare act (or other applicable law) is not a guarantee or assurance of compliance with applicable law nor an assurance or guarantee of how any judicial body may interpret the Diamond Collections’ compliance therewith. A determination that specific provisions or operations of the Collections do not comply with relevant timeshare acts or applicable law may have a material adverse effect on the developer, the Collection Trustee and the related non-profit members association for each of the Diamond Collections.

Increased activity by third-party exit companies on Diamond and its owners may cause distractions and adversely impact our integration.

Diamond and other timeshare companies continue to be significantly targeted by organized activities of third parties that actively pursue timeshare owners claiming to provide timeshare interest transfers and/or “exit” services. Any increases in the level of participation by the Diamond owners in response to such overtures and/or delinquencies or defaults with respect to the timeshare loans owed by such owners may disrupt Diamond’s business, affect cash flow from collections on the timeshare loans, and generally adversely affect our integration plans of Diamond. In addition, exit companies may target HGV owners to a greater extent than they already do in light of the proposed Merger with Diamond.

Risks Related to Our Relationship with Hilton

Our future results may suffer if Hilton seeks to modify or terminate the A&R Hilton license agreement.

We are a party to a license agreement with Hilton under which we license substantially all of the trademarks, brand names and intellectual property used in our business. The A&R Hilton license agreement also permits us to utilize the Hilton Honors program, which is a valuable asset for lead generation. These assets are critical to our business and the modification or amendment the A&R Hilton license agreement or any exercise by Hilton of its termination or other rights under the A&R Hilton license agreement will materially impact our business. The termination or amendment of the A&R Hilton license agreement in whole or in part could result in the ~~reduction~~loss of the right of HGV to use the Hilton brands in our ~~workforce~~business as currently conducted as well as in connection with our post-combination business, and in related services offered by ~~approximately 1,600 members. All~~Hilton, including marketing channels and guest loyalty programs. The loss of ~~these actions have had,~~such rights will materially harm our business and results of operations and impair our ability to market and sell our VOI products and maintain our competitive position, and will ~~likely continue to~~ have a material adverse effect on our financial position, results of operations ~~financial condition,~~or cash flows. Further, it is likely to be very challenging for us to find or develop a comparable replacement for the Hilton brand and ~~business.~~the A&R Hilton license agreement. In addition, we may incur liabilities if any such termination results from our alleged breach of the A&R Hilton license agreement.

~~Beginning~~If the A&R Hilton license agreement is terminated, we may lose our rights to certain brands developed by us in ~~May 2020, various cities, counties~~connection with the integration of the Diamond business.

Pursuant to the A&R Hilton license agreement, Hilton would be the sole owner of certain licensed marks related to new brands associated with the Diamond portfolio that are developed by us in connection with our post-combination business. If, following the completion of the Merger, we default under the A&R Hilton license agreement, we could lose the right to use one or more of such new brands. The loss of these rights and/or certain other related rights could materially adversely

affect our ability to generate revenue and ~~states~~profits from the vacation ownership business associated with the Diamond portfolio. The termination of the A&R Hilton license agreement following completion of the Merger would materially harm our combined business and results of operations and impair our ability to market and sell our products and maintain our competitive position.

Our ability to integrate the Diamond business and otherwise expand our business and remain competitive could be harmed if Hilton does not consent to the use of their trademarks in connection with the conversion of Diamond properties and/or new resorts that we may acquire or develop in the ~~US started~~future.

Under the terms of the A&R Hilton license agreement, we must obtain Hilton’s approval to use the Hilton brand names and trademarks in connection with the conversion of the Diamond properties to branded properties using the Hilton marks, as well as for the branding of timeshare properties that we acquire or develop in the future. If Hilton does not permit us to use its trademarks in connection with such conversion and integration, on a timely basis or at all, or in connection with any other timeshare properties that we may acquire in the future pursuant to any future development or acquisition plans, or if we cannot come to an agreement with Hilton on how to brand and operate Diamond properties that are not approved by Hilton, our ability to successfully integrate Diamond and otherwise expand our business and remain competitive may be materially adversely affected. The requirement to obtain approval for such conversion and integration of Diamond properties and any future expansion plans, or the need to identify and secure alternative solutions because we cannot obtain such approval, may delay implementation of our integration and/or expansion plans or cause us to incur additional expense related to the branding of our properties.

Our ability to integrate the Diamond business depends on our compliance with the A&R Hilton license agreement, including the “Separate Operations” provisions and certain prohibitions on doing business with competitors. While the parties intend to provide some revisions to the applicable requirements, strict compliance with such provisions will negatively impact the synergies and efficiencies related to the Diamond acquisition.

For now, we have agreed with Hilton to operate the Diamond business as a “Separate Operation” under the A&R Hilton license agreement. Complying with that requirement can be costly and difficult and will likely significantly diminish the efficiencies and synergies that are critical to our successful integration of the Diamond business. In addition, the A&R Hilton license agreement requires Hilton’s approval in connection with our anticipated conversion of the Diamond properties into our branded properties and/or Hilton Vacation Club or another new brand of properties, and the creation of any such new brand also requires Hilton’s consent. While we and Hilton have agreed to modify the Separate Operations requirements, with such modifications to be made in Hilton’s sole discretion, so as to allow ~~gradual relaxation~~us to achieve greater operating efficiency and synergy than currently provided for, any failure of ~~restrictions~~the parties to do so will adversely impact such operating efficiency and synergy. In addition, any failure to obtain Hilton’s approval with respect to the creation of any new brand or the conversion of the Diamond properties into such new brand or existing branded properties will significantly harm our ability to integrate the Diamond business and its properties. If we cannot come to an agreement with Hilton on ~~activities~~how to brand and ~~a resumption of businesses. We began a phased reopening of our resorts and resumption of our sales activities~~operate Diamond properties that do not currently or will not in ~~accordance with applicable orders, and~~the future meet the Hilton brand standards, then we ~~plan~~will be required to continue to ~~reopen those~~operate them as separate operations.

In addition, the A&R Hilton license agreement contains a number of ~~our resorts~~prohibitions on us entering into certain agreements and arrangements with competitors of Hilton. As a result of the Merger, we will assume Diamond’s contracts with third parties, a number which ~~remain closed as conditions permit. We have implemented~~are with competitors of Hilton and are prohibited under the A&R Hilton license agreement. The A&R Hilton license agreement provides for a ~~variety~~cure period for agreements or arrangements related to the Diamond business that would result in a violation or breach of ~~measures that~~provisions in the A&R Hilton license agreement. However, to the extent we are ~~required,~~not able to terminate such agreements within the cure period or we ~~believe~~ are ~~advisable, for our business with~~unable to obtain a waiver from Hilton, we may breach the goal of keeping our customers, owners, team members, and the communities we serve as safe as reasonably feasible from the COVID-19 virus. These measures include additional cleaning and sanitation of our resorts and common areas, providing our team members with personal protective equipment, requiring our guests and owners use face masks based on CDC or other federal, state, or local health guidelines, and implementing physical distancing practices.A&R Hilton license agreement.

The conditions caused by the pandemic continues to be unprecedented and rapidly changing. Accordingly, there remains significant uncertainties and risks around the duration and severity of the pandemic in the US and around the world, the breadth and duration of business disruptions resulting from COVID-19, the pandemic’s impact on the global economy, consumer confidence, various businesses, and, consequently, our business and operations.

~~Some of these uncertainties and risks may include the following:~~

•

resurgences, new outbreaks, increases in the rate of infection, and/or increasing death rates related to the COVID-19 virus, including in certain regions and locations where we have a significant number of resorts and concentration of units, such as seen earlier in the year in the states of Florida, Hawaii, and New York and the various cities and counties located within such states, which may lead to another series of temporary closures, either out of abundance of caution or as may be required by new regulations;

•

potentiality of "second waves" of outbreak and spreading of the disease later in 2020 as certain healthcare officials have warned, which may result in further disruptions and additional governmental COVID-19 restrictions, closure orders and/or or “shelter in place” health orders, or similar restrictions;

•

ongoing issuances of new orders, amendments to existing orders, and conflicting directives by different governmental bodies or changes in federal and local policy, rules or regulations resulting from the outcome of the upcoming elections in the U.S., which could disrupt, change, or otherwise adversely impact our safety protocols and measures that are intended to protect our guests, owners, and team members;

•

~~travel bans, quarantine requirements upon entry, and~~ significant restrictions on travel among the states within the U.S., including states where we have a significant number of resorts such as Hawaii and New York, as well as between the U.S. and specific countries, including restrictions placed by foreign governments on citizens of the U.S. entering their countries;

•

~~continued closures and/or curtailment of operations at many popular tourist destinations, reducing the demand for leisure travel;~~

•

changing behavior of individuals and unwillingness to travel and stay at hotels, resorts, timeshares, and other lodging facilities due to the pandemic which may continue beyond the time global health and safety conditions improve;

•

~~various safety measures that—~~

~~may continue to be challenging to implement due to uncertainties in how to correctly implement such measures, lack of availability of needed supplies or other issues,~~

we have already adopted but may need to change rapidly based on the status of the pandemic, applicable governmental actions, industry practices, and guidance or recommendations from leading healthcare experts,

~~may result in significant costs to us, or~~

may cause guests to not visit our resorts because they do not want to abide by such measures, do not fully understand or agree with such requested measures, and/or are wary of the risk of infection despite such measures,

•

~~potential cases of infection and transmission at our resorts despite the implementation of our safety measures efforts, which would be disruptive and may lead to exposure to assertions of liability,~~

•

~~our ability to effectively operate our business in light of significant workforce changes, and our ability to recruit additional talent as needed;~~

•

other actions we have taken or may take, or decisions we have made or may make, as a consequence of the COVID-19 pandemic that may result in investigations, legal claims (with or without merit) or litigation against us, and

•

inability to repay on time or at all the significant increases in our indebtedness and inadequacies of our liquidity, limitations on our ability to incur additional indebtedness or access available debt capital, and recent amendments to our credit facility and warehouse facility, if the pandemic worsens and continues for significant duration.

In addition to the foregoing, the COVID-19 pandemic and the resulting adverse conditions are likely to continue to implicate or exacerbate the risk factors that we identified in our 2019 Form 10-K and our Prior Forms 10-Q. We encourage you to review such risk factors and related disclosure in such filings, together with the foregoing supplemental risk factors.

Any of the foregoing or other risks, factors, and events that are not foreseeable can result in significant negative impact on our results of operations, financial condition, business and operations, and reputation.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

None.

~~Unregistered Sales of Equity Securities and Use of Proceeds~~

~~None.~~

~~Item 3.~~

~~Defaults Upon Senior Securities~~

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

~~Item 4.~~

~~Mine Safety Disclosures~~

Not applicable.

~~Item 5.~~

~~Other Information~~

Item 5.Other Information

None.

Item 6.Exhibits


Exhibit	~~Exhibits~~

~~Exhibit~~ ~~No.~~	Description
		No.
~~3.1~~
2.1**	Agreement and Plan of Merger, dated as of March 10, 2021, by and among Hilton Grand Vacations Inc., Hilton Grand Vacations Borrower LLC, Dakota Holdings, Inc., and certain stockholders named therein (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37794) filed on March 11, 2021).

2.2	Amendment to Agreement and Plan of Merger, dated as of July 7, 2021, by and among Hilton Grand Vacations Inc., Hilton Grand Vacations Borrower LLC, Dakota Holdings, Inc., and AP VIII Dakota Holdings, L.P., in its capacity as Seller Representative (incorporated by reference to Annex A to Registrant’s Additional Definitive Materials on Schedule 14A (File No. 001-37794) filed on July 7, 2021.

3.1	Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37794) filed on March 17, 2017).

3.2	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-37794) filed on March 17, 2017).

3.3	Certificate of Designation of Series A Junior Participating Preferred Stock of Hilton Grand Vacations Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37794) filed on April 16, 2020).

4.1	~~Rights Agreement,~~Indenture, dated ~~as of April 16, 2020, between~~June 4, 2021, among Hilton Grand Vacations Borrower Escrow, LLC, Hilton Grand Vacations Borrower Escrow, Inc., Hilton Grand Vacations Borrower LLC and ~~Equiniti~~Wilmington Trust, ~~Company,~~National Association, as ~~Rights Agent~~Trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. ~~001-37794)~~0001-37794) filed on ~~April 16, 2020)~~June 4, 2021).

~~10.1~~4.2	Form of 5.000% Note due 2029 (included in Exhibit 4.1).

4.3	~~Omnibus Amendment No. 16 to Receivables Loan Agreement, Amendment No. 8 to the Sale and Contribution Agreement, and Amendment No. 1 to the Servicing Agreement, effective as of August 14, 2020, by and~~Indenture, dated June 28, 2021, among Hilton Grand Vacations ~~Trust I~~Borrower Escrow, LLC, ~~as borrower,~~ Hilton ~~Resorts Corporation, as seller,~~ Grand Vacations ~~Services~~Borrower Escrow, Inc., Hilton Grand Vacations Borrower LLC as servicer, the financial institutions signatory thereto as managing agents, the financial institutions signatory thereto as conduit lenders, the financial institutions signatory thereto as committed lenders, Bank of America, N.A., as administrative agent, and ~~Wells Fargo Bank,~~Wilmington Trust, National Association, as ~~paying agent, securities intermediary and backup servicer~~Trustee (incorporated by reference to Exhibit ~~10.1~~4.1 to the Registrant’s Current Report on Form 8-K (File No. ~~001-37794)~~0001-37794) filed on ~~August 17, 2020.~~June 28, 2021).

~~10.2~~4.4	Form of 4.875% Note due 2031 (included in Exhibit 4.3).

10.1*	~~Severance Agreement, effective~~Amended and Restated Commitment Letter, dated as of ~~September 21, 2020,~~March 25, 2021, by and ~~between~~among Hilton Grand Vacations Borrower LLC, Bank of America, N.A, BofA Securities, Inc., Deutsche Bank Securities Inc., Deutsche Bank AG Cayman Islands Branch, Barclays Bank PLC, Credit Suisse AG, Cayman Islands Branch, Credit Suisse Loan Funding LLC, JPMorgan Chase Bank, N.A., Goldman Sachs Bank USA, MUFG Bank, Ltd, Wells Fargo Securities, LLC, Wells Fargo Bank, National Association, Citizens Bank,N.A., Fifth Third Bank, National Association, Regions Bank, Regions Capital Markets and ~~Matthew A. Sparks. *+~~Mizuho Bank, Ltd.

2210.2*	Purchase Agreement, dated May 20, 2021, by and among Hilton Grand Vacations Borrower Escrow, LLC, Hilton Grand Vacations Borrower Escrow, Inc., and Hilton Grand Vacations Borrower LLC, in its capacity as guarantor of the HGV Escrow Guarantee and Deutsche Bank Securities Inc., on its own behalf and as representative of the Initial Purchasers.



10.3*		Purchase Agreement, dated June 14, 2021, by and among Hilton Grand Vacations Borrower Escrow, LLC, Hilton Grand Vacations Borrower Escrow, Inc., Hilton Grand Vacations Borrower LLC, in its capacity as guarantor of the HGV Escrow Guarantee and Deutsche Bank Securities Inc., on its own behalf and as representative of the Initial Purchasers.

22		List of Issuer Subsidiaries of Guaranteed Securities and Guarantor Subsidiaries~~(incorporated~~ (incorporated by reference to Exhibit 22 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37794) filed on July 30, 2020).

~~31.1~~31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

~~31.2~~31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

~~32.1~~32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

~~32.2~~32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

101.INS		Inline XBRL Instance 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.

~~Exhibit~~ ~~No.~~		~~Description~~

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

___________________________________

* Filed herewith

**Pursuant to Item 601(b)(2) of Regulation S-K, certain schedules have been omitted. HGV agrees to furnish a supplemental copy of any omitted schedule to the SEC upon request.

SIGNATURES

~~Filed herewith.~~

+	~~Compensatory arrangement.~~

~~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 29^th day of ~~October 2020.~~July 2021.


	HILTON GRAND VACATIONS INC.

	By:	/s/ Mark D. Wang
	Name:	Mark D. Wang
	Title:	President and Chief Executive Officer

	By:	/s/ Daniel J. Mathewes
	Name:	Daniel J. Mathewes
	Title:	Executive Vice President and Chief Financial Officer

5356

	December 31, 2019
($ in millions)	Securitized			Unsecuritized⁽¹⁾			Total
Timeshare financing receivables	$	758		$	582		$	1,340
Less: allowance for financing receivables losses		(54	)		(130	)		(184	)
	$	704		$	452		$	1,156

	September 30, 2019
($ in millions)	Securitized			Unsecuritized			Total
Balance as of December 31, 2018	$	43		$	129		$	172
Provision for financing receivables losses⁽¹⁾		(12	)		72			60
Write-offs		—			(53	)		(53	)
Securitization		29			(29	)		—
Balance as of September 30, 2019	$	60		$	119		$	179

	September 30			December 31,
	2020			2019
Weighted-average remaining lease term of operating leases (in years)	5.6			6.1
Weighted-average discount rate of operating leases		4.93	%		5.34	%

($ in millions)	2020 (remaining)		2021		2022		2023		2024		Thereafter		Total
Inventory purchase obligations	$	10	$	225	$	110	$	58	$	40	$	14	$	457
Other commitments⁽¹⁾		1		10		3		2		—		—		16
Total	$	11	$	235	$	113	$	60	$	40	$	14	$	473