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 |
For the quarterly period ended September 30, 2019
or
☐ |
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) 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 25, 2019 was 85,469,804.
HILTON GRAND VACATIONS INC.
FORM 10-Q TABLE OF CONTENTS
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Item 1. |
2 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
32 |
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Item 3. |
47 |
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Item 4. |
48 |
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Item 1. |
49 |
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Item 1A. |
49 |
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Item 2. |
49 |
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Item 3. |
49 |
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Item 4. |
49 |
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Item 5. |
49 |
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Item 6. |
50 |
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51 |
1
PART I FINANCIAL INFORMATION
Item 1. |
Financial Statements |
HILTON GRAND VACATIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2019 |
|
|
2018 |
|
||
|
|
(unaudited) |
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
113 |
|
|
$ |
108 |
|
Restricted cash |
|
|
98 |
|
|
|
72 |
|
Accounts receivable, net of allowance for doubtful accounts of $19 and $14 |
|
|
137 |
|
|
|
153 |
|
Timeshare financing receivables, net |
|
|
1,139 |
|
|
|
1,120 |
|
Inventory |
|
|
518 |
|
|
|
527 |
|
Property and equipment, net |
|
|
765 |
|
|
|
559 |
|
Operating lease right-of-use assets, net |
|
|
62 |
|
|
|
— |
|
Investments in unconsolidated affiliates |
|
|
44 |
|
|
|
38 |
|
Intangible assets, net |
|
|
87 |
|
|
|
81 |
|
Other assets |
|
|
75 |
|
|
|
95 |
|
TOTAL ASSETS (variable interest entities - $799 and $647) |
|
$ |
3,038 |
|
|
$ |
2,753 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other |
|
$ |
343 |
|
|
$ |
324 |
|
Advanced deposits |
|
|
112 |
|
|
|
101 |
|
Debt, net |
|
|
815 |
|
|
|
604 |
|
Non-recourse debt, net |
|
|
795 |
|
|
|
759 |
|
Operating lease liabilities |
|
|
78 |
|
|
|
— |
|
Deferred revenues |
|
|
165 |
|
|
|
95 |
|
Deferred income tax liabilities |
|
|
236 |
|
|
|
254 |
|
Total liabilities (variable interest entities - $798 and $640) |
|
|
2,544 |
|
|
|
2,137 |
|
Commitments and contingencies - see Note 19 |
|
|
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Equity: |
|
|
|
|
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|
Preferred stock, $0.01 par value; 300,000,000 authorized shares, none issued or outstanding as of September 30, 2019 and December 31, 2018 |
|
|
— |
|
|
|
— |
|
Common stock, $0.01 par value; 3,000,000,000 authorized shares, 85,469,804 issued and outstanding as of September 30, 2019 and 94,558,086 issued and outstanding as of December 31, 2018 |
|
|
1 |
|
|
|
1 |
|
Additional paid-in capital |
|
|
174 |
|
|
|
174 |
|
Accumulated retained earnings |
|
|
319 |
|
|
|
441 |
|
Total equity |
|
|
494 |
|
|
|
616 |
|
TOTAL LIABILITIES AND EQUITY |
|
$ |
3,038 |
|
|
$ |
2,753 |
|
See notes to unaudited condensed consolidated financial statements.
2
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, |
|
||||||||||
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of VOIs, net |
|
$ |
138 |
|
|
$ |
99 |
|
|
$ |
383 |
|
|
$ |
427 |
|
Sales, marketing, brand and other fees |
|
|
143 |
|
|
|
152 |
|
|
|
429 |
|
|
|
423 |
|
Financing |
|
|
43 |
|
|
|
40 |
|
|
|
127 |
|
|
|
117 |
|
Resort and club management |
|
|
45 |
|
|
|
40 |
|
|
|
130 |
|
|
|
116 |
|
Rental and ancillary services |
|
|
54 |
|
|
|
60 |
|
|
|
173 |
|
|
|
164 |
|
Cost reimbursements |
|
|
43 |
|
|
|
36 |
|
|
|
128 |
|
|
|
110 |
|
Total revenues |
|
|
466 |
|
|
|
427 |
|
|
|
1,370 |
|
|
|
1,357 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of VOI sales |
|
|
24 |
|
|
|
29 |
|
|
|
92 |
|
|
|
109 |
|
Sales and marketing |
|
|
188 |
|
|
|
174 |
|
|
|
544 |
|
|
|
528 |
|
Financing |
|
|
14 |
|
|
|
12 |
|
|
|
39 |
|
|
|
35 |
|
Resort and club management |
|
|
11 |
|
|
|
11 |
|
|
|
34 |
|
|
|
33 |
|
Rental and ancillary services |
|
|
36 |
|
|
|
37 |
|
|
|
108 |
|
|
|
95 |
|
General and administrative |
|
|
28 |
|
|
|
31 |
|
|
|
82 |
|
|
|
84 |
|
Depreciation and amortization |
|
|
14 |
|
|
|
9 |
|
|
|
37 |
|
|
|
25 |
|
License fee expense |
|
|
26 |
|
|
|
25 |
|
|
|
75 |
|
|
|
73 |
|
Cost reimbursements |
|
|
43 |
|
|
|
36 |
|
|
|
128 |
|
|
|
110 |
|
Total operating expenses |
|
|
384 |
|
|
|
364 |
|
|
|
1,139 |
|
|
|
1,092 |
|
Interest expense |
|
|
(12 |
) |
|
|
(7 |
) |
|
|
(33 |
) |
|
|
(22 |
) |
Equity in earnings from unconsolidated affiliates |
|
|
1 |
|
|
|
1 |
|
|
|
4 |
|
|
|
— |
|
Other loss, net |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(1 |
) |
Income before income taxes |
|
|
70 |
|
|
|
56 |
|
|
|
199 |
|
|
|
242 |
|
Income tax expense |
|
|
(20 |
) |
|
|
(15 |
) |
|
|
(55 |
) |
|
|
(64 |
) |
Net income |
|
$ |
50 |
|
|
$ |
41 |
|
|
$ |
144 |
|
|
$ |
178 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.59 |
|
|
$ |
0.42 |
|
|
$ |
1.61 |
|
|
$ |
1.82 |
|
Diluted |
|
$ |
0.59 |
|
|
$ |
0.42 |
|
|
$ |
1.60 |
|
|
$ |
1.81 |
|
See notes to unaudited condensed consolidated financial statements.
3
HILTON GRAND VACATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2019 |
|
|
2018 |
|
||
Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
144 |
|
|
$ |
178 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
37 |
|
|
|
25 |
|
Amortization of deferred financing costs and other |
|
|
7 |
|
|
|
4 |
|
Provision for financing receivables losses |
|
|
60 |
|
|
|
50 |
|
Other loss, net |
|
|
3 |
|
|
|
1 |
|
Share-based compensation |
|
|
18 |
|
|
|
13 |
|
Deferred income tax benefit |
|
|
(21 |
) |
|
|
(21 |
) |
Equity in earnings from unconsolidated affiliates |
|
|
(4 |
) |
|
|
— |
|
Distributions received from unconsolidated affiliates |
|
|
— |
|
|
|
2 |
|
Net changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
17 |
|
|
|
(39 |
) |
Timeshare financing receivables, net |
|
|
(79 |
) |
|
|
(83 |
) |
Inventory |
|
|
(6 |
) |
|
|
(15 |
) |
Purchases and development of real estate for future conversion to inventory |
|
|
(107 |
) |
|
|
(299 |
) |
Other assets |
|
|
(22 |
) |
|
|
(61 |
) |
Accounts payable, accrued expenses and other |
|
|
20 |
|
|
|
(15 |
) |
Advanced deposits |
|
|
11 |
|
|
|
13 |
|
Deferred revenues |
|
|
70 |
|
|
|
42 |
|
Net cash provided by (used in) operating activities |
|
|
148 |
|
|
|
(205 |
) |
Investing Activities |
|
|
|
|
|
|
|
|
Capital expenditures for property and equipment |
|
|
(25 |
) |
|
|
(29 |
) |
Software capitalization costs |
|
|
(19 |
) |
|
|
(12 |
) |
Return of investment from unconsolidated affiliates |
|
|
— |
|
|
|
11 |
|
Investments in unconsolidated affiliates |
|
|
(2 |
) |
|
|
(5 |
) |
Net cash used in investing activities |
|
|
(46 |
) |
|
|
(35 |
) |
Financing Activities |
|
|
|
|
|
|
|
|
Issuance of debt |
|
|
455 |
|
|
|
215 |
|
Issuance of non-recourse debt |
|
|
365 |
|
|
|
663 |
|
Repayment of debt |
|
|
(272 |
) |
|
|
(168 |
) |
Repayment of non-recourse debt |
|
|
(327 |
) |
|
|
(436 |
) |
Debt issuance costs |
|
|
(6 |
) |
|
|
(6 |
) |
Repurchase and retirement of common stock |
|
|
(283 |
) |
|
|
(112 |
) |
Payment of withholding taxes on vesting of restricted stock units |
|
|
(3 |
) |
|
|
(4 |
) |
Proceeds from employee stock plan purchases |
|
|
2 |
|
|
|
— |
|
Capital contribution |
|
|
— |
|
|
|
3 |
|
Other financing activity |
|
|
(2 |
) |
|
|
— |
|
Net cash (used in) provided by financing activities |
|
|
(71 |
) |
|
|
155 |
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
31 |
|
|
|
(85 |
) |
Cash, cash equivalents and restricted cash, beginning of period |
|
|
180 |
|
|
|
297 |
|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
211 |
|
|
$ |
212 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash operating activities: |
|
|
|
|
|
|
|
|
Cumulative effect of adoption of new accounting standard |
|
$ |
— |
|
|
$ |
38 |
|
Non-cash transfer from Other Assets to Inventory(1) |
|
|
2 |
|
|
|
— |
|
Non-cash transfer from Inventory to Property and Equipment(2) |
|
|
16 |
|
|
|
— |
|
Non-cash transfer from Other Assets to Property and Equipment(2) |
|
|
40 |
|
|
|
— |
|
Supplemental disclosure of non-cash financing activities: |
|
|
|
|
|
|
|
|
Issuance of other debt |
|
$ |
23 |
|
|
$ |
— |
|
(1) |
See Note 6: Inventory for more information. |
(2) |
See Note 7: Property and Equipment for more information. |
See notes to unaudited condensed consolidated financial statements.
4
HILTON GRAND VACATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in millions)
|
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Additional |
|
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Accumulated |
|
|
|
|
|
||
|
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Common Stock |
|
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Paid-in |
|
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Retained |
|
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Total |
|
||||||||
|
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Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Equity |
|
|||||
Balance as of December 31, 2018 |
|
|
94 |
|
|
$ |
1 |
|
|
$ |
174 |
|
|
$ |
441 |
|
|
$ |
616 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
55 |
|
|
|
55 |
|
Activity related to share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
Repurchase and retirement of common stock |
|
|
(3 |
) |
|
|
— |
|
|
|
(5 |
) |
|
|
(92 |
) |
|
|
(97 |
) |
Balance as of March 31, 2019 |
|
|
91 |
|
|
|
1 |
|
|
|
170 |
|
|
|
404 |
|
|
|
575 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
39 |
|
|
|
39 |
|
Activity related to share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
10 |
|
|
|
— |
|
|
|
10 |
|
Repurchase and retirement of common stock |
|
|
(5 |
) |
|
|
— |
|
|
|
(11 |
) |
|
|
(163 |
) |
|
|
(174 |
) |
Balance as of June 30, 2019 |
|
|
86 |
|
|
|
1 |
|
|
|
169 |
|
|
|
280 |
|
|
|
450 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
50 |
|
|
|
50 |
|
Activity related to share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
6 |
|
Repurchase and retirement of common stock |
|
|
(1 |
) |
|
|
— |
|
|
|
(1 |
) |
|
|
(11 |
) |
|
|
(12 |
) |
Balance as of September 30, 2019 |
|
|
85 |
|
|
$ |
1 |
|
|
$ |
174 |
|
|
$ |
319 |
|
|
$ |
494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Accumulated |
|
|
|
|
|
||
|
|
Common Stock |
|
|
Paid-in |
|
|
Retained |
|
|
Total |
|
||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Equity |
|
|||||
Balance as of December 31, 2017 |
|
|
99 |
|
|
$ |
1 |
|
|
$ |
162 |
|
|
$ |
355 |
|
|
$ |
518 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
30 |
|
|
|
30 |
|
Activity related to share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
|
(1 |
) |
Repurchase and retirement of common stock |
|
|
(2 |
) |
|
|
— |
|
|
|
(3 |
) |
|
|
(109 |
) |
|
|
(112 |
) |
Revenue recognition cumulative-effect adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(38 |
) |
|
|
(38 |
) |
Capital contribution |
|
|
— |
|
|
|
— |
|
|
|
3 |
|
|
|
— |
|
|
|
3 |
|
Balance as of March 31, 2018 |
|
|
97 |
|
|
|
1 |
|
|
|
161 |
|
|
|
238 |
|
|
|
400 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
107 |
|
|
|
107 |
|
Activity related to share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
6 |
|
Other |
|
|
— |
|
|
|
— |
|
|
|
3 |
|
|
|
1 |
|
|
|
4 |
|
Balance as of June 30, 2018 |
|
|
97 |
|
|
|
1 |
|
|
|
170 |
|
|
|
346 |
|
|
|
517 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
41 |
|
|
|
41 |
|
Activity related to share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
4 |
|
Balance as of September 30, 2018 |
|
|
97 |
|
|
$ |
1 |
|
|
$ |
174 |
|
|
$ |
387 |
|
|
$ |
562 |
|
See notes to unaudited condensed consolidated financial statements.
5
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,” “ourselves,” “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 ourselves 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 exchange program (the “Club”). As of September 30, 2019, we had 57 properties, comprised of 9,177 units, located in the United States (“U.S.”), Japan, the United Kingdom, Italy and Barbados.
In connection with the completion of the spin-off in January 2017, we entered into agreements with Hilton Worldwide (“Hilton”) (who at the time was a related party) and other third parties, including licenses to use the Hilton Grand Vacations brand. The unaudited condensed consolidated financial statements reflect the effect of these agreements. For the three months ended September 30, 2019 and 2018, we incurred $36 million and $38 million, respectively, and for the nine months ended September 30, 2019 and 2018, we incurred $128 million and $135 million, respectively, in costs relating to the agreements entered with Hilton. See Key Agreements Related to the Spin-Off section in Part I - Item 1. Business of our Annual Report on Form 10-K for the year ended December 31, 2018 for further information.
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, 2018, included in our Annual Report on Form 10-K filed with the SEC on February 28, 2019.
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.
Summary of Significant Accounting Policies
Leases
We lease sales centers, office space and equipment under operating leases. We determine if an arrangement is a lease at inception. Amounts related to operating leases are included in Operating lease right-of-use (“ROU”) assets, net and Operating lease liabilities in our condensed consolidated balance sheets. Operating lease ROU assets are adjusted for lease incentives received.
ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term as of the commencement date. Because most of our leases do not provide an explicit or implicit rate of return, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments on an individual lease basis. Our incremental borrowing rate for a lease is the rate of interest we would have to pay on a collateralized basis to borrow an amount equal to the lease payments for the asset under similar terms.
6
We have lease agreements with lease and non-lease components. Our operating leases may require minimum rent payments, contingent rent payments based on a percentage of revenue or income or rental payments adjusted periodically for inflation or rent payments equal to the greater of a minimum rent or contingent rent. Our leases do not contain any residual value guarantees or material restrictive covenants. Leases with a lease term of 12 months or less are not recorded on the condensed consolidated balance sheets and lease expense is recognized on a straight-line basis over the lease term.
We monitor events or changes in circumstances that change the timing or amount of future lease payments which results in the remeasurement of a lease liability, with a corresponding adjustment to the ROU asset. ROU assets for operating and financing leases are periodically reviewed for impairment losses under ASC 360-10, Property, Plant, and Equipment, to determine whether a ROU asset is impaired, and if so, the amount of the impairment loss to recognize.
Recently Issued Accounting Pronouncements
Adopted Accounting Standards
On January 1, 2019, we adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) as amended, using the modified retrospective approach permitted under ASU No. 2018-11, Targeted Improvements, collectively Accounting Standards Codification Topic 842 (“ASC 842”). Accordingly, previously reported financial information has not been restated to reflect the application of the new standard to the comparative periods presented. As permitted under the transition guidance in ASC 842, we have made an accounting policy election to adopt the following package of practical expedients:
|
i. |
to not reassess whether expired or existing contracts are or contain leases; |
|
ii. |
to not reassess lease classification for expired or existing leases; |
|
iii. |
to not reassess any initial direct costs for any existing leases; |
|
iv. |
to not reassess the existence of a lease for existing or expired land easements that were not previously accounted for as leases; |
|
v. |
to record short-term lease payments (less than 12 months) in profit and loss on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred; and |
|
vi. |
to not prospectively, and upon adoption, separate lease and non-lease components. |
ROU assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ASC 842 had no impact on our condensed consolidated statements of operations or on our condensed consolidated statements of cash flows. Upon adoption, we recognized ROU assets of $68 million and operating lease liabilities of $80 million for our real estate and equipment operating leases on the condensed consolidated balance sheets.
Accounting Standards Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, (“ASU 2016-13”), Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses. Subsequent to ASU 2016-13, the FASB has issued several related ASUs amending the original ASU. The updates are intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The update is effective for annual periods beginning after December 15, 2019. We are currently evaluating the effect of this ASU but we do not expect it to have a material impact on our unaudited condensed consolidated financial statements.
7
Note 3: Revenue from Contracts with Customers
Disaggregation of Revenue
The following tables show our disaggregated revenues by segment from contracts with customers. We operate our business in the following two segments: (i) Real estate sales and financing and (ii) Resort operations and club management. Please refer to Note 18: Business Segments below for more details related to our segments.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
($ in millions) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
Real Estate and Financing Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of VOIs, net |
|
$ |
138 |
|
|
$ |
99 |
|
|
$ |
383 |
|
|
$ |
427 |
|
Sales, marketing, brand and other fees |
|
|
143 |
|
|
|
152 |
|
|
|
429 |
|
|
|
423 |
|
Interest income |
|
|
37 |
|
|
|
35 |
|
|
|
109 |
|
|
|
103 |
|
Other financing revenue |
|
|
6 |
|
|
|
5 |
|
|
|
18 |
|
|
|
14 |
|
Real estate and financing segment revenues |
|
$ |
324 |
|
|
$ |
291 |
|
|
$ |
939 |
|
|
$ |
967 |
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
($ in millions) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
Resort Operations and Club Management Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Club management |
|
$ |
28 |
|
|
$ |
25 |
|
|
$ |
80 |
|
|
$ |
71 |
|
Resort management |
|
|
17 |
|
|
|
15 |
|
|
|
50 |
|
|
|
45 |
|
Rental |
|
|
48 |
|
|
|
53 |
|
|
|
153 |
|
|
|
144 |
|
Ancillary services |
|
|
6 |
|
|
|
7 |
|
|
|
20 |
|
|
|
20 |
|
Resort operations and club management segment revenues |
|
$ |
99 |
|
|
$ |
100 |
|
|
$ |
303 |
|
|
$ |
280 |
|
Contract Balances
The following table provides information on our accounts receivable and contract assets from contracts with customers which are included in Accounts receivable, net on our condensed consolidated balance sheets:
($ in millions) |
|
September 30, 2019 |
|
|
December 31, 2018 |
|
||
Receivables |
|
$ |
112 |
|
|
$ |
122 |
|
Contract assets |
|
|
4 |
|
|
|
— |
|
The following table presents the composition of our contract liabilities for the nine months ended September 30, 2019.
|
|
|
|
|
|
|
|
|
($ in millions) |
|
September 30, 2019 |
|
|
December 31, 2018 |
|
||
Contract liabilities: |
|
|
|
|
|
|
|
|
Advanced deposits |
|
$ |
112 |
|
|
$ |
101 |
|
Deferred Sales of VOIs of projects under construction |
|
|
49 |
|
|
|
— |
|
Club activation fees, annual dues and other |
|
|
99 |
|
|
|
72 |
|
Club Bonus Point incentive liability(1) |
|
|
65 |
|
|
|
56 |
|
(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 revenue for incentives from VOI sales and sales and marketing expenses in conjunction with our fee-for-service arrangements. |
8
Revenue earned during the three and nine months ended September 30, 2019 that was included in the contract liabilities balance at December 31, 2018 was approximately $16 million and $94 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 5: 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. As of September 30, 2019, we deferred $49 million of revenue and $7 million of direct selling costs from 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 and direct selling costs during the second quarter of 2020. Upon acquisition, we expect to recognize $16 million in costs of VOI sales related to these sales. As of December 31, 2018, we had no remaining performance obligations on sales of VOIs under construction.
The following table includes the remaining transaction price related to Advanced deposits, Club activation fees and Club Bonus Points as of September 30, 2019:
($ in millions) |
|
Remaining Transaction Price |
|
|
Recognition Period |
|
Recognition Method |
|
Advanced deposits |
|
$ |
112 |
|
|
18 months |
|
Upon customer stays |
Club activation fees |
|
|
68 |
|
|
7 years |
|
Straight-line basis over average inventory holding period |
Club Bonus Points |
|
|
65 |
|
|
24 months |
|
Upon redemption |
Note 4: Restricted Cash
Restricted cash was as follows:
|
|
September 30, |
|
|
December 31, |
|
||
($ in millions) |
|
2019 |
|
|
2018 |
|
||
Escrow deposits on VOI sales |
|
$ |
48 |
|
|
$ |
45 |
|
Reserves related to non-recourse debt(1) |
|
|
50 |
|
|
|
27 |
|
|
|
$ |
98 |
|
|
$ |
72 |
|
(1) |
Includes a $21 million cash deposit that will be released upon future pledging of qualified collateral. See Note 11: Debt & Non-recourse Debt for further discussion. |
9
Note 5: Timeshare Financing Receivables
Timeshare financing receivables were as follows:
|
|
September 30, 2019 |
|
|||||||||
($ in millions) |
|
Securitized and Pledged |
|
|
Unsecuritized(1) |
|
|
Total |
|
|||
Timeshare financing receivables |
|
$ |
795 |
|
|
$ |
523 |
|
|
$ |
1,318 |
|
Less: allowance for financing receivables losses |
|
|
(60 |
) |
|
|
(119 |
) |
|
|
(179 |
) |
|
|
$ |
735 |
|
|
$ |
404 |
|
|
$ |
1,139 |
|
|
|
December 31, 2018 |
|
|||||||||
($ in millions) |
|
Securitized and Pledged |
|
|
Unsecuritized(1) |
|
|
Total |
|
|||
Timeshare financing receivables |
|
$ |
660 |
|
|
$ |
632 |
|
|
$ |
1,292 |
|
Less: allowance for financing receivables losses |
|
|
(43 |
) |
|
|
(129 |
) |
|
|
(172 |
) |
|
|
$ |
617 |
|
|
$ |
503 |
|
|
$ |
1,120 |
|
(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 upcoming securitization activities. |
As of September 30, 2019, we had timeshare financing receivables with a carrying value of $24 million securing the Timeshare Facility in anticipation of future financing activities. As of December 31, 2018, the carrying value of our timeshare financing receivables securing the outstanding debt balance of our Timeshare Facility was $171 million. 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.
In August 2019, we completed a securitization of $300 million of gross timeshare financing receivables, which included a $21 million cash deposit that will be released upon future pledging of qualified collateral, and issued approximately $216 million of 2.34 percent notes, $50 million of 2.54 percent notes and $34 million of 2.84 percent notes, which have a stated maturity date of July 25, 2033. The securitization transaction did not qualify as a sale and, accordingly, no gain or loss was recognized. The transaction is considered a secured borrowing; therefore, the proceeds from the transaction are presented as non-recourse debt (collectively, the “Securitized Debt”). The proceeds were primarily used to pay down the remaining borrowings on our Timeshare Facility and our Securitized Debt with a rate of 2.280%, due 2026 and general corporate operating expenses. See Note 11: Debt and Non-recourse Debt for additional information.
Our timeshare financing receivables as of September 30, 2019 mature as follows:
($ in millions) |
Securitized and Pledged |
|
|
Unsecuritized |
|
|
Total |
|
|||
Year |
|
|
|
|
|
|
|
|
|
|
|
2019 (remaining) |
$ |
22 |
|
|
$ |
22 |
|
|
$ |
44 |
|
2020 |
|
90 |
|
|
|
49 |
|
|
|
139 |
|
2021 |
|
94 |
|
|
|
50 |
|
|
|
144 |
|
2022 |
|
98 |
|
|
|
49 |
|
|
|
147 |
|
2023 |
|
101 |
|
|
|
50 |
|
|
|
151 |
|
Thereafter |
|
390 |
|
|
|
303 |
|
|
|
693 |
|
|
|
795 |
|
|
|
523 |
|
|
|
1,318 |
|
Less: allowance for financing receivables losses |
|
(60 |
) |
|
|
(119 |
) |
|
|
(179 |
) |
|
$ |
735 |
|
|
$ |
404 |
|
|
$ |
1,139 |
|
10
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 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 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. 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 30, 2019, our timeshare financing receivables had interest rates ranging from 3.9 percent to 20.5 percent, a weighted-average interest rate of 12.43 percent, a weighted-average remaining term of 7.8 years and maturities through 2034.
Our gross timeshare financing receivables balances by FICO score were as follows:
|
|
September 30, |
|
|
December 31, |
|
||
($ in millions) |
|
2019 |
|
|
2018 |
|
||
FICO score |
|
|
|
|
|
|
|
|
700+ |
|
$ |
802 |
|
|
$ |
790 |
|
600-699 |
|
|
289 |
|
|
|
280 |
|
<600 |
|
|
38 |
|
|
|
37 |
|
No score(1) |
|
|
189 |
|
|
|
185 |
|
|
|
$ |
1,318 |
|
|
$ |
1,292 |
|
(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 30, 2019 and December 31, 2018, we had ceased accruing interest on timeshare financing receivables with an aggregate principal balance of $68 million and $69 million, respectively. The following tables detail an aged analysis of our gross timeshare financing receivables balance:
|
|
September 30, 2019 |
|
|||||||||
($ in millions) |
|
Securitized and Pledged |
|
|
Unsecuritized |
|
|
Total |
|
|||
Current |
|
$ |
783 |
|
|
$ |
449 |
|
|
$ |
1,232 |
|
31 - 90 days past due |
|
|
7 |
|
|
|
11 |
|
|
|
18 |
|
91 - 120 days past due |
|
|
3 |
|
|
|
5 |
|
|
|
8 |
|
121 days and greater past due |
|
|
2 |
|
|
|
58 |
|
|
|
60 |
|
|
|
$ |
795 |
|
|
$ |
523 |
|
|
$ |
1,318 |
|
11
|
|
December 31, 2018 |
|
|||||||||
($ in millions) |
|
Securitized and Pledged |
|
|
Unsecuritized |
|
|
Total |
|
|||
Current |
|
$ |
648 |
|
|
$ |
556 |
|
|
$ |
1,204 |
|
31 - 90 days past due |
|
|
8 |
|
|
|
11 |
|
|
|
19 |
|
91 - 120 days past due |
|
|
3 |
|
|
|
3 |
|
|
|
6 |
|
121 days and greater past due |
|
|
1 |
|
|
|
62 |
|
|
|
63 |
|
|
|
$ |
660 |
|
|
$ |
632 |
|
|
$ |
1,292 |
|
The changes in our allowance for financing receivables losses were as follows:
|
|
September 30, 2019 |
|
|||||||||
($ in millions) |
|
Securitized and Pledged |
|
|
Unsecuritized |
|
|
Total |
|
|||
Balance as of December 31, 2018 |
|
$ |
43 |
|
|
$ |
129 |
|
|
$ |
172 |
|
Write-offs |
|
|
— |
|
|
|
(53 |
) |
|
|
(53 |
) |
Securitizations |
|
|
29 |
|
|
|
(29 |
) |
|
|
— |
|
Provision for financing receivables losses(1) |
|
|
(12 |
) |
|
|
72 |
|
|
|
60 |
|
Balance as of September 30, 2019 |
|
$ |
60 |
|
|
$ |
119 |
|
|
$ |
179 |
|
|
|
September 30, 2018 |
|
|||||||||
($ in millions) |
|
Securitized and Pledged |
|
|
Unsecuritized |
|
|
Total |
|
|||
Balance as of December 31, 2017 |
|
$ |
27 |
|
|
$ |
114 |
|
|
$ |
141 |
|
Write-offs |
|
|
— |
|
|
|
(22 |
) |
|
|
(22 |
) |
Securitization |
|
|
30 |
|
|
|
(30 |
) |
|
|
— |
|
Provision for financing receivables losses(1) |
|
|
(10 |
) |
|
|
60 |
|
|
|
50 |
|
Balance as of September 30, 2018 |
|
$ |
47 |
|
|
$ |
122 |
|
|
$ |
169 |
|
(1) |
Includes incremental provision for financing receivables losses, net of activity related to the repurchase of defaulted and upgraded securitized timeshare financing receivables. |
Note 6: Inventory
Inventory was as follows:
|
|
September 30, |
|
|
December 31, |
|
||
($ in millions) |
|
2019 |
|
|
2018 |
|
||
Completed unsold VOIs |
|
$ |
249 |
|
|
$ |
243 |
|
Construction in process |
|
|
11 |
|
|
|
9 |
|
Land, infrastructure and other |
|
|
258 |
|
|
|
275 |
|
|
|
$ |
518 |
|
|
$ |
527 |
|
For the nine months ended September 30, 2019, we recorded non-cash operating activity transfers from Inventory to Property and equipment. See Note 7: Property and Equipment. Additionally, we recorded non-cash transfers from Other assets to Inventory of $2 million related to the reclassification of deposits on properties for timeshare inventory.
12
We recognized $14 million in costs of sales true-ups relating to VOI products for the nine months ended September 30, 2019, which resulted in a $14 million increase to the carrying value of inventory as of September 30, 2019, and a corresponding decrease in Cost of VOI sales for the nine months ended September 30, 2019. We recognized $10 million in costs of sales true-ups relating to VOI products for the year ended December 31, 2018, which resulted in a $10 million increase to the carrying value of inventory as of December 31, 2018, and a corresponding decrease in Cost of VOI sales for the year-to-date period ended December 31, 2018. Shown below are expenses incurred, recorded in Cost of VOI sales, related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
($ in millions) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
Cost of VOI sales related to fee-for-service upgrades |
|
$ |
8 |
|
|
$ |
8 |
|
|
$ |
24 |
|
|
$ |
23 |
|
Note 7: Property and Equipment
Property and equipment was as follows:
|
|
September 30, |
|
|
December 31, |
|
||
($ in millions) |
|
2019 |
|
|
2018 |
|
||
Land |
|
$ |
313 |
|
|
$ |
268 |
|
Building and leasehold improvements |
|
|
300 |
|
|
|
295 |
|
Furniture and equipment |
|
|
66 |
|
|
|
54 |
|
Construction in progress |
|
|
190 |
|
|
|
25 |
|
|
|
|
869 |
|
|
|
642 |
|
Accumulated depreciation |
|
|
(104 |
) |
|
|
(83 |
) |
|
|
$ |
765 |
|
|
$ |
559 |
|
During the third quarter of 2019, we completed the purchase of 87 hotel units for future conversion to 74 timeshare units in Los Cabos Mexico for $37 million. For the nine months ended September 30, 2019, we recorded non-cash operating activity transfers of $40 million related to the reclassification of deposits on properties for future development into timeshare inventory from Other assets to Property and equipment. Non-cash transfers are reflected in our unaudited condensed consolidated statements of cash flows.
13
Note 8: Consolidated Variable Interest Entities
As of September 30,2019 and December 31, 2018, we consolidated 5 and 4 variable interest entities (“VIEs”), respectively, that issued non-recourse debt backed by pledged assets consisting primarily of a pool of timeshare financing receivables which is without recourse to us. We are the primary beneficiaries of these VIEs as we have the power to direct the activities that most significantly affect their economic performance. We are also the servicer of these timeshare financing receivables and we are required to replace or repurchase timeshare financing receivables that are in default at their outstanding principal amounts. Additionally, we have the obligation to absorb their losses and the right to receive benefits that could be significant to them. Only the assets of our VIEs are available to settle the obligations of the respective entities.
Our condensed consolidated balance sheets included the assets and liabilities of these entities, which primarily consisted of the following:
|
|
September 30, |
|
|
December 31, |
|
||
($ in millions) |
|
2019 |
|
|
2018 |
|
||
Restricted cash |
|
$ |
49 |
|
|
$ |
23 |
|
Timeshare financing receivables, net |
|
|
735 |
|
|
|
617 |
|
Non-recourse debt(1) |
|
|
795 |
|
|
|
639 |
|
(1) |
Net of deferred financing costs. |
During the nine months ended September 30, 2019 and 2018, we did not provide any financial or other support to any VIEs that we were not previously contractually required to provide, nor do we intend to provide such support in the future.
Note 9: Investments in Unconsolidated Affiliates
As of September 30, 2019, we have 25 percent and 50 percent ownership interests in BRE Ace LLC and 1776 Holdings LLC, respectively, that are deemed as VIEs. We do not consolidate BRE Ace LLC and 1776 Holdings 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 from unconsolidated affiliates, respectively.
We held investments in our two unconsolidated affiliates with aggregated debt balances of $495 million and $490 million as of September 30, 2019 and December 31, 2018, 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 $44 million and $38 million as of September 30, 2019 and December 31, 2018, respectively and (ii) receivables for commission and other fees earned under fee-for-service arrangements. See Note 17: Related Party Transactions for additional information.
Note 10: Other Assets
Other assets were as follows:
|
|
September 30, |
|
|
December 31, |
|
||
($ in millions) |
|
2019 |
|
|
2018 |
|
||
Inventory deposits |
|
$ |
7 |
|
|
$ |
46 |
|
Prepaid expenses |
|
|
23 |
|
|
|
18 |
|
Other |
|
|
45 |
|
|
|
31 |
|
|
|
$ |
75 |
|
|
$ |
95 |
|
For the nine months ended September 30, 2019, we recorded non-cash operating activity transfers from Other assets to Inventory and Property and equipment. See Note 6: Inventory and Note 7: Property and Equipment for more information.
14
Note 11: Debt & Non-recourse Debt
Debt
The following table details our outstanding debt balance and its associated interest rates:
|
|
September 30, |
|
|
December 31, |
|
||
($ in millions) |
|
2019 |
|
|
2018 |
|
||
Debt(1) |
|
|
|
|
|
|
|
|
Senior secured credit facilities: |
|
|
|
|
|
|
|
|
Term loan with an average rate of 3.766%, due 2023 |
|
$ |
190 |
|
|
$ |
197 |
|
Revolver with an average rate of 3.766%, due 2023 |
|
|
305 |
|
|
|
115 |
|
Senior notes with a rate of 6.125%, due 2024 |
|
|
300 |
|
|
|
300 |
|
Other debt |
|
|
27 |
|
|
|
— |
|
|
|
|
822 |
|
|
|
612 |
|
Less: unamortized deferred financing costs and discount(2)(3) |
|
|
(7 |
) |
|
|
(8 |
) |
|
|
$ |
815 |
|
|
$ |
604 |
|
(1) |
As of September 30, 2019 and December 31, 2018, weighted-average interest rates were 4.739 percent and 5.170 percent, respectively. |
(2) |
Amount includes deferred financing costs related to our term loan and senior notes of $2 million and $5 million, respectively, as of September 30, 2019 and $2 million and $6 million as of December 31, 2018. |
(3) |
Amount does not include deferred financing costs of $5 million as of September 30, 2019 and $6 million as of December 31, 2018, relating to our revolving facility included in Other Assets in our condensed consolidated balance sheets. |
During the nine months ended September 30, 2019, we borrowed $455 million and repaid $272 million (including recurring payments) under the senior secured credit facilities with an interest rate based on one month LIBOR plus 1.75 percent.
As of September 30, 2019 and December 31, 2018, we had $1 million of outstanding letters of credit under the revolving credit facility. We were in compliance with all applicable financial covenants as of September 30, 2019.
Non-recourse Debt
The following table details our outstanding non-recourse debt balance and its associated interest rates:
|
|
September 30, |
|
|
December 31, |
|
||
($ in millions) |
|
2019 |
|
|
2018 |
|
||
Non-recourse debt(1) |
|
|
|
|
|
|
|
|
Timeshare Facility with an average rate of 3.164%, due 2021 |
|
$ |
— |
|
|
$ |
120 |
|
Securitized Debt with a rate of 2.280%, due 2026 |
|
|
— |
|
|
|
33 |
|
Securitized Debt with an average rate of 1.810%, due 2026 |
|
|
52 |
|
|
|
74 |
|
Securitized Debt with an average rate of 2.711%, due 2028 |
|
|
162 |
|
|
|
206 |
|
Securitized Debt with an average rate of 3.602%, due 2032 |
|
|
293 |
|
|
|
333 |
|
Securitized Debt with an average rate of 2.431%, due 2033 |
|
|
297 |
|
|
|
— |
|
|
|
|
804 |
|
|
|
766 |
|
Less: unamortized deferred financing costs(2) |
|
|
(9 |
) |
|
|
(7 |
) |
|
|
$ |
795 |
|
|
$ |
759 |
|
(1) |
As of September 30, 2019 and year ended December 31, 2018, weighted-average interest rates were 2.874 percent and 3.126 percent, respectively. |
(2) |
Amount relates to securitized debt only and does not include deferred financing costs of $3 million as of September 30, 2019 and December 31, 2018 relating to our Timeshare Facility which are included in Other Assets in our condensed consolidated balance sheets. |
15
In August 2019, we completed a securitization of $300 million of gross timeshare financing receivables and issued approximately $216 million of 2.34 percent notes, $50 million of 2.54 percent notes and $34 million of 2.84 percent notes due July 2033. The Securitized Debt is backed by pledged assets, consisting primarily of a pool of timeshare financing receivables secured by first mortgages or deeds of trust on timeshare interest and temporarily by a $21 million cash deposit, which is reflected as Restricted cash in our condensed consolidated balance sheets. 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 our Securitized Debt with a rate of 2.280%, due 2026 (“2013-A”) and general corporate operating expenses. In connection with the securitization, we incurred $4 million in debt issuance costs.
In September 2019, we exercised our call option on the remaining outstanding principal balance on our 2013-A Notes and prepaid the remaining balance in accordance with the terms of the arrangement. Collateral securing the notes will be pledged as a part of the collateral backing the 2019-A Notes offering in place of the $21 million of cash used as collateral as a part of our 2019 securitization.
The Timeshare Facility is a non-recourse obligation with a borrowing capacity of $450 million and is payable solely from the pool of timeshare financing receivables pledged as collateral and related assets. In April 2019, we amended the Timeshare Facility, extending the end of the commitment period, from March 2020 to April 2021, and certain covenants. In September 2019, we amended the Timeshare Facility, temporarily changing certain covenant requirements. All other terms and borrowing capacity remained the same in both amendments.
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 $29 million and $27 million as of September 30, 2019 and December 31, 2018, respectively, and were included in Restricted cash in our condensed consolidated balance sheets.
Debt Maturities
The contractual maturities of our debt and non-recourse debt as of September 30, 2019 were as follows:
($ in millions) |
|
Debt |
|
|
Non-recourse Debt |
|
|
Total |
|
|||
Year |
|
|
|
|
|
|
|
|
|
|
|
|
2019 (remaining) |
|
$ |
3 |
|
|
$ |
51 |
|
|
$ |
54 |
|
2020 |
|
|
12 |
|
|
|
247 |
|
|
|
259 |
|
2021 |
|
|
11 |
|
|
|
155 |
|
|
|
166 |
|
2022 |
|
|
10 |
|
|
|
110 |
|
|
|
120 |
|
2023 |
|
|
463 |
|
|
|
108 |
|
|
|
571 |
|
Thereafter |
|
|
323 |
|
|
|
133 |
|
|
|
456 |
|
|
|
$ |
822 |
|
|
$ |
804 |
|
|
$ |
1,626 |
|
16
Note 12: Fair Value Measurements
The carrying amounts and estimated fair values of our financial assets and liabilities were as follows:
|
|
September 30, 2019 |
|
|||||||||
|
|
|
|
|
|
Hierarchy Level |
|
|||||
($ in millions) |
|
Carrying Amount |
|
|
Level 1 |
|
|
Level 3 |
|
|||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Timeshare financing receivables, net(1) |
|
$ |
1,139 |
|
|
$ |
— |
|
|
$ |
1,424 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Debt, net(2) |
|
|
815 |
|
|
|
320 |
|
|
|
527 |
|
Non-recourse debt, net(2) |
|
|
795 |
|
|
|
— |
|
|
|
797 |
|
(1) |
Carrying amount net of allowance for financing receivables losses. |
(2) |
Carrying amount net of unamortized deferred financing costs and discount. |
|
|
December 31, 2018 |
|
|||||||||
|
|
|
|
|
|
Hierarchy Level |
|
|||||
($ in millions) |
|
Carrying Amount |
|
|
Level 1 |
|
|
Level 3 |
|
|||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Timeshare financing receivables, net(1) |
|
$ |
1,120 |
|
|
$ |
— |
|
|
$ |
1,339 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Debt, net(2) |
|
|
604 |
|
|
|
302 |
|
|
|
309 |
|
Non-recourse debt, net(2) |
|
|
759 |
|
|
|
— |
|
|
|
753 |
|
(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 terms respective to the portfolio based on current market assumptions for similar types of arrangements.
The estimated fair values of our Level 1 debt was based on prices in active debt markets. The estimated fair value of our Level 3 debt and non-recourse debt were as follows:
|
• |
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. |
We do not have any assets or liabilities measured at fair value on a recurring basis as of September 30, 2019.
17
Note 13: Leases
We lease sales centers, office space and equipment under operating leases. Our leases expire at various dates from 2019 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.
Rent expense for lease payments is recognized on a straight-line basis over the lease term. Rental expense for all operating leases was $6 million and $16 million for the three and nine months ended September 30, 2019 respectively. This amount includes immaterial short-term leases and variable lease costs. Rent expense for all operating leases for the year ended December 31, 2018 was as follows:
($ in millions) |
|
|
|
|
Minimum rentals |
|
$ |
21 |
|
Contingent rentals |
|
|
3 |
|
|
|
$ |
24 |
|
Supplemental information related to operating leases for the nine months ending September 30, 2019:
($ in millions) |
|
|
|
|
Cash paid for amounts included in the measurement of operating lease liabilities: |
|
|
|
|
Operating cash flows from operating leases |
|
$ |
(12 |
) |
|
|
|
|
|
Supplemental non-cash information: |
|
|
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
|
9 |
|
Weighted-average remaining lease term of operating leases |
|
6.4 years |
|
|
Weighted-average discount rate of operating leases |
|
|
5.34 |
% |
|
|
|
|
|
Future minimum lease payments under noncancelable operating leases, due in each of the next five years and thereafter as of September 30, 2019, are as follows:
($ in millions) |
|
Operating Leases |
|
|
Year |
|
|
|
|
2019 (remaining) |
|
$ |
4 |
|
2020 |
|
|
17 |
|
2021 |
|
|
16 |
|
2022 |
|
|
11 |
|
2023 |
|
|
11 |
|
Thereafter |
|
|
33 |
|
Total future minimum lease payments |
|
$ |
92 |
|
Less: imputed interest |
|
|
(14 |
) |
Present value of lease liabilities |
|
$ |
78 |
|
18
Future minimum lease payments under noncancelable operating leases, due in each of the next five years and thereafter as of December 31, 2018, are as follows:
($ in millions) |
|
Operating Leases |
|
|
Year |
|
|
|
|
2019 |
|
$ |
16 |
|
2020 |
|
|
15 |
|
2021 |
|
|
14 |
|
2022 |
|
|
10 |
|
2023 |
|
|
10 |
|
Thereafter |
|
|
29 |
|
Total future minimum lease payments |
|
$ |
94 |
|
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 effective tax rate is determined by the level and composition of pre-tax income or loss, which is subject to federal, foreign and state and local income taxes. The effective tax rate for the nine months ended September 30, 2019 and 2018 was approximately 28 percent and 27 percent, respectively, which increased primarily due to a reduction in the tax benefit related to share-based compensation awards exercised or vested during the nine months ended September 30, 2019.
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 million and $5 million during the three months ended September 30, 2019 and 2018, respectively, and $18 million and $13 million for the nine months ended September 30, 2019 and 2018, respectively. As of September 30, 2019, unrecognized compensation costs for unvested awards were approximately $23 million, which is expected to be recognized over a weighted average period of 1.9 years. As of September 30, 2019, there were 6,485,046 shares of common stock available for future issuance under this plan.
Service RSUs
During the nine months ended September 30, 2019, we issued 500,925 Service RSUs with a weighted-average grant date fair value of $33.07, which generally vest in equal annual installments over three years from the date of grant.
Options
During the nine months ended September 30, 2019, we issued 544,209 Options with a weighted-average exercise price of $33.32, which vest over three years from the date of the grant.
The weighted-average grant date fair value of these options was $12.29, which was determined using the Black-Scholes-Merton option-pricing model with the following assumptions:
Expected volatility |
|
|
33.1 |
% |
Dividend yield |
|
|
— |
% |
Risk-free rate |
|
|
2.6 |
% |
Expected term (in years) |
|
|
6.0 |
|
As of September 30, 2019, we had 624,145 Options outstanding that were exercisable.
19
Performance Shares
During the nine months ended September 30, 2019, we issued 133,660 Performance RSUs with a weighted-average grant date fair value of $33.32. The Performance RSUs are settled at the end of a three-year performance period, with 70 percent of the Performance RSUs subject to achievement based on the Company’s adjusted earnings before interest expense, taxes and depreciation and amortization further adjusted for net deferral and recognition of revenues and related direct expenses related to sales of VOIs of projects under construction. The remaining 30 percent of the Performance RSUs are subject to the achievement of certain contract sales targets. We determined that the performance conditions for these awards are probable of achievement and, as of September 30, 2019, we recognized compensation expense based on the number of Performance RSUs we expect to vest.
Note 16: Earnings Per Share
The following table presents the calculation of our basic and diluted earnings per share (“EPS”). The weighted- average shares outstanding used to compute basic EPS and diluted EPS for the three months ended September 30, 2019 was 85,704,321 and 86,272,979, respectively, and for the nine months ended September 30, 2019 was 89,863,807 and 90,348,418, respectively. The weighted-average shares outstanding used to compute basic EPS and diluted EPS for the three months ended September 30, 2018 was 96,840,685 and 97,432,015, respectively, and for the nine months ended September 30, 2018 was 97,407,644 and 98,142,238, respectively.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
($ and shares outstanding in millions, except per share amounts) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
Basic EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income(1) |
|
$ |
50 |
|
|
$ |
41 |
|
|
$ |
144 |
|
|
$ |
178 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
86 |
|
|
|
97 |
|
|
|
90 |
|
|
|
97 |
|
Basic EPS |
|
$ |
0.59 |
|
|
$ |
0.42 |
|
|
$ |
1.61 |
|
|
$ |
1.82 |
|
Diluted EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income(1) |
|
$ |
50 |
|
|
$ |
41 |
|
|
$ |
144 |
|
|
$ |
178 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
86 |
|
|
|
97 |
|
|
|
90 |
|
|
|
98 |
|
Diluted EPS |
|
$ |
0.59 |
|
|
$ |
0.42 |
|
|
$ |
1.60 |
|
|
$ |
1.81 |
|
(1) |
Net income for the three months ended September 30, 2019 and 2018 was $50,659,927 and $40,533,279, respectively, and for the nine months ended September 30, 2019 and 2018 was $144,352,584 and $177,564,538, respectively. |
The dilutive effect of outstanding share-based compensation awards is reflected in diluted earnings per common share by application of the treasury stock method using average market prices during the period.
For the three and nine months ended September 30, 2019, we excluded 887,859 and 979,779, respectively, and for the three and nine months ended September 30, 2018, we excluded 533,721 and 359,127 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
In 2017, we acquired 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.”
20
In 2018, we entered into an agreement with SCG 1776, LLC to form 1776 Holding, LLC, which will construct a timeshare resort property, known as “Liberty Place Charleston, by Hilton Club.” In conjunction with this agreement, we contributed $10 million in cash for a 50 percent ownership interest in 1776 Holding, LLC. In May 2019, the agreement was amended to assign the interest of SCG 1776, LLC in 1776 Holding, LLC to 1776 Investment Group, LLC. In May 2019, we also contributed an additional $2 million in cash to 1776 Holding, LLC.
We record Equity in earnings (losses) from our unconsolidated affiliates in our condensed consolidated statements of operations. See Note 9: Investments in Unconsolidated Affiliates for additional information. Additionally, we earn commissions and other fees related to fee-for-service agreements with the investees to sell VOIs at Elara, by Hilton Grand Vacations and Liberty Place Charleston, by Hilton Club. These amounts are summarized in the following table and are included in our condensed consolidated statements of operations as of the date they became related parties.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
($ in millions) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
Equity in earnings from unconsolidated affiliates |
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
4 |
|
|
$ |
— |
|
Commissions and other fees |
|
|
31 |
|
|
|
32 |
|
|
|
99 |
|
|
|
96 |
|
We also have $21 million of outstanding receivables related to the fee-for-service agreements as of September 30, 2019.
HNA Tourism Group Co., Ltd (“HNA”)
On March 13, 2018, HNA entered into an underwriting agreement with several underwriters to sell 22,250,000 shares of our common stock. In connection with the underwriting offer, we elected to purchase 2,500,000 shares at a price of approximately $44.75 per share. The transactions were completed on March 19, 2018 and HNA ceased to be a related party.
21
Note 18: Business Segments
We operate our business through the following two segments:
|
• |
Real estate sales and financing – We market and sell VOIs that we own. We also source VOIs through fee-for-service agreements with third-party developers. Related to the sales of the VOIs that we own, we provide consumer financing, which includes interest income generated from the origination of consumer 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, earn activation fees, annual dues and transaction fees from member exchanges for other vacation products. We 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. |
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) asset dispositions; (ii) foreign currency transactions; (iii) debt restructurings/retirements; (iv) non-cash impairment losses; (v) reorganization costs, including severance and relocation costs; (vi) share-based and other compensation expenses; (vii) costs related to the spin-off; and (viii) other items.
We do not include equity in earnings (losses) from unconsolidated affiliates in our measures of segment operating performance.
The following table present revenues for our reportable segments reconciled to consolidated amounts:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
($ in millions) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate sales and financing |
|
$ |
324 |
|
|
$ |
291 |
|
|
$ |
939 |
|
|
$ |
967 |
|
Resort operations and club management(1)(2) |
|
|
108 |
|
|
|
108 |
|
|
|
332 |
|
|
|
304 |
|
Total segment revenues |
|
|
432 |
|
|
|
399 |
|
|
|
1,271 |
|
|
|
1,271 |
|
Cost reimbursements |
|
|
43 |
|
|
|
36 |
|
|
|
128 |
|
|
|
110 |
|
Intersegment eliminations(1)(2) |
|
|
(9 |
) |
|
|
(8 |
) |
|
|
(29 |
) |
|
|
(24 |
) |
Total revenues |
|
$ |
466 |
|
|
$ |
427 |
|
|
$ |
1,370 |
|
|
$ |
1,357 |
|
(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 $9 million and $8 million for the three months ended September 30, 2019 and 2018, respectively, and $29 million and $24 million for the nine months ended September 30, 2019 and 2018, 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 $1 million for each of the three and nine months ended September 30, 2019 and 2018. |
22
The following table presents Segment Adjusted EBITDA for our reportable segments reconciled to net income:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
($ in millions) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate sales and financing(1) |
|
$ |
94 |
|
|
$ |
67 |
|
|
$ |
243 |
|
|
$ |
274 |
|
Resort operations and club management(1) |
|
|
62 |
|
|
|
62 |
|
|
|
193 |
|
|
|
179 |
|
Segment Adjusted EBITDA |
|
|
156 |
|
|
|
129 |
|
|
|
436 |
|
|
|
453 |
|
General and administrative |
|
|
(28 |
) |
|
|
(31 |
) |
|
|
(82 |
) |
|
|
(84 |
) |
Depreciation and amortization |
|
|
(14 |
) |
|
|
(9 |
) |
|
|
(37 |
) |
|
|
(25 |
) |
License fee expense |
|
|
(26 |
) |
|
|
(25 |
) |
|
|
(75 |
) |
|
|
(73 |
) |
Other loss, net |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(1 |
) |
Interest expense |
|
|
(12 |
) |
|
|
(7 |
) |
|
|
(33 |
) |
|
|
(22 |
) |
Income tax expense |
|
|
(20 |
) |
|
|
(15 |
) |
|
|
(55 |
) |
|
|
(64 |
) |
Equity in earnings from unconsolidated affiliates |
|
|
1 |
|
|
|
1 |
|
|
|
4 |
|
|
|
— |
|
Other adjustment items |
|
|
(6 |
) |
|
|
(1 |
) |
|
|
(11 |
) |
|
|
(6 |
) |
Net income |
|
$ |
50 |
|
|
$ |
41 |
|
|
$ |
144 |
|
|
$ |
178 |
|
(1) |
Includes intersegment transactions. Refer to our table presenting revenues by reportable segment above for additional discussion. |
Note 19: Commitments and Contingencies
We have entered into certain arrangements with developers to commit to purchase vacation ownership units at a future date to be marketed and sold under our Hilton Grand Vacations brand. As of September 30, 2019, we were committed to purchase approximately $480 million of inventory and land over a period of 11 years and $32 million of other commitments under the normal course of business. Additionally, we have committed to develop additional vacation ownership units at an existing resort. We expect to begin construction of these units in 2020. 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 months ended September 30, 2019 and 2018, we purchased $66 million and $18 million, respectively, as required under our commitments. As of September 30, 2019, our remaining obligation pursuant to these arrangements were expected to be incurred as follows:
($ in millions) |
|
2019 (remaining) |
|
|
2020 |
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|
Thereafter |
|
|
Total |
|
|||||||
Inventory purchase obligations |
|
$ |
— |
|
|
$ |
220 |
|
|
$ |
92 |
|
|
$ |
56 |
|
|
$ |
58 |
|
|
$ |
54 |
|
|
$ |
480 |
|
Other commitments(1) |
|
|
4 |
|
|
|
19 |
|
|
|
8 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
32 |
|
Total |
|
$ |
4 |
|
|
$ |
239 |
|
|
$ |
100 |
|
|
$ |
57 |
|
|
$ |
58 |
|
|
$ |
54 |
|
|
$ |
512 |
|
(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 30, 2019, will not materially affect our unaudited condensed consolidated financial statements.
23
Note 20: Condensed Consolidating Guarantor Financial Information
The following schedules present the unaudited condensed consolidating financial information as of September 30, 2019 and December 31, 2018 and for the three and nine months ended September 30, 2019 and 2018 for the Parent, Subsidiary Issuers, Guarantors and Non-Guarantors.
|
|
September 30, 2019 |
|
|||||||||||||||||||||
($ in millions) |
|
Parent |
|
|
Issuers |
|
|
Guarantors |
|
|
Non- Guarantors |
|
|
Eliminations |
|
|
Total |
|
||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2 |
|
|
$ |
— |
|
|
$ |
79 |
|
|
$ |
32 |
|
|
$ |
— |
|
|
$ |
113 |
|
Restricted cash |
|
|
— |
|
|
|
— |
|
|
|
48 |
|
|
|
50 |
|
|
|
— |
|
|
|
98 |
|
Accounts receivable, net |
|
|
— |
|
|
|
— |
|
|
|
142 |
|
|
|
22 |
|
|
|
(27 |
) |
|
|
137 |
|
Timeshare financing receivables, net |
|
|
— |
|
|
|
— |
|
|
|
380 |
|
|
|
759 |
|
|
|
— |
|
|
|
1,139 |
|
Inventory |
|
|
— |
|
|
|
— |
|
|
|
480 |
|
|
|
38 |
|
|
|
— |
|
|
|
518 |
|
Property and equipment, net |
|
|
— |
|
|
|
— |
|
|
|
713 |
|
|
|
52 |
|
|
|
— |
|
|
|
765 |
|
Operating lease right-of-use assets, net |
|
|
— |
|
|
|
— |
|
|
|
60 |
|
|
|
2 |
|
|
|
— |
|
|
|
62 |
|
Investments in unconsolidated affiliates |
|
|
— |
|
|
|
— |
|
|
|
44 |
|
|
|
— |
|
|
|
— |
|
|
|
44 |
|
Intangible assets, net |
|
|
— |
|
|
|
— |
|
|
|
87 |
|
|
|
— |
|
|
|
— |
|
|
|
87 |
|
Other assets |
|
|
— |
|
|
|
5 |
|
|
|
59 |
|
|
|
11 |
|
|
|
— |
|
|
|
75 |
|
Investments in subsidiaries |
|
|
492 |
|
|
|
1,275 |
|
|
|
144 |
|
|
|
— |
|
|
|
(1,911 |
) |
|
|
— |
|
TOTAL ASSETS |
|
$ |
494 |
|
|
$ |
1,280 |
|
|
$ |
2,236 |
|
|
$ |
966 |
|
|
$ |
(1,938 |
) |
|
$ |
3,038 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
346 |
|
|
$ |
24 |
|
|
$ |
(27 |
) |
|
$ |
343 |
|
Advanced deposits |
|
|
— |
|
|
|
— |
|
|
|
111 |
|
|
|
1 |
|
|
|
— |
|
|
|
112 |
|
Debt, net |
|
|
— |
|
|
|
788 |
|
|
|
27 |
|
|
|
— |
|
|
|
— |
|
|
|
815 |
|
Non-recourse debt, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
795 |
|
|
|
— |
|
|
|
795 |
|
Operating lease liabilities |
|
|
— |
|
|
|
— |
|
|
|
76 |
|
|
|
2 |
|
|
|
— |
|
|
|
78 |
|
Deferred revenues |
|
|
— |
|
|
|
— |
|
|
|
165 |
|
|
|
— |
|
|
|
— |
|
|
|
165 |
|
Deferred income tax liabilities |
|
|
— |
|
|
|
— |
|
|
|
236 |
|
|
|
— |
|
|
|
— |
|
|
|
236 |
|
Total equity |
|
|
494 |
|
|
|
492 |
|
|
|
1,275 |
|
|
|
144 |
|
|
|
(1,911 |
) |
|
|
494 |
|
TOTAL LIABILITIES AND EQUITY |
|
$ |
494 |
|
|
$ |
1,280 |
|
|
$ |
2,236 |
|
|
$ |
966 |
|
|
$ |
(1,938 |
) |
|
$ |
3,038 |
|
24
|
|
December 31, 2018 |
|
|||||||||||||||||||||
($ in millions) |
|
Parent |
|
|
Issuers |
|
|
Guarantors |
|
|
Non- Guarantors |
|
|
Eliminations |
|
|
Total |
|
||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
4 |
|
|
$ |
— |
|
|
$ |
89 |
|
|
$ |
15 |
|
|
$ |
— |
|
|
$ |
108 |
|
Restricted cash |
|
|
— |
|
|
|
— |
|
|
|
45 |
|
|
|
27 |
|
|
|
— |
|
|
|
72 |
|
Accounts receivable, net |
|
|
— |
|
|
|
— |
|
|
|
157 |
|
|
|
17 |
|
|
|
(21 |
) |
|
|
153 |
|
Timeshare financing receivables, net |
|
|
— |
|
|
|
— |
|
|
|
209 |
|
|
|
911 |
|
|
|
— |
|
|
|
1,120 |
|
Inventory |
|
|
— |
|
|
|
— |
|
|
|
502 |
|
|
|
25 |
|
|
|
— |
|
|
|
527 |
|
Property and equipment, net |
|
|
— |
|
|
|
— |
|
|
|
553 |
|
|
|
6 |
|
|
|
— |
|
|
|
559 |
|
Investments in unconsolidated affiliate |
|
|
— |
|
|
|
— |
|
|
|
38 |
|
|
|
— |
|
|
|
— |
|
|
|
38 |
|
Intangible assets, net |
|
|
— |
|
|
|
— |
|
|
|
81 |
|
|
|
— |
|
|
|
— |
|
|
|
81 |
|
Other assets |
|
|
— |
|
|
|
6 |
|
|
|
41 |
|
|
|
48 |
|
|
|
— |
|
|
|
95 |
|
Investments in subsidiaries |
|
|
612 |
|
|
|
1,210 |
|
|
|
277 |
|
|
|
— |
|
|
|
(2,099 |
) |
|
|
— |
|
TOTAL ASSETS |
|
$ |
616 |
|
|
$ |
1,216 |
|
|
$ |
1,992 |
|
|
$ |
1,049 |
|
|
$ |
(2,120 |
) |
|
$ |
2,753 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
332 |
|
|
$ |
13 |
|
|
$ |
(21 |
) |
|
$ |
324 |
|
Advanced deposits |
|
|
— |
|
|
|
— |
|
|
|
101 |
|
|
|
— |
|
|
|
— |
|
|
|
101 |
|
Debt, net |
|
|
— |
|
|
|
604 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
604 |
|
Non-recourse debt, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
759 |
|
|
|
— |
|
|
|
759 |
|
Deferred revenues |
|
|
— |
|
|
|
— |
|
|
|
95 |
|
|
|
— |
|
|
|
— |
|
|
|
95 |
|
Deferred income tax liabilities |
|
|
— |
|
|
|
— |
|
|
|
254 |
|
|
|
— |
|
|
|
— |
|
|
|
254 |
|
Total equity |
|
|
616 |
|
|
|
612 |
|
|
|
1,210 |
|
|
|
277 |
|
|
|
(2,099 |
) |
|
|
616 |
|
TOTAL LIABILITIES AND EQUITY |
|
$ |
616 |
|
|
$ |
1,216 |
|
|
$ |
1,992 |
|
|
$ |
1,049 |
|
|
$ |
(2,120 |
) |
|
$ |
2,753 |
|
25
|
|
For the Three Months Ended September 30, 2019 |
|
|||||||||||||||||||||
($ in millions) |
|
Parent |
|
|
Issuers |
|
|
Guarantors |
|
|
Non- Guarantors |
|
|
Eliminations |
|
|
Total |
|
||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of VOIs, net |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
123 |
|
|
$ |
15 |
|
|
$ |
— |
|
|
$ |
138 |
|
Sales, marketing, brand and other fees |
|
|
— |
|
|
|
— |
|
|
|
154 |
|
|
|
1 |
|
|
|
(12 |
) |
|
|
143 |
|
Financing |
|
|
— |
|
|
|
— |
|
|
|
19 |
|
|
|
26 |
|
|
|
(2 |
) |
|
|
43 |
|
Resort and club management |
|
|
— |
|
|
|
— |
|
|
|
44 |
|
|
|
1 |
|
|
|
— |
|
|
|
45 |
|
Rental and ancillary services |
|
|
— |
|
|
|
— |
|
|
|
53 |
|
|
|
1 |
|
|
|
— |
|
|
|
54 |
|
Cost reimbursements |
|
|
— |
|
|
|
— |
|
|
|
42 |
|
|
|
1 |
|
|
|
— |
|
|
|
43 |
|
Total revenues |
|
|
— |
|
|
|
— |
|
|
|
435 |
|
|
|
45 |
|
|
|
(14 |
) |
|
|
466 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of VOI sales |
|
|
— |
|
|
|
— |
|
|
|
22 |
|
|
|
2 |
|
|
|
— |
|
|
|
24 |
|
Sales and marketing |
|
|
— |
|
|
|
— |
|
|
|
187 |
|
|
|
13 |
|
|
|
(12 |
) |
|
|
188 |
|
Financing |
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
10 |
|
|
|
(2 |
) |
|
|
14 |
|
Resort and club management |
|
|
— |
|
|
|
— |
|
|
|
11 |
|
|
|
— |
|
|
|
— |
|
|
|
11 |
|
Rental and ancillary services |
|
|
— |
|
|
|
— |
|
|
|
34 |
|
|
|
2 |
|
|
|
— |
|
|
|
36 |
|
General and administrative |
|
|
— |
|
|
|
— |
|
|
|
27 |
|
|
|
1 |
|
|
|
— |
|
|
|
28 |
|
Depreciation and amortization |
|
|
— |
|
|
|
— |
|
|
|
14 |
|
|
|
— |
|
|
|
— |
|
|
|
14 |
|
License fee expense |
|
|
— |
|
|
|
— |
|
|
|
28 |
|
|
|
(2 |
) |
|
|
— |
|
|
|
26 |
|
Cost reimbursements |
|
|
— |
|
|
|
— |
|
|
|
42 |
|
|
|
1 |
|
|
|
— |
|
|
|
43 |
|
Total operating expenses |
|
|
— |
|
|
|
— |
|
|
|
371 |
|
|
|
27 |
|
|
|
(14 |
) |
|
|
384 |
|
Interest expense |
|
|
— |
|
|
|
(12 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12 |
) |
Dividends from subsidiary |
|
|
6 |
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
(12 |
) |
|
|
— |
|
Equity in earnings from unconsolidated affiliates |
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
Other loss, net |
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
Income before income taxes |
|
|
6 |
|
|
|
(6 |
) |
|
|
64 |
|
|
|
18 |
|
|
|
(12 |
) |
|
|
70 |
|
Income tax expense |
|
|
— |
|
|
|
— |
|
|
|
(20 |
) |
|
|
— |
|
|
|
— |
|
|
|
(20 |
) |
Income before equity in earnings from subsidiaries |
|
|
6 |
|
|
|
(6 |
) |
|
|
44 |
|
|
|
18 |
|
|
|
(12 |
) |
|
|
50 |
|
Equity in earnings from subsidiaries |
|
|
44 |
|
|
|
62 |
|
|
|
18 |
|
|
|
— |
|
|
|
(124 |
) |
|
|
— |
|
Net income |
|
$ |
50 |
|
|
$ |
56 |
|
|
$ |
62 |
|
|
$ |
18 |
|
|
$ |
(136 |
) |
|
$ |
50 |
|
26
|
|
For the Three Months Ended September 30, 2018 |
|
|||||||||||||||||||||
($ in millions) |
|
Parent |
|
|
Issuers |
|
|
Guarantors |
|
|
Non- Guarantors |
|
|
Eliminations |
|
|
Total |
|
||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of VOIs, net |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
97 |
|
|
$ |
2 |
|
|
$ |
— |
|
|
$ |
99 |
|
Sales, marketing, brand and other fees |
|
|
— |
|
|
|
— |
|
|
|
151 |
|
|
|
1 |
|
|
|
— |
|
|
|
152 |
|
Financing |
|
|
— |
|
|
|
— |
|
|
|
17 |
|
|
|
26 |
|
|
|
(3 |
) |
|
|
40 |
|
Resort and club management |
|
|
— |
|
|
|
— |
|
|
|
40 |
|
|
|
— |
|
|
|
— |
|
|
|
40 |
|
Rental and ancillary services |
|
|
— |
|
|
|
— |
|
|
|
59 |
|
|
|
1 |
|
|
|
— |
|
|
|
60 |
|
Cost reimbursements |
|
|
— |
|
|
|
— |
|
|
|
35 |
|
|
|
1 |
|
|
|
— |
|
|
|
36 |
|
Total revenues |
|
|
— |
|
|
|
— |
|
|
|
399 |
|
|
|
31 |
|
|
|
(3 |
) |
|
|
427 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of VOI sales |
|
|
— |
|
|
|
— |
|
|
|
29 |
|
|
|
— |
|
|
|
— |
|
|
|
29 |
|
Sales and marketing |
|
|
— |
|
|
|
— |
|
|
|
172 |
|
|
|
2 |
|
|
|
— |
|
|
|
174 |
|
Financing |
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
11 |
|
|
|
(3 |
) |
|
|
12 |
|
Resort and club management |
|
|
— |
|
|
|
— |
|
|
|
11 |
|
|
|
— |
|
|
|
— |
|
|
|
11 |
|
Rental and ancillary services |
|
|
— |
|
|
|
— |
|
|
|
36 |
|
|
|
1 |
|
|
|
— |
|
|
|
37 |
|
General and administrative |
|
|
— |
|
|
|
— |
|
|
|
30 |
|
|
|
1 |
|
|
|
— |
|
|
|
31 |
|
Depreciation and amortization |
|
|
— |
|
|
|
— |
|
|
|
9 |
|
|
|
— |
|
|
|
— |
|
|
|
9 |
|
License fee expense |
|
|
— |
|
|
|
— |
|
|
|
25 |
|
|
|
— |
|
|
|
— |
|
|
|
25 |
|
Cost reimbursements |
|
|
— |
|
|
|
— |
|
|
|
35 |
|
|
|
1 |
|
|
|
— |
|
|
|
36 |
|
Total operating expenses |
|
|
— |
|
|
|
— |
|
|
|
351 |
|
|
|
16 |
|
|
|
(3 |
) |
|
|
364 |
|
Interest expense |
|
|
— |
|
|
|
(7 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7 |
) |
Equity in earnings from unconsolidated affiliates |
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
Other loss |
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
Income (loss) before income taxes |
|
|
— |
|
|
|
(7 |
) |
|
|
48 |
|
|
|
15 |
|
|
|
— |
|
|
|
56 |
|
Income tax expense |
|
|
— |
|
|
|
— |
|
|
|
(15 |
) |
|
|
— |
|
|
|
— |
|
|
|
(15 |
) |
Income (loss) before equity in earnings (loss) from subsidiaries |
|
|
— |
|
|
|
(7 |
) |
|
|
33 |
|
|
|
15 |
|
|
|
— |
|
|
|
41 |
|
Equity in earnings from subsidiaries |
|
|
41 |
|
|
|
48 |
|
|
|
15 |
|
|
|
— |
|
|
|
(104 |
) |
|
|
— |
|
Net income |
|
$ |
41 |
|
|
$ |
41 |
|
|
$ |
48 |
|
|
$ |
15 |
|
|
$ |
(104 |
) |
|
$ |
41 |
|
27
|
|
For the Nine Months Ended September 30, 2019 |
|
|||||||||||||||||||||
($ in millions) |
|
Parent |
|
|
Issuers |
|
|
Guarantors |
|
|
Non- Guarantors |
|
|
Eliminations |
|
|
Total |
|
||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of VOIs, net |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
333 |
|
|
$ |
50 |
|
|
$ |
— |
|
|
$ |
383 |
|
Sales, marketing, brand and other fees |
|
|
— |
|
|
|
— |
|
|
|
459 |
|
|
|
5 |
|
|
|
(35 |
) |
|
|
429 |
|
Financing |
|
|
— |
|
|
|
— |
|
|
|
57 |
|
|
|
76 |
|
|
|
(6 |
) |
|
|
127 |
|
Resort and club management |
|
|
— |
|
|
|
— |
|
|
|
129 |
|
|
|
1 |
|
|
|
— |
|
|
|
130 |
|
Rental and ancillary services |
|
|
— |
|
|
|
— |
|
|
|
171 |
|
|
|
2 |
|
|
|
— |
|
|
|
173 |
|
Cost reimbursements |
|
|
— |
|
|
|
— |
|
|
|
125 |
|
|
|
3 |
|
|
|
— |
|
|
|
128 |
|
Total revenues |
|
|
— |
|
|
|
— |
|
|
|
1,274 |
|
|
|
137 |
|
|
|
(41 |
) |
|
|
1,370 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of VOI sales |
|
|
— |
|
|
|
— |
|
|
|
83 |
|
|
|
9 |
|
|
|
— |
|
|
|
92 |
|
Sales and marketing |
|
|
— |
|
|
|
— |
|
|
|
544 |
|
|
|
35 |
|
|
|
(35 |
) |
|
|
544 |
|
Financing |
|
|
— |
|
|
|
— |
|
|
|
14 |
|
|
|
31 |
|
|
|
(6 |
) |
|
|
39 |
|
Resort and club management |
|
|
— |
|
|
|
— |
|
|
|
34 |
|
|
|
— |
|
|
|
— |
|
|
|
34 |
|
Rental and ancillary services |
|
|
— |
|
|
|
— |
|
|
|
104 |
|
|
|
4 |
|
|
|
— |
|
|
|
108 |
|
General and administrative |
|
|
— |
|
|
|
— |
|
|
|
81 |
|
|
|
1 |
|
|
|
— |
|
|
|
82 |
|
Depreciation and amortization |
|
|
— |
|
|
|
— |
|
|
|
37 |
|
|
|
— |
|
|
|
— |
|
|
|
37 |
|
License fee expense |
|
|
— |
|
|
|
— |
|
|
|
75 |
|
|
|
— |
|
|
|
— |
|
|
|
75 |
|
Cost reimbursements |
|
|
— |
|
|
|
— |
|
|
|
125 |
|
|
|
3 |
|
|
|
— |
|
|
|
128 |
|
Total operating expenses |
|
|
— |
|
|
|
— |
|
|
|
1,097 |
|
|
|
83 |
|
|
|
(41 |
) |
|
|
1,139 |
|
Interest expense |
|
|
— |
|
|
|
(33 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(33 |
) |
Dividends from subsidiary |
|
|
281 |
|
|
|
281 |
|
|
|
— |
|
|
|
— |
|
|
|
(562 |
) |
|
|
— |
|
Equity in earnings from unconsolidated affiliates |
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
Other loss, net |
|
|
— |
|
|
|
— |
|
|
|
(3 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3 |
) |
Income before income taxes |
|
|
281 |
|
|
|
248 |
|
|
|
178 |
|
|
|
54 |
|
|
|
(562 |
) |
|
|
199 |
|
Income tax expense |
|
|
— |
|
|
|
— |
|
|
|
(54 |
) |
|
|
(1 |
) |
|
|
— |
|
|
|
(55 |
) |
Income before equity in earnings from subsidiaries |
|
|
281 |
|
|
|
248 |
|
|
|
124 |
|
|
|
53 |
|
|
|
(562 |
) |
|
|
144 |
|
Equity in (losses) earnings from subsidiaries |
|
|
(181 |
) |
|
|
177 |
|
|
|
53 |
|
|
|
— |
|
|
|
(49 |
) |
|
|
— |
|
Net income |
|
$ |
100 |
|
|
$ |
425 |
|
|
$ |
177 |
|
|
$ |
53 |
|
|
$ |
(611 |
) |
|
$ |
144 |
|
28
|
|
For the Nine Months Ended September 30, 2018 |
|
|||||||||||||||||||||
($ in millions) |
|
Parent |
|
|
Issuers |
|
|
Guarantors |
|
|
Non- Guarantors |
|
|
Eliminations |
|
|
Total |
|
||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of VOIs, net |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
422 |
|
|
$ |
5 |
|
|
$ |
— |
|
|
$ |
427 |
|
Sales, marketing, brand and other fees |
|
|
— |
|
|
|
— |
|
|
|
424 |
|
|
|
3 |
|
|
|
(4 |
) |
|
|
423 |
|
Financing |
|
|
— |
|
|
|
— |
|
|
|
54 |
|
|
|
68 |
|
|
|
(5 |
) |
|
|
117 |
|
Resort and club management |
|
|
— |
|
|
|
— |
|
|
|
116 |
|
|
|
— |
|
|
|
— |
|
|
|
116 |
|
Rental and ancillary services |
|
|
— |
|
|
|
— |
|
|
|
162 |
|
|
|
2 |
|
|
|
— |
|
|
|
164 |
|
Cost reimbursements |
|
|
— |
|
|
|
— |
|
|
|
107 |
|
|
|
3 |
|
|
|
— |
|
|
|
110 |
|
Total revenues |
|
|
— |
|
|
|
— |
|
|
|
1,285 |
|
|
|
81 |
|
|
|
(9 |
) |
|
|
1,357 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of VOI sales |
|
|
— |
|
|
|
— |
|
|
|
109 |
|
|
|
— |
|
|
|
— |
|
|
|
109 |
|
Sales and marketing |
|
|
— |
|
|
|
— |
|
|
|
526 |
|
|
|
6 |
|
|
|
(4 |
) |
|
|
528 |
|
Financing |
|
|
— |
|
|
|
— |
|
|
|
14 |
|
|
|
26 |
|
|
|
(5 |
) |
|
|
35 |
|
Resort and club management |
|
|
— |
|
|
|
— |
|
|
|
33 |
|
|
|
— |
|
|
|
— |
|
|
|
33 |
|
Rental and ancillary services |
|
|
— |
|
|
|
— |
|
|
|
93 |
|
|
|
2 |
|
|
|
— |
|
|
|
95 |
|
General and administrative |
|
|
— |
|
|
|
— |
|
|
|
83 |
|
|
|
1 |
|
|
|
— |
|
|
|
84 |
|
Depreciation and amortization |
|
|
— |
|
|
|
— |
|
|
|
25 |
|
|
|
— |
|
|
|
— |
|
|
|
25 |
|
License fee expense |
|
|
— |
|
|
|
— |
|
|
|
73 |
|
|
|
— |
|
|
|
— |
|
|
|
73 |
|
Cost reimbursements |
|
|
— |
|
|
|
— |
|
|
|
107 |
|
|
|
3 |
|
|
|
— |
|
|
|
110 |
|
Total operating expenses |
|
|
— |
|
|
|
— |
|
|
|
1,063 |
|
|
|
38 |
|
|
|
(9 |
) |
|
|
1,092 |
|
Interest expense |
|
|
— |
|
|
|
(22 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(22 |
) |
Other loss |
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
Income (loss) before income taxes |
|
|
— |
|
|
|
(22 |
) |
|
|
221 |
|
|
|
43 |
|
|
|
— |
|
|
|
242 |
|
Income tax expense |
|
|
— |
|
|
|
— |
|
|
|
(64 |
) |
|
|
— |
|
|
|
— |
|
|
|
(64 |
) |
Income (loss) before equity in earnings (loss) from subsidiaries |
|
|
— |
|
|
|
(22 |
) |
|
|
157 |
|
|
|
43 |
|
|
|
— |
|
|
|
178 |
|
Equity in earnings from subsidiaries |
|
|
178 |
|
|
|
200 |
|
|
|
43 |
|
|
|
— |
|
|
|
(421 |
) |
|
|
— |
|
Net income |
|
$ |
178 |
|
|
$ |
178 |
|
|
$ |
200 |
|
|
$ |
43 |
|
|
$ |
(421 |
) |
|
$ |
178 |
|
29
|
|
For the Nine Months Ended September 30, 2019 |
|
|||||||||||||||||||||
($ in millions) |
|
Parent |
|
|
Issuers |
|
|
Guarantors |
|
|
Non- Guarantors |
|
|
Eliminations |
|
|
Total |
|
||||||
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
$ |
— |
|
|
$ |
248 |
|
|
$ |
(50 |
) |
|
$ |
231 |
|
|
$ |
(281 |
) |
|
$ |
148 |
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures for property and equipment |
|
|
— |
|
|
|
— |
|
|
|
(22 |
) |
|
|
(3 |
) |
|
|
— |
|
|
|
(25 |
) |
Software capitalization costs |
|
|
— |
|
|
|
— |
|
|
|
(19 |
) |
|
|
— |
|
|
|
— |
|
|
|
(19 |
) |
Investments in unconsolidated affiliates |
|
|
— |
|
|
|
— |
|
|
|
(2 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2 |
) |
Dividends from subsidiary |
|
|
281 |
|
|
|
281 |
|
|
|
— |
|
|
|
— |
|
|
|
(562 |
) |
|
|
— |
|
Net cash provided by (used in) investing activities |
|
|
281 |
|
|
|
281 |
|
|
|
(43 |
) |
|
|
(3 |
) |
|
|
(562 |
) |
|
|
(46 |
) |
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of debt |
|
|
— |
|
|
|
455 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
455 |
|
Issuance of non-recourse debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
365 |
|
|
|
— |
|
|
|
365 |
|
Repayment of debt |
|
|
— |
|
|
|
(272 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(272 |
) |
Repayment of non-recourse debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(327 |
) |
|
|
— |
|
|
|
(327 |
) |
Debt issuance costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6 |
) |
|
|
— |
|
|
|
(6 |
) |
Repurchase and retirement of common stock |
|
|
(283 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(283 |
) |
Payment of withholding taxes on vesting of restricted stock units |
|
|
— |
|
|
|
— |
|
|
|
(3 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3 |
) |
Proceeds from employee stock plan purchases |
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
Other financing activity |
|
|
— |
|
|
|
— |
|
|
|
(2 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2 |
) |
Intercompany transfers |
|
|
— |
|
|
|
(712 |
) |
|
|
89 |
|
|
|
(220 |
) |
|
|
843 |
|
|
|
— |
|
Net cash (used in) provided by financing activities |
|
|
(283 |
) |
|
|
(529 |
) |
|
|
86 |
|
|
|
(188 |
) |
|
|
843 |
|
|
|
(71 |
) |
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
|
(2 |
) |
|
|
— |
|
|
|
(7 |
) |
|
|
40 |
|
|
|
— |
|
|
|
31 |
|
Cash, cash equivalents and restricted cash, beginning of period |
|
|
4 |
|
|
|
— |
|
|
|
134 |
|
|
|
42 |
|
|
|
— |
|
|
|
180 |
|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
2 |
|
|
$ |
— |
|
|
$ |
127 |
|
|
$ |
82 |
|
|
$ |
— |
|
|
$ |
211 |
|
30
|
|
For the Nine Months Ended September 30, 2018 |
|
|||||||||||||||||||||
($ in millions) |
|
Parent |
|
|
Issuers |
|
|
Guarantors |
|
|
Non- Guarantors |
|
|
Eliminations |
|
|
Total |
|
||||||
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
$ |
— |
|
|
$ |
(20 |
) |
|
$ |
10 |
|
|
$ |
(241 |
) |
|
$ |
46 |
|
|
$ |
(205 |
) |
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures for property and equipment |
|
|
— |
|
|
|
— |
|
|
|
(25 |
) |
|
|
(4 |
) |
|
|
— |
|
|
|
(29 |
) |
Software capitalization costs |
|
|
— |
|
|
|
— |
|
|
|
(12 |
) |
|
|
— |
|
|
|
— |
|
|
|
(12 |
) |
Return of investment from unconsolidated affiliates |
|
|
— |
|
|
|
— |
|
|
|
11 |
|
|
|
— |
|
|
|
— |
|
|
|
11 |
|
Investment in unconsolidated affiliate |
|
|
— |
|
|
|
— |
|
|
|
(5 |
) |
|
|
— |
|
|
|
— |
|
|
|
(5 |
) |
Net cash used in investing activities |
|
|
— |
|
|
|
— |
|
|
|
(31 |
) |
|
|
(4 |
) |
|
|
— |
|
|
|
(35 |
) |
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of debt |
|
|
— |
|
|
|
215 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
215 |
|
Issuance of non-recourse debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
663 |
|
|
|
— |
|
|
|
663 |
|
Repayment of debt |
|
|
— |
|
|
|
(168 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(168 |
) |
Repayment of non-recourse debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(436 |
) |
|
|
— |
|
|
|
(436 |
) |
Debt issuance costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6 |
) |
|
|
— |
|
|
|
(6 |
) |
Repurchase and retirement of common stock |
|
|
— |
|
|
|
(112 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(112 |
) |
Payment of withholding taxes on vesting of restricted stock units |
|
|
— |
|
|
|
(4 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4 |
) |
Capital contribution |
|
|
— |
|
|
|
3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3 |
|
Intercompany transfers |
|
|
— |
|
|
|
86 |
|
|
|
(63 |
) |
|
|
23 |
|
|
|
(46 |
) |
|
|
— |
|
Net cash provided by (used in) financing activities |
|
|
— |
|
|
|
20 |
|
|
|
(63 |
) |
|
|
244 |
|
|
|
(46 |
) |
|
|
155 |
|
Net decrease in cash, cash equivalents and restricted cash |
|
|
— |
|
|
|
— |
|
|
|
(84 |
) |
|
|
(1 |
) |
|
|
— |
|
|
|
(85 |
) |
Cash, cash equivalents and restricted cash, beginning of period |
|
|
— |
|
|
|
— |
|
|
|
259 |
|
|
|
38 |
|
|
|
— |
|
|
|
297 |
|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
175 |
|
|
$ |
37 |
|
|
$ |
— |
|
|
$ |
212 |
|
Note 21: Subsequent Events
Management has evaluated all subsequent events through October 31, 2019, the date the unaudited consolidated financial statements were available to be issued. The results of management’s analysis indicated no significant subsequent events have occurred that required consideration as adjustments to our disclosures in the unaudited consolidated financial statements.
31
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, 2018.
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 future, 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 such statements. Forward-looking statements include all statements that are not historical facts and may be identified by terminology such as the words “outlook,” “believe,” “expect,” “potential,” “goal,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “projects,” predicts,” “intends,” “plans,” “estimates,” “anticipates” “future,” “guidance,” “target,” or the negative version of these words or other comparable words. The forward-looking statements contained in this Report include statements related to our 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 you that our forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the future results, business performance or achievements expressed in or implied by such statements. The forward-looking statements in this Report are not guarantees of our future performance, and you should not place undue reliance on such statements. Factors that could cause our actual results to differ materially from those contemplated by our forward-looking statements include: risks associated with the inherent business, financial and operating risks of the timeshare industry, including limited underwriting standards due to the real-time nature of industry sales practices, and the intense competition associated with the industry; our ability successfully market and sell VOIs; our development and other activities to source inventory for VOI sales; significant increases in defaults on HGV’s vacation ownership mortgage receivables; the ability of managed homeowner associations to collect sufficient maintenance fees; general volatility in the economy and/or the financial and credit markets; adverse economic or market conditions and trends in the tourism and hospitality industry, which may impact the purchasing and vacationing decisions of consumers; our actions or the occurrence of other events that could cause a breach under or termination of our license agreement with Hilton that could affect or terminate our access to the Hilton brands and programs, or actions of Hilton that affect the reputation of the licensed marks or Hilton’s programs; economic and operational uncertainties related to our expanding global operations, including our ability to manage the outcome and timing of such operations and compliance with anti-corruption, data privacy and other applicable laws and regulations affecting our international operations; the effects of foreign currency exchange; changes in tax rates and exposure to additional tax liabilities; the impact of future changes in legislation, regulations or accounting pronouncements; HGV’s acquisitions, joint ventures, and strategic alliances that that may not result in expected benefits, including the termination of material fee-for-service agreements; our dependence on third-party development activities to secure just-in-time inventory; our use of social media platforms; cyber-attacks, security vulnerabilities, and information technology system failures resulting in disclosure of personal data, company data loss, system outages or disruptions of our online services, which could lead to reduced revenue, increased costs, liability claims, harm to user engagement, and harm to our reputation or competitive position; the impact of claims against us that may result in adverse outcomes, including regulatory proceedings or litigation; our credit facilities, indenture and other debt agreements and instruments, including variable interest rates, operating and financial restrictions, our ability to make scheduled payments, and our ability to refinance our debt on acceptable terms; the continued service and availability of key executives and employees; and catastrophic events or geo-political conditions including war, terrorist activity, political strife or natural disasters that may disrupt our operations in key vacation destinations. Any one or more of the foregoing factors could adversely impact our operations, revenue, operating margins, financial condition and/or credit rating.
For additional information regarding factors that could cause our actual results to differ materially from those expressed or implied in the forward-looking statements in this Report, 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, 2018, and those described from time to time 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 ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, changes in management’s expectations, or otherwise.
32
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” and “rooms” refer to the timeshare properties managed, franchised, owned or leased by us. Of these properties and rooms, a portion are directly owned or leased by us or joint ventures in which we have an interest and the remaining properties and rooms are owned by 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, earnings before interest expense (excluding interest expense relating to our non-recourse debt), taxes and depreciation and amortization (“EBITDA”) and Adjusted 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, tour flow, volume per guest and transient rate.
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
Our Business
We are a growing timeshare company that markets and sells VOIs, manages resorts in top leisure and urban destinations, and operates a points-based vacation club. As of September 30, 2019, we have 57 properties, representing 9,177 units, which are located in iconic vacation destinations such as the Hawaiian Islands, New York City, Orlando and Las Vegas, and feature spacious, condominium-style accommodations with superior amenities and quality service. As of September 30, 2019, we have approximately 322,000 Hilton Grand Vacations Club (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 17 industry-leading brands across more than 5,900 properties, as well as numerous experiential vacation options, such as cruises and guided tours.
We operate our business across two segments: (1) real estate sales and financing; and (2) resort operations and club management.
33
Real Estate Sales and Financing
Our primary product is the marketing and selling of fee-simple VOIs deeded in perpetuity, developed either by us or by third parties. This ownership interest is an interest in real estate generally equivalent to one week annually at the timeshare resort where the VOI was purchased. Traditionally, timeshare operators have funded 100 percent of the investment necessary to acquire land and construct timeshare properties. In 2010, we began sourcing VOIs through fee-for-service and just-in-time agreements with third-party developers and have successfully transformed from a capital-intensive business to one that is highly capital-efficient. 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 months ended September 30, 2019, sales from fee-for-service, just-in-time and developed inventory sources were 54 percent, 17 percent and 29 percent, respectively, of contract sales. See “Key Business and Financial Metrics and Terms Used by Management——Real Estate Sales Metrics” for additional discussion of contract sales. Based on our trailing twelve months sales pace, we have access to approximately seven years of future inventory, with capital efficient arrangements representing approximately 55 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 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, Myrtle Beach, Hilton Head, New York, Washington D.C., Chicago, Orlando, Park City, Waikoloa, Korea and Japan. 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 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 tours impacts sales revenue and the collectability of our timeshare financing receivables. For the nine months ended September 30, 2019, 52 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 receivables that bear a fixed interest rate typically ranging from nine percent to 18 percent per annum. Financing propensity was 66.6 percent and 66.3 percent for the nine months ended September 30, 2019 and 2018, 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 timeshare financing receivables is determined by, among other factors, the amount of the down payment, the borrower’s credit profile and the receivable term. The weighted-average high FICO score and weighted-average FICO score for new timeshare financing receivables to U.S. and Canadian borrowers at the time of origination were as follows:
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2019 |
|
|
2018 |
|
||
Weighted-average high FICO score |
|
|
748 |
|
|
|
748 |
|
Weighted-average FICO score |
|
|
735 |
|
|
|
740 |
|
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.
34
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 5: Timeshare Financing Receivables in our unaudited condensed consolidated financial statements.
In addition, we earn fees from servicing our securitized timeshare financing receivables and the timeshare financing receivables provided by third-party developers of our fee-for-service projects to purchasers of their VOIs.
Resort Operations and Club Management
We enter into management agreements with the HOA 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 comprising 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 Metrics
We measure operating performance using the following key 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 condensed consolidated statements of operations due to the requirements for revenue recognition, as well as adjustments for incentives and other administrative fee revenues. We consider contract sales to be an important operating measure because it reflects the pace of sales in our business. 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, 2018, for additional information on Sales of VOI, net. |
|
• |
Sales revenue represents Sale 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. |
35
Resort and Club Management and Rental Metrics
|
• |
Transient rate represents the total rental room revenue for transient guests divided by total number of transient room nights sold in a given period and excludes room rentals associated with marketing programs, owner usage and the redemption of Club Bonus Points. |
For further information see Item 8. Financial Statements and Supplementary Data - Note 2: Basis of Presentation and Summary of Significant Accounting Policies in our Annual Report on Form 10-K for the year ended December 31, 2018.
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) asset dispositions; (ii) foreign currency transactions; (iii) debt restructurings/retirements; (iv) non-cash impairment losses; (v) reorganization costs, including severance and relocation costs; (vi) share-based and certain other compensation expenses; (vii) costs related to the spin-off; and (viii) other items.
EBITDA and Adjusted EBITDA are not recognized terms under U.S. GAAP and should not be considered as alternatives to net income (loss) or other measures of financial performance or liquidity derived in accordance with U.S. GAAP. In addition, our definitions of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies.
We believe that EBITDA and Adjusted EBITDA provide useful information to investors about us and our financial condition and results of operations for the following reasons: (i) EBITDA and Adjusted EBITDA are among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions; and (ii) EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry.
EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered either in isolation or as a substitute for net income (loss), cash flow or other methods of analyzing our results as reported under U.S. GAAP. Some of these limitations are:
|
• |
EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; |
|
• |
EBITDA and Adjusted EBITDA do not reflect our interest expense (excluding interest expense on non-recourse debt), or the cash requirements necessary to service interest or principal payments on our indebtedness; |
|
• |
EBITDA and Adjusted EBITDA do not reflect our tax expense or the cash requirements to pay our taxes; |
|
• |
EBITDA and Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; |
|
• |
EBITDA and Adjusted EBITDA do not reflect the effect on earnings or changes resulting from matters that we consider not to be indicative of our future operations; |
|
• |
EBITDA and Adjusted EBITDA do not reflect any cash requirements for future replacements of assets that are being depreciated and amortized; and |
|
• |
EBITDA and Adjusted EBITDA may be calculated differently from other companies in our industry limiting their usefulness as comparative measures. |
Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.
36
Results of Operations
Three and Nine Months Ended September 30, 2019 Compared with the Three and Nine Months Ended September 30, 2018
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 |
|
||||||||||||||||||||
($ in millions) |
|
2019 |
|
|
2018 |
|
|
$ |
|
|
% |
|
|
2019 |
|
|
2018 |
|
|
$ |
|
|
% |
|
||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate sales and financing |
|
$ |
324 |
|
|
$ |
291 |
|
|
$ |
33 |
|
|
|
11.3 |
% |
|
$ |
939 |
|
|
$ |
967 |
|
|
$ |
(28 |
) |
|
|
(2.9 |
)% |
Resort operations and club management |
|
|
108 |
|
|
|
108 |
|
|
|
— |
|
|
|
— |
|
|
|
332 |
|
|
|
304 |
|
|
|
28 |
|
|
|
9.2 |
|
Segment revenues |
|
|
432 |
|
|
|
399 |
|
|
|
33 |
|
|
|
8.3 |
|
|
|
1,271 |
|
|
|
1,271 |
|
|
|
— |
|
|
|
— |
|
Cost reimbursements |
|
|
43 |
|
|
|
36 |
|
|
|
7 |
|
|
|
19.4 |
|
|
|
128 |
|
|
|
110 |
|
|
|
18 |
|
|
|
16.4 |
|
Intersegment eliminations(1) |
|
|
(9 |
) |
|
|
(8 |
) |
|
|
(1 |
) |
|
|
12.5 |
|
|
|
(29 |
) |
|
|
(24 |
) |
|
|
(5 |
) |
|
|
20.8 |
|
Total revenues |
|
$ |
466 |
|
|
$ |
427 |
|
|
$ |
39 |
|
|
|
9.1 |
|
|
$ |
1,370 |
|
|
$ |
1,357 |
|
|
$ |
13 |
|
|
|
1.0 |
|
(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, 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) |
|
2019 |
|
|
2018 |
|
|
$ |
|
|
% |
|
|
2019 |
|
|
2018 |
|
|
$ |
|
|
% |
|
||||||||
Net Income |
|
$ |
50 |
|
|
$ |
41 |
|
|
$ |
9 |
|
|
|
22.0 |
% |
|
$ |
144 |
|
|
$ |
178 |
|
|
$ |
(34 |
) |
|
|
(19.1 |
)% |
Interest expense |
|
|
12 |
|
|
|
7 |
|
|
|
5 |
|
|
|
71.4 |
|
|
|
33 |
|
|
|
22 |
|
|
|
11 |
|
|
|
50.0 |
|
Income tax expense |
|
|
20 |
|
|
|
15 |
|
|
|
5 |
|
|
|
33.3 |
|
|
|
55 |
|
|
|
64 |
|
|
|
(9 |
) |
|
|
(14.1 |
) |
Depreciation and amortization |
|
|
14 |
|
|
|
9 |
|
|
|
5 |
|
|
|
55.6 |
|
|
|
37 |
|
|
|
25 |
|
|
|
12 |
|
|
|
48.0 |
|
Interest expense, depreciation and amortization included in equity in earnings (losses) from unconsolidated affiliates |
|
|
— |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
(100.0 |
) |
|
|
2 |
|
|
|
3 |
|
|
|
(1 |
) |
|
|
(33.3 |
) |
EBITDA |
|
|
96 |
|
|
|
73 |
|
|
|
23 |
|
|
|
31.5 |
|
|
|
271 |
|
|
|
292 |
|
|
|
(21 |
) |
|
|
(7.2 |
) |
Other loss, net |
|
|
1 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
3 |
|
|
|
1 |
|
|
|
2 |
|
|
NM(1) |
|
|
Share-based compensation expense |
|
|
6 |
|
|
|
5 |
|
|
|
1 |
|
|
|
20.0 |
|
|
|
18 |
|
|
|
13 |
|
|
|
5 |
|
|
|
38.5 |
|
Other adjustment items(2) |
|
|
8 |
|
|
|
1 |
|
|
|
7 |
|
|
NM(1) |
|
|
|
11 |
|
|
|
11 |
|
|
|
— |
|
|
|
— |
|
|
Adjusted EBITDA |
|
$ |
111 |
|
|
$ |
80 |
|
|
$ |
31 |
|
|
|
38.8 |
|
|
$ |
303 |
|
|
$ |
317 |
|
|
$ |
(14 |
) |
|
|
(4.4 |
) |
(1) |
Fluctuation in terms of percentage change is not meaningful. |
(2) |
Includes restructuring costs and costs associated with the spin-off of $7 million and $2 million for the three months ended September 30, 2019 and 2018, respectively, and $9 million for each of the nine months ended September 30, 2019 and 2018. |
37
The following table reconciles our segment Adjusted EBITDA to Adjusted EBITDA:
|
|
Three Months Ended September 30, |
|
|
Variance |
|
|
Nine Months Ended September 30, |
|
|
Variance |
|
||||||||||||||||||||
($ in millions) |
|
2019 |
|
|
2018 |
|
|
$ |
|
|
% |
|
|
2019 |
|
|
2018 |
|
|
$ |
|
|
% |
|
||||||||
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate sales and financing(1) |
|
$ |
94 |
|
|
$ |
67 |
|
|
$ |
27 |
|
|
|
40.3 |
% |
|
$ |
243 |
|
|
$ |
274 |
|
|
$ |
(31 |
) |
|
|
(11.3 |
)% |
Resort operations and club management(1) |
|
|
62 |
|
|
|
62 |
|
|
|
— |
|
|
|
— |
|
|
|
193 |
|
|
|
179 |
|
|
|
14 |
|
|
|
7.8 |
|
Segment Adjusted EBITDA |
|
|
156 |
|
|
|
129 |
|
|
|
27 |
|
|
|
20.9 |
|
|
|
436 |
|
|
|
453 |
|
|
|
(17 |
) |
|
|
(3.8 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA from unconsolidated affiliates |
|
|
1 |
|
|
|
2 |
|
|
|
(1 |
) |
|
|
(50.0 |
) |
|
|
6 |
|
|
|
3 |
|
|
|
3 |
|
|
|
100.0 |
|
License fee expense |
|
|
(26 |
) |
|
|
(25 |
) |
|
|
(1 |
) |
|
|
4.0 |
|
|
|
(75 |
) |
|
|
(73 |
) |
|
|
(2 |
) |
|
|
2.7 |
|
General and administrative(2) |
|
|
(20 |
) |
|
|
(26 |
) |
|
|
6 |
|
|
|
(23.1 |
) |
|
|
(64 |
) |
|
|
(66 |
) |
|
|
2 |
|
|
|
(3.0 |
) |
Adjusted EBITDA |
|
$ |
111 |
|
|
$ |
80 |
|
|
$ |
31 |
|
|
|
38.8 |
|
|
$ |
303 |
|
|
$ |
317 |
|
|
$ |
(14 |
) |
|
|
(4.4 |
) |
(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 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 |
|
||||||||||||
($ in millions) |
|
2019 |
|
|
2018 |
|
|
$ |
|
|
2019 |
|
|
2018 |
|
|
$ |
|
||||||
Sales of VOIs (deferrals) |
|
$ |
(15 |
) |
|
$ |
(45 |
) |
|
$ |
30 |
|
|
$ |
(49 |
) |
|
$ |
(154 |
) |
|
$ |
105 |
|
Sales of VOIs recognitions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
134 |
|
|
|
(134 |
) |
Net Sales of VOIs (deferrals) recognitions |
|
|
(15 |
) |
|
|
(45 |
) |
|
|
30 |
|
|
|
(49 |
) |
|
|
(20 |
) |
|
|
(29 |
) |
Cost of VOI sales (deferrals)(1) |
|
|
(5 |
) |
|
|
(13 |
) |
|
|
8 |
|
|
|
(16 |
) |
|
|
(51 |
) |
|
|
35 |
|
Cost of VOI sales recognitions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
37 |
|
|
|
(37 |
) |
Net Cost of VOI sales (deferrals) recognitions(1) |
|
|
(5 |
) |
|
|
(13 |
) |
|
|
8 |
|
|
|
(16 |
) |
|
|
(14 |
) |
|
|
(2 |
) |
Sales and marketing expense (deferrals) |
|
|
(2 |
) |
|
|
(7 |
) |
|
|
5 |
|
|
|
(7 |
) |
|
|
(21 |
) |
|
|
14 |
|
Sales and marketing expense recognitions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
17 |
|
|
|
(17 |
) |
Net Sales and marketing expense (deferrals) recognitions |
|
|
(2 |
) |
|
|
(7 |
) |
|
|
5 |
|
|
|
(7 |
) |
|
|
(4 |
) |
|
|
(3 |
) |
Net construction (deferrals) recognitions |
|
$ |
(8 |
) |
|
$ |
(25 |
) |
|
$ |
17 |
|
|
$ |
(26 |
) |
|
$ |
(2 |
) |
|
$ |
(24 |
) |
(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, 2019. |
38
Real estate sales and financing segment revenues increased by $33 million for the three months ended September 30, 2019, compared to the same period in 2018, primarily due to a $27 million increase in sales revenue, a $3 million increase in marketing revenue and other fees mainly associated with higher vacation package sales and a $3 million increase in financing revenue related to an increase in interest income primarily from higher outstanding timeshare receivables balance and an increase in servicing fees. Sales revenue increased for the three months ended September 30, 2019, compared to the same period in 2018, primarily due to lower deferrals of revenue from VOI sales for properties under construction compared to the same period in 2018. For the three months ended September 30, 2019, sales revenue was impacted by a $15 million deferral of revenue from VOI sales of The Central at 5th by Hilton Club, a just-in-time property in pre-sales, compared to a $45 million deferral of revenue from VOI sales of Ocean Tower by Hilton Grand Vacation Club during the same period in 2018. Real estate sales and financing segment Adjusted EBITDA increased by $27 million for the three months ended September 30, 2019, compared to the same period in 2018, primarily due to the increases in segment margin associated with segment performance discussed below.
Real estate sales and financing segment revenues decreased by $28 million for the nine months ended September 30, 2019, compared to the same period in 2018, primarily due to a $49 million decrease in sales revenue, partially offset by an $11 million increase in marketing revenue and other fees mainly associated with higher vacation package sales, and a $10 million increase in financing revenue related to an increase in interest income from higher outstanding timeshare receivables balance and an increase in servicing fees. Sales revenue decreased for the nine months ended September 30, 2019, compared to the same period in 2018, primarily due to higher deferrals of revenue from VOI sales for properties under construction compared to the same period in 2018. For the nine months ended September 30, 2019 sales revenue was impacted by a $49 million deferral of revenue from VOI sales of The Central at 5th by Hilton Club compared to a $20 million net deferral of revenue from the deferral of revenue of VOI sales of Ocean Tower by Hilton Grand Vacation Club and the recognition of VOI sales from the completion of The Residences by Hilton Club which was under construction during the same period in 2018. Real estate sales and financing segment Adjusted EBITDA decreased by $31 million for the nine months ended September 30, 2019, compared to the same period in 2018, primarily due to the decreases in segment margin associated with segment performance discussed below.
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 remained flat for the three months ended September 30, 2019, compared to the same period in 2018, primarily due to an increase of $5 million in resort and club management revenues due to an increase in Club members as well as higher resort management revenue from the launch of new properties subsequent to the third quarter of 2018 offset by a decrease of $6 million in rental and ancillary services revenues. Rental and ancillary services revenue decreased due to lower transient rental room revenue, primarily related to an operating hotel acquired in June 2018 that is undergoing a conversion to timeshare inventory beginning in the third quarter of 2019 and lower club inventory rentals at our developed and fee-for-service properties. Resort operations and club management segment Adjusted EBITDA remained flat for the three months ended September 30, 2019, compared to the same period in 2018, primarily due to the offsetting increases and decreases in revenues and expenses associated with the segment.
Resort operations and club management segment revenues increased by $28 million for the nine months ended September 30, 2019, compared to the same period in 2018, primarily due to (i) an increase of $14 million in resort and club management revenues primarily due to an increase in Club members and (ii) an increase of $9 million in rental and ancillary services revenues. Rental and ancillary services revenue increased primarily due to higher transient rental room revenue, primarily due to the June 2018 acquisition of an operating hotel and higher club inventory rentals at our developed and fee-for-service properties. Resort operations and club management segment Adjusted EBITDA increased by $14 million for the nine months ended September 30, 2019, compared to the same period in 2018, primarily due to the increases in revenues associated with the segment, partially offset by an increase of $13 million in segment expenses primarily due to the June 2018 acquisition of an operating hotel.
Refer to “— Resort and Club Management” and “—Rental and Ancillary Services” for further discussion on the revenues and expenses of the resort operations and club management segment.
39
Real Estate Sales and Financing Segment
Real Estate
|
|
Three Months Ended September 30, |
|
|
Variance |
|
|
Nine Months Ended September 30, |
|
|
Variance |
|
||||||||||||||||||||
($ in millions, except Tour flow and VPG) |
|
2019 |
|
|
2018 |
|
|
$ |
|
|
% |
|
|
2019 |
|
|
2018 |
|
|
$ |
|
|
% |
|
||||||||
Sales of VOIs, net |
|
$ |
138 |
|
|
$ |
99 |
|
|
$ |
39 |
|
|
|
39.4 |
% |
|
$ |
383 |
|
|
$ |
427 |
|
|
$ |
(44 |
) |
|
|
(10.3 |
)% |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee-for-service sales(2) |
|
|
194 |
|
|
|
211 |
|
|
|
(17 |
) |
|
|
(8.1 |
) |
|
|
569 |
|
|
|
574 |
|
|
|
(5 |
) |
|
|
(0.9 |
) |
Provision for financing receivables losses |
|
|
22 |
|
|
|
20 |
|
|
|
2 |
|
|
|
10.0 |
|
|
|
60 |
|
|
|
50 |
|
|
|
10 |
|
|
|
20.0 |
|
Reportability and other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferral (recognition) of sales of VOIs under construction(3) |
|
|
15 |
|
|
|
45 |
|
|
|
(30 |
) |
|
NM(1) |
|
|
|
49 |
|
|
|
20 |
|
|
|
29 |
|
|
NM(1) |
|
||
Fee-for-service sales upgrades, net |
|
|
(15 |
) |
|
|
(21 |
) |
|
|
6 |
|
|
NM(1) |
|
|
|
(39 |
) |
|
|
(40 |
) |
|
|
1 |
|
|
NM(1) |
|
||
Other(4) |
|
|
6 |
|
|
|
10 |
|
|
|
(4 |
) |
|
NM(1) |
|
|
|
23 |
|
|
|
19 |
|
|
|
4 |
|
|
NM(1) |
|
||
Contract sales |
|
$ |
360 |
|
|
$ |
364 |
|
|
$ |
(4 |
) |
|
|
(1.1 |
) |
|
$ |
1,045 |
|
|
$ |
1,050 |
|
|
$ |
(5 |
) |
|
|
(0.5 |
) |
Tour flow |
|
|
102,911 |
|
|
|
94,816 |
|
|
|
8,095 |
|
|
|
8.5 |
|
|
|
287,267 |
|
|
|
266,785 |
|
|
|
20,482 |
|
|
|
7.7 |
|
VPG |
|
$ |
3,363 |
|
|
$ |
3,648 |
|
|
$ |
(285 |
) |
|
|
(7.8 |
) |
|
$ |
3,464 |
|
|
$ |
3,732 |
|
|
$ |
(268 |
) |
|
|
(7.2 |
) |
(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 slightly for the three months ended September 30, 2019, compared to the same period in 2018, primarily due to lower VPG from both a 30-basis point decline in close rate and 5.8 percent average transaction price reduction, partially offset by an 8.5 percent growth in tour flow. Contract sales decreased for the nine months ended September 30, 2019, compared to the same period in 2018, primarily due to lower VPG from both a 60-basis point decline in close rate and a 3.4 percent average transaction price reduction, partially offset by a 7.7 percent improvement in tour flow.
|
|
Three Months Ended September 30, |
|
|
Variance |
|
|
Nine Months Ended September 30, |
|
|
Variance |
|
||||||||||||||||||||
($ in millions) |
|
2019 |
|
|
2018 |
|
|
$ |
|
|
% |
|
|
2019 |
|
|
2018 |
|
|
$ |
|
|
% |
|
||||||||
Sales, marketing, brand and other fees |
|
$ |
143 |
|
|
$ |
152 |
|
|
$ |
(9 |
) |
|
|
(5.9 |
)% |
|
$ |
429 |
|
|
$ |
423 |
|
|
$ |
6 |
|
|
|
1.4 |
% |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing revenue and other fees |
|
|
34 |
|
|
|
31 |
|
|
|
3 |
|
|
|
9.7 |
|
|
|
102 |
|
|
|
91 |
|
|
|
11 |
|
|
|
12.1 |
|
Commissions and brand fees |
|
|
109 |
|
|
|
121 |
|
|
|
(12 |
) |
|
|
(9.9 |
) |
|
|
327 |
|
|
|
332 |
|
|
|
(5 |
) |
|
|
(1.5 |
) |
Sales of VOIs, net |
|
|
138 |
|
|
|
99 |
|
|
|
39 |
|
|
|
39.4 |
|
|
|
383 |
|
|
|
427 |
|
|
|
(44 |
) |
|
|
(10.3 |
) |
Sales revenue |
|
|
247 |
|
|
|
220 |
|
|
|
27 |
|
|
|
12.3 |
|
|
|
710 |
|
|
|
759 |
|
|
|
(49 |
) |
|
|
(6.5 |
) |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of VOI sales |
|
|
24 |
|
|
|
29 |
|
|
|
(5 |
) |
|
|
(17.2 |
) |
|
|
92 |
|
|
|
109 |
|
|
|
(17 |
) |
|
|
(15.6 |
) |
Sales and marketing expense, net(1) |
|
|
145 |
|
|
|
135 |
|
|
|
10 |
|
|
|
7.4 |
|
|
|
415 |
|
|
|
413 |
|
|
|
2 |
|
|
|
0.5 |
|
Real estate margin |
|
$ |
78 |
|
|
$ |
56 |
|
|
$ |
22 |
|
|
|
39.3 |
|
|
$ |
203 |
|
|
$ |
237 |
|
|
$ |
(34 |
) |
|
|
(14.3 |
) |
Real estate margin percentage |
|
|
31.6 |
% |
|
|
25.5 |
% |
|
|
|
|
|
|
|
|
|
|
28.6 |
% |
|
|
31.2 |
% |
|
|
|
|
|
|
|
|
(1) |
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. |
40
Sales revenue increased for the three months ended September 30, 2019, compared to the same period in 2018, primarily due to $30 million lower deferrals of revenue from VOI sales for properties under construction, partially offset by lower fee-for-service sales and upgrade activity resulting in a $12 million decrease in commission and brand fees driven by a shift in inventory mix. The increase in real estate margin and margin percentage for the three months ended September 30, 2019, compared to 2018, was primarily due to the decrease of net construction deferrals which drove the expansion of margin percentage, partially offset by an increase in sales and marketing expense driven primarily by the increase in tours with lower conversion rates and VPGs.
Sales revenue decreased for the nine months ended September 30, 2019, compared to the same period in 2018, primarily due to $29 million higher net deferrals of revenue from VOI sales for properties under construction and a $10 million increase in the provision for financing receivable losses driven by a marginal increase in default rates and higher loan volume. The decrease in sales revenue was partially offset by an $11 million increase in marketing revenue and other fees mainly associated with higher vacation package sales. The decrease in real estate margin and margin percentage for the nine months ended September 30, 2019, compared to the same period in 2018, was primarily due to the increase of net construction deferrals which drove the contraction of margin percentage, partially offset by an increase in sales and marketing expense, net driven primarily by the increase in tours with lower conversion rates and VPGs.
Financing
|
|
Three Months Ended September 30, |
|
|
Variance |
|
|
Nine Months Ended September 30, |
|
|
Variance |
|
||||||||||||||||||||
($ in millions) |
|
2019 |
|
|
2018 |
|
|
$ |
|
|
% |
|
|
2019 |
|
|
2018 |
|
|
$ |
|
|
% |
|
||||||||
Interest income |
|
$ |
37 |
|
|
$ |
35 |
|
|
$ |
2 |
|
|
|
5.7 |
% |
|
$ |
109 |
|
|
$ |
103 |
|
|
$ |
6 |
|
|
|
5.8 |
% |
Other financing revenue |
|
|
6 |
|
|
|
5 |
|
|
|
1 |
|
|
|
20.0 |
|
|
|
18 |
|
|
|
14 |
|
|
|
4 |
|
|
|
28.6 |
|
Financing revenue |
|
|
43 |
|
|
|
40 |
|
|
|
3 |
|
|
|
7.5 |
|
|
|
127 |
|
|
|
117 |
|
|
|
10 |
|
|
|
8.5 |
|
Consumer financing interest expense |
|
|
8 |
|
|
|
6 |
|
|
|
2 |
|
|
|
33.3 |
|
|
|
22 |
|
|
|
16 |
|
|
|
6 |
|
|
|
37.5 |
|
Other financing expense |
|
|
6 |
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
17 |
|
|
|
19 |
|
|
|
(2 |
) |
|
|
(10.5 |
) |
Financing expense |
|
|
14 |
|
|
|
12 |
|
|
|
2 |
|
|
|
16.7 |
|
|
|
39 |
|
|
|
35 |
|
|
|
4 |
|
|
|
11.4 |
|
Financing margin |
|
$ |
29 |
|
|
$ |
28 |
|
|
$ |
1 |
|
|
|
3.6 |
|
|
$ |
88 |
|
|
$ |
82 |
|
|
$ |
6 |
|
|
|
7.3 |
|
Financing margin percentage |
|
|
67.4 |
% |
|
|
70.0 |
% |
|
|
|
|
|
|
|
|
|
|
69.3 |
% |
|
|
70.1 |
% |
|
|
|
|
|
|
|
|
Financing revenue increased by $3 million and $10 million for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018, due to higher interest income resulting from an increase in the weighted average interest rate we receive on our timeshare financing receivables balance and an increase in other financing revenue related to growth in loan servicing revenues related to our third-party loan portfolios. Financing margin increased for the three and nine months ended September 30, 2019, compared to the same periods in 2018, due to an increase in interest income as well as loan servicing revenue. Financing margin percentage decreased for the three months ended September 30, 2019, primarily due to an increase in interest expense as a result of an increase in our average outstanding borrowings on our non-recourse debt compared to the same period in 2018.
Resort Operations and Club Management Segment
Resort and Club Management
|
|
Three Months Ended September 30, |
|
|
Variance |
|
|
Nine Months Ended September 30, |
|
|
Variance |
|
||||||||||||||||||||
($ in millions) |
|
2019 |
|
|
2018 |
|
|
$ |
|
|
% |
|
|
2019 |
|
|
2018 |
|
|
$ |
|
|
% |
|
||||||||
Club management revenue |
|
$ |
28 |
|
|
$ |
25 |
|
|
$ |
3 |
|
|
|
12.0 |
% |
|
$ |
80 |
|
|
$ |
71 |
|
|
$ |
9 |
|
|
|
12.7 |
% |
Resort management revenue |
|
|
17 |
|
|
|
15 |
|
|
|
2 |
|
|
|
13.3 |
|
|
|
50 |
|
|
|
45 |
|
|
|
5 |
|
|
|
11.1 |
|
Resort and club management revenues |
|
|
45 |
|
|
|
40 |
|
|
|
5 |
|
|
|
12.5 |
|
|
|
130 |
|
|
|
116 |
|
|
|
14 |
|
|
|
12.1 |
|
Club management expense |
|
|
6 |
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
20 |
|
|
|
19 |
|
|
|
1 |
|
|
|
5.3 |
|
Resort management expense |
|
|
5 |
|
|
|
5 |
|
|
|
— |
|
|
|
— |
|
|
|
14 |
|
|
|
14 |
|
|
|
— |
|
|
|
— |
|
Resort and club management expenses |
|
|
11 |
|
|
|
11 |
|
|
|
— |
|
|
|
— |
|
|
|
34 |
|
|
|
33 |
|
|
|
1 |
|
|
|
3.0 |
|
Resort and club management margin |
|
$ |
34 |
|
|
$ |
29 |
|
|
$ |
5 |
|
|
|
17.2 |
|
|
$ |
96 |
|
|
$ |
83 |
|
|
$ |
13 |
|
|
|
15.7 |
|
Resort and club management margin percentage |
|
|
75.6 |
% |
|
|
72.5 |
% |
|
|
|
|
|
|
|
|
|
|
73.8 |
% |
|
|
71.6 |
% |
|
|
|
|
|
|
|
|
41
Resort and club management revenues increased for the three and nine months ended September 30, 2019, compared to the same periods in 2018, primarily due to (i) an increase of approximately 17,000 Club members and higher rates pertaining to annual dues and transaction fees and (ii) an increase in resort management revenue from the launch of new properties subsequent to the third quarter of 2018. Resort and club management margin and margin percentage increased for the three and nine months ended September 30, 2019, compared to the same periods in 2018, primarily due to increases in segment revenues.
Rental and Ancillary Services
|
|
Three Months Ended September 30, |
|
|
Variance |
|
|
Nine Months Ended September 30, |
|
|
Variance |
|
||||||||||||||||||||
($ in millions) |
|
2019 |
|
|
2018 |
|
|
$ |
|
|
% |
|
|
2019 |
|
|
2018 |
|
|
$ |
|
|
% |
|
||||||||
Rental revenues |
|
$ |
48 |
|
|
$ |
53 |
|
|
$ |
(5 |
) |
|
|
(9.4 |
)% |
|
$ |
153 |
|
|
$ |
144 |
|
|
$ |
9 |
|
|
|
6.3 |
% |
Ancillary services revenues |
|
|
6 |
|
|
|
7 |
|
|
|
(1 |
) |
|
|
(14.3 |
) |
|
|
20 |
|
|
|
20 |
|
|
|
— |
|
|
|
— |
|
Rental and ancillary services revenues |
|
|
54 |
|
|
|
60 |
|
|
|
(6 |
) |
|
|
(10.0 |
) |
|
|
173 |
|
|
|
164 |
|
|
|
9 |
|
|
|
5.5 |
|
Rental expenses |
|
|
30 |
|
|
|
30 |
|
|
|
— |
|
|
|
— |
|
|
|
89 |
|
|
|
78 |
|
|
|
11 |
|
|
|
14.1 |
|
Ancillary services expense |
|
|
6 |
|
|
|
7 |
|
|
|
(1 |
) |
|
|
(14.3 |
) |
|
|
19 |
|
|
|
17 |
|
|
|
2 |
|
|
|
11.8 |
|
Rental and ancillary services expenses |
|
|
36 |
|
|
|
37 |
|
|
|
(1 |
) |
|
|
(2.7 |
) |
|
|
108 |
|
|
|
95 |
|
|
|
13 |
|
|
|
13.7 |
|
Rental and ancillary services margin |
|
$ |
18 |
|
|
$ |
23 |
|
|
$ |
(5 |
) |
|
|
(21.7 |
) |
|
$ |
65 |
|
|
$ |
69 |
|
|
$ |
(4 |
) |
|
|
(5.8 |
) |
Rental and ancillary services margin percentage |
|
|
33.3 |
% |
|
|
38.3 |
% |
|
|
|
|
|
|
|
|
|
|
37.6 |
% |
|
|
42.1 |
% |
|
|
|
|
|
|
|
|
Rental and ancillary services revenues and expenses decreased by $6 million and $1 million for the three months ended September 30, 2019, compared to the same period in 2018. The decrease in revenues and expenses is primarily due to a decrease in transient guests related to an operating hotel acquired in June 2018 that is currently undergoing a conversion to timeshare inventory. In addition, we had lower club inventory rentals at our developed and fee-for-service properties. Rental and ancillary services revenues and expenses increased by $9 million and $13 million for the nine months ended September 30, 2019, compared to the same period in 2018 primarily due to the acquisition of an operating hotel in June 2018. Rental and ancillary services margin percentage decreased for the three and nine months ended September 30, 2019, compared to the same periods in 2018 primarily due to changes in segment revenues and expenses discussed above.
Other Operating Expenses
|
|
Three Months Ended September 30, |
|
|
Variance |
|
|
Nine Months Ended September 30, |
|
|
Variance |
|
||||||||||||||||||||
($ in millions) |
|
2019 |
|
|
2018 |
|
|
$ |
|
|
% |
|
|
2019 |
|
|
2018 |
|
|
$ |
|
|
% |
|
||||||||
General and administrative |
|
$ |
28 |
|
|
$ |
31 |
|
|
$ |
(3 |
) |
|
|
(9.7 |
)% |
|
$ |
82 |
|
|
$ |
84 |
|
|
$ |
(2 |
) |
|
|
(2.4 |
)% |
Depreciation and amortization |
|
|
14 |
|
|
|
9 |
|
|
|
5 |
|
|
|
55.6 |
|
|
|
37 |
|
|
|
25 |
|
|
|
12 |
|
|
|
48.0 |
|
License fee expense |
|
|
26 |
|
|
|
25 |
|
|
|
1 |
|
|
|
4.0 |
|
|
|
75 |
|
|
|
73 |
|
|
|
2 |
|
|
|
2.7 |
|
The change in other operating expenses for the three and nine months ended September 30, 2019, compared to the same periods in 2018, is primarily due to higher depreciation and amortization expense as a result of additional software placed into service primarily related to the Oracle cloud-based information system implementation during the second half of 2018 as well as additional depreciation of unregistered operating assets held for future conversion to timeshare inventory and leasehold improvements at newly renovated sales centers.
42
Non-Operating Expenses
|
|
Three Months Ended September 30, |
|
|
Variance |
|
|
Nine Months Ended September 30, |
|
|
Variance |
|
||||||||||||||||||||
($ in millions) |
|
2019 |
|
|
2018 |
|
|
$ |
|
|
% |
|
|
2019 |
|
|
2018 |
|
|
$ |
|
|
% |
|
||||||||
Interest expense |
|
$ |
12 |
|
|
$ |
7 |
|
|
$ |
5 |
|
|
|
71.4 |
% |
|
$ |
33 |
|
|
$ |
22 |
|
|
$ |
11 |
|
|
|
50.0 |
% |
Equity in earnings from unconsolidated affiliates |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
(4 |
) |
|
|
— |
|
|
|
(4 |
) |
|
NM(1) |
|
|
Other loss, net |
|
|
1 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
3 |
|
|
|
1 |
|
|
|
2 |
|
|
NM(1) |
|
|
Income tax expense |
|
|
20 |
|
|
|
15 |
|
|
|
5 |
|
|
|
33.3 |
|
|
|
55 |
|
|
|
64 |
|
|
|
(9 |
) |
|
|
(14.1 |
) |
(1) |
Fluctuation in terms of percentage change is not meaningful |
The change in non-operating expenses for the three and nine months ended September 30, 2019, compared to the same periods in 2018, is primarily due to (i) an increase in interest expense due to higher average outstanding balance on our senior secured credit facilities and (ii) changes in income tax expense primarily driven by pre-tax income.
Liquidity and Capital Resources
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 by 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.
|
• |
As of September 30, 2019, we had total cash and cash equivalents of $211 million, including $98 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. |
|
• |
As of September 30, 2019, we have $494 million remaining borrowing capacity under the revolver facility (“Revolver”) which includes $29 million of undrawn borrowing capacity available for letters of credit and $10 million available under short-term borrowings. In addition, we have $450 million remaining borrowing capacity under our Timeshare Facility. See Note 11: Debt and Non-Recourse Debt for additional information. |
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 $230 million as of September 30, 2019 which primarily consist of escrow and construction related bonds.
We believe these sources of capital will be adequate to meet our short- and long-term liquidity requirements for operating expenses and other expenditures, including payroll and related benefits, legal costs, and to finance our long-term growth plan and capital expenditures for the foreseeable future.
We believe that our capital allocation strategy provides adequate funding for our operations, is flexible enough to fund our development pipeline, securitizes the optimal level of receivables at metrics setting the benchmark for the industry, and provides the ability to be strategically opportunistic in the marketplace, while providing returns to our shareholders. 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 30, 2019, our inventory-related purchase commitment was $480 million over eleven years, none of which are expected to be purchased for the remainder of 2019.
43
Sources and Uses of Our Cash
The following table summarizes our net cash flows and key metrics related to our liquidity:
|
|
Nine Months Ended September 30, |
|
|
Variance |
|
||||||
($ in millions) |
|
2019 |
|
|
2018 |
|
|
$ |
|
|||
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
148 |
|
|
$ |
(205 |
) |
|
$ |
353 |
|
Investing activities |
|
|
(46 |
) |
|
|
(35 |
) |
|
|
(11 |
) |
Financing activities |
|
|
(71 |
) |
|
|
155 |
|
|
|
(226 |
) |
(1) |
Fluctuation in terms of percentage change is not meaningful. |
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 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 (used in) operating activities for the nine months ended September 30, 2019, compared to the same period in 2018 was primarily due to (i) a reduction in the purchase and development of real estate for future conversion to inventory; (ii) a reduction in inventory deposits; and (iii) a federal tax payment of $63 million made in January of 2018 which was deferred from 2017.
The following table exhibits our VOI inventory spending:
|
|
Nine Months Ended September 30, |
|
|||||
($ in millions) |
|
2019 |
|
|
2018 |
|
||
VOI spending - owned properties |
|
$ |
61 |
|
|
$ |
77 |
|
VOI spending - fee-for-service upgrades(1) |
|
|
36 |
|
|
|
35 |
|
Purchases and development of real estate for future conversion to inventory |
|
|
107 |
|
|
|
299 |
|
Inventory deposits |
|
|
— |
|
|
|
43 |
|
Total VOI inventory spending |
|
$ |
204 |
|
|
$ |
454 |
|
(1) |
Includes expense related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects from developed projects of $24 million and $23 million recorded in Costs of VOI sales for the nine months ended September 30, 2019 and 2018, respectively. |
Investing Activities
The following table summarizes our net cash used in investing activities:
|
|
Nine Months Ended September 30, |
|
|
Variance |
|
||||||
($ in millions) |
|
2019 |
|
|
2018 |
|
|
$ |
|
|||
Capital expenditures for property and equipment |
|
$ |
(25 |
) |
|
$ |
(29 |
) |
|
$ |
4 |
|
Software capitalization costs |
|
|
(19 |
) |
|
|
(12 |
) |
|
|
(7 |
) |
Return of investment from unconsolidated affiliates |
|
|
— |
|
|
|
11 |
|
|
|
(11 |
) |
Investments in unconsolidated affiliates |
|
|
(2 |
) |
|
|
(5 |
) |
|
|
3 |
|
Net cash used in investing activities |
|
$ |
(46 |
) |
|
$ |
(35 |
) |
|
$ |
(11 |
) |
44
The change in net cash used in investing activities for the nine months ended September 30, 2019, compared to the same period in 2018, was primarily due to an $11 million return of investment from our 25 percent interest in BRE Ace LLC as a result of a distribution received in 2018, a $7 million increase in software capitalization costs, offset by lower property and equipment spending.
Our capital expenditures include spending related to technology, buildings and leasehold improvements used to support sales and marketing locations, resort operations and corporate activities. We believe the renovations of our existing assets are necessary to stay competitive in the markets in which we operate.
Financing Activities
The following table summarizes our net cash provided by financing activities:
|
|
Nine Months Ended September 30, |
|
|
Variance |
|
||||||
($ in millions) |
|
2019 |
|
|
2018 |
|
|
$ |
|
|||
Issuance of debt |
|
$ |
455 |
|
|
$ |
215 |
|
|
$ |
240 |
|
Issuance of non-recourse debt |
|
|
365 |
|
|
|
663 |
|
|
|
(298 |
) |
Repayment of debt |
|
|
(272 |
) |
|
|
(168 |
) |
|
|
(104 |
) |
Repayment of non-recourse debt |
|
|
(327 |
) |
|
|
(436 |
) |
|
|
109 |
|
Debt issuance costs |
|
|
(6 |
) |
|
|
(6 |
) |
|
|
— |
|
Repurchase and retirement of common stock |
|
|
(283 |
) |
|
|
(112 |
) |
|
|
(171 |
) |
Payment of withholding taxes on vesting of restricted stock units |
|
|
(3 |
) |
|
|
(4 |
) |
|
|
1 |
|
Proceeds from employee stock plan purchases |
|
|
2 |
|
|
|
— |
|
|
|
2 |
|
Capital contribution |
|
|
— |
|
|
|
3 |
|
|
|
(3 |
) |
Other financing activity |
|
|
(2 |
) |
|
|
— |
|
|
|
(2 |
) |
Net cash (used in) provided by financing activities |
|
$ |
(71 |
) |
|
$ |
155 |
|
|
$ |
(226 |
) |
(1) |
Fluctuation in terms of percentage change is not meaningful. |
The change in net cash flows (used in) provided by financing activities for the nine months ended September 30, 2019 was primarily due to additional repurchases and retirements of common stock compared to the same period in 2018, partially offset by incremental net debt and non-recourse debt activity.
Contractual Obligations
The following table summarizes our significant contractual obligations as of September 30, 2019:
|
|
Payments Due by Period |
|
|||||||||||||||||
($ in millions) |
|
Total |
|
|
Less Than 1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
More Than 5 Years |
|
|||||
Debt |
|
$ |
822 |
|
|
$ |
12 |
|
|
$ |
22 |
|
|
$ |
465 |
|
|
$ |
323 |
|
Non-recourse debt |
|
|
804 |
|
|
|
246 |
|
|
|
293 |
|
|
|
169 |
|
|
|
96 |
|
Interest on debt(1) |
|
|
251 |
|
|
|
59 |
|
|
|
100 |
|
|
|
72 |
|
|
|
20 |
|
Operating leases |
|
|
92 |
|
|
|
17 |
|
|
|
29 |
|
|
|
22 |
|
|
|
24 |
|
Inventory purchase commitments |
|
|
480 |
|
|
|
90 |
|
|
|
277 |
|
|
|
98 |
|
|
|
15 |
|
Other commitments(2) |
|
|
32 |
|
|
18 |
|
|
14 |
|
|
|
— |
|
|
|
— |
|
||
Total contractual obligations |
|
$ |
2,481 |
|
|
$ |
442 |
|
|
$ |
735 |
|
|
$ |
826 |
|
|
$ |
478 |
|
(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 2.016 percent as of September 30, 2019. |
(2) |
Primarily relates commitments related to information technology and brand licensing under the normal course of business. |
45
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements as of September 30, 2019 consisted of $480 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 the Hilton Grand Vacations brand and $32 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.
Subsequent Events
Management has evaluated all subsequent events through October 31, 2019, the date the unaudited consolidated financial statements were available to be issued. The results of management’s analysis indicated no significant subsequent events have occurred that required consideration as adjustments to our disclosures in the unaudited consolidated financial statements.
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 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, 2018.
46
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, 2018.
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 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 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, cash flows and financial position. 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 30, 2019, for our financial instruments that are materially affected by interest rate risk:
|
|
|
|
|
|
Maturities by Period |
|
|||||||||||||||||||||||||||||
($ in millions) |
|
Weighted Average Interest Rate(1) |
|
|
2019 |
|
|
2020 |
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|
There- after |
|
|
Total(2) |
|
|
Fair Value |
|
|||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate securitized timeshare financing receivables |
|
|
12.078 |
% |
|
$ |
22 |
|
|
$ |
90 |
|
|
$ |
94 |
|
|
$ |
98 |
|
|
$ |
101 |
|
|
$ |
390 |
|
|
$ |
795 |
|
|
$ |
867 |
|
Fixed-rate unsecuritized timeshare financing receivables |
|
|
12.964 |
% |
|
|
22 |
|
|
|
49 |
|
|
|
50 |
|
|
|
49 |
|
|
|
50 |
|
|
|
303 |
|
|
|
523 |
|
|
|
557 |
|
Liabilities:(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate debt |
|
|
3.840 |
% |
|
|
52 |
|
|
|
249 |
|
|
|
156 |
|
|
|
110 |
|
|
|
108 |
|
|
|
456 |
|
|
|
1,131 |
|
|
|
1,144 |
|
Variable-rate debt(4) |
|
|
3.766 |
% |
|
|
2 |
|
|
|
10 |
|
|
|
10 |
|
|
|
10 |
|
|
|
463 |
|
|
|
— |
|
|
|
495 |
|
|
|
500 |
|
(1) |
Weighted-average interest rate as of September 30, 2019. |
(2) |
Amount excludes unamortized deferred financing costs. |
(3) |
Includes debt and non-recourse debt. |
(4) |
Variable-rate debt includes principal debt outstanding as of September 30, 2019. There were no outstanding borrowings as of September 30, 2019 on our non-recourse debt. 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, the value of which could change materially in reference to our reporting currency, the U.S. dollar. A 10 percent increase in the foreign exchange rate of Japanese yen to U.S. dollar would increase our gross timeshare financing receivables by less than $1 million.
47
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.
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 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
48
PART II OTHER INFORMATION
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 30, 2019 will not have a material effect on our unaudited condensed consolidated financial statements.
Item 1A. |
Risk Factors |
As of September 30, 2019, there have been no material changes from 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, 2018. These risk factors may be important to understanding statements in this Form 10-Q and 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.
The risks described in our Annual Report on Form 10-K for the year ended December 31, 2018 contain forward-looking statements, and they may not be the only risks facing the Company. The business, financial condition and operating results of the Company can be affected by the risk factors described in the foregoing reports and by other factors currently unknown or that management presently believes not to be material. Any one or more of such factors could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and the trading price of our common stock. Because of these factors affecting the Company’s 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.
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
(a) None.
(b) Not applicable.
(c) Issuer Repurchases. During the three months ended September 30, 2019, we repurchased the following shares:
|
|
Total Number of Shares Purchased |
|
|
Average Price Paid Per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
|
Appropriate Dollar Value of Shares that May Yet Be Purchased Under Plan |
|
||||
July 1 - July 31, 2019 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
57,121,193 |
|
August 1 - August 31, 2019 |
|
|
469,924 |
|
|
|
25.90 |
|
|
|
469,924 |
|
|
|
44,949,739 |
|
September 1 - September 30, 2019 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
44,949,739 |
|
Total |
|
|
469,924 |
|
|
$ |
25.90 |
|
|
|
469,924 |
|
|
$ |
44,949,739 |
|
Item 3. |
Defaults Upon Senior Securities |
None.
Item 4. |
Mine Safety Disclosures |
Not applicable.
Item 5. |
Other Information |
None.
49
Item 6.Exhibits
Exhibit No. |
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Description |
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3.1 |
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3.2 |
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10.1 |
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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101.INS |
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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. |
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101.SCH |
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XBRL Taxonomy Extension Schema Document. |
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101.CAL |
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XBRL Taxonomy Calculation Linkbase Document. |
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101.DEF |
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XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB |
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XBRL Taxonomy Label Linkbase Document. |
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101.PRE |
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XBRL Taxonomy Presentation Linkbase Document. |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* |
Filed herewith. |
50
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 31st day of October 2019.
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HILTON GRAND VACATIONS INC. |
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By: |
/s/ Mark D. Wang |
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Name: |
Mark D. Wang |
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Title: |
President and Chief Executive Officer |
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By: |
/s/ Daniel J. Mathewes |
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Name: |
Daniel J. Mathewes |
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Title: |
Executive Vice President and Chief Financial Officer |
51
Exhibit 10.1
Execution Version
AMENDMENT NO. 12 TO
RECEIVABLES LOAN AGREEMENT
This AMENDMENT NO. 12 TO RECEIVABLES LOAN AGREEMENT (this “Amendment”), effective as of September 19, 2019 (the “Effective Date”), is executed by and among HILTON GRAND VACATIONS TRUST I LLC, a Delaware limited liability company (together with its successors and assigns, the “Borrower”), HILTON RESORTS CORPORATION, a Delaware corporation (the “Seller”), the financial institutions signatory hereto as Managing Agents, the financial institutions signatory hereto as Conduit Lenders, the financial institutions signatory hereto as Committed Lenders, BANK OF AMERICA, N.A., as Administrative Agent (the “Administrative Agent”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, as Securities Intermediary and Paying Agent. Capitalized terms used, but not otherwise defined herein, shall have the meanings ascribed thereto in the “Receivables Loan Agreement” (defined below).
WITNESSETH:
WHEREAS, the Borrower, the Managing Agents party thereto, the Administrative Agent, Wells Fargo Bank, National Association, as Securities Intermediary and Paying Agent, the Conduit Lenders party thereto, and the Committed Lenders party thereto are parties to that certain Receivables Loan Agreement dated as of May 9, 2013 (as amended, restated, supplemented or otherwise modified from time to time, the “Receivables Loan Agreement”);
WHEREAS, as provided herein, the parties hereto have agreed to amend certain provisions of the Receivables Loan Agreement as further described below;
NOW, THEREFORE, in consideration of the premises and the mutual agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Amendment to the Receivables Loan Agreement. Effective as of the Effective Date, and subject to the satisfaction of the conditions precedent set forth in Section 2 hereof, the Receivables Loan Agreement is hereby amended as follows:
1.1Section 7.01(s) is hereby amended and restated in its entirety as follows:
“(s)for any Distribution Date:
|
(i) |
occurring in August 2019 or prior thereto, the Average Delinquency Ratio exceeds 3.50%; or |
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(ii) |
occurring in January 2020 or February 2020, the Average Delinquency Ratio exceeds 4.00%; or |
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(iii) |
occurring in March 2020 or thereafter, the Average Delinquency Ratio exceeds 3.50%; or |
DB1/ 107266975.4
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(v) |
the Average Default Ratio or the Securitized Portfolio Three Month Rolling Average Default Percentage exceeds 1.0%; or |
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(vi) |
occurring in September 2019, October 2019, November 2019, December 2019, January 2020 and February 2020, the Default Ratio exceeds 0.00%; or” |
SECTION 2. Conditions Precedent. This Amendment shall become effective on the Effective Date upon the satisfaction of the Administrative Agent having received counterparts of this Amendment executed by each of the parties hereto.
SECTION 3. Representations, Warranties and Confirmations. The Borrower hereby represents and warrants that:
3.1It has the power and is duly authorized, including by all limited liability company action on its part, to execute and deliver this Amendment.
3.2This Amendment has been duly and validly executed and delivered by it.
3.3This Amendment and the Receivables Loan Agreement as amended hereby, constitute legal, valid and binding obligations of the Borrower and are enforceable against the Borrower in accordance with their terms.
3.4Immediately prior, and after giving all effect, to this Amendment, the covenants, representations and warranties of the Borrower set forth in the Receivables Loan Agreement are true and correct in all material respects as of the date hereof (except to the extent such representations or warranties relate solely to an earlier date and then as of such date).
3.5Immediately prior, and after giving all effect, to this Amendment, no event, condition or circumstance has occurred and is continuing which constitutes a Servicer Termination Event, Unmatured Servicer Termination Event, Default or Event of Default.
SECTION 4. Delivery of Executed Amendment. The Borrower covenants and agrees that it will deliver an executed copy of this Amendment to the Servicer, the Paying Agent, the Backup Servicer and the Custodian promptly following the effectiveness hereof.
SECTION 5. Entire Agreement. The parties hereto hereby agree that this Amendment constitutes the entire agreement concerning the subject matter hereof and supersedes any and all written and/or oral prior agreements, negotiations, correspondence, understandings and communications.
SECTION 6. Effectiveness of Amendment. Except as expressly amended by the terms of this Amendment, all terms and conditions of the Receivables Loan Agreement and the other Facility Documents, as applicable, shall remain in full force and effect and are hereby ratified and confirmed. This Amendment shall not operate as a consent, waiver, amendment or other
DB1/ 107266975.4 |
2 |
|
modification of any other term or condition set forth in the Receivables Loan Agreement and the other Facility Documents or any right, power or remedy of the Administrative Agent or any Managing Agent or Lender under the Receivables Loan Agreement and the other Facility Documents, except as expressly modified hereby. Upon the effectiveness of this Amendment, each reference in the Receivables Loan Agreement to “this Agreement” or “this Receivables Loan Agreement” or words of like import shall mean and be references to the Receivables Loan Agreement as amended hereby, and each reference in any other Facility Document to the Receivables Loan Agreement or to any terms defined in the Receivables Loan Agreement which are modified hereby shall mean and be references to the Receivables Loan Agreement or to such terms as modified hereby.
SECTION 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 8. Binding Effect. This Amendment shall be binding upon and shall be enforceable by parties hereto and their respective successors and permitted assigns.
SECTION 9. Headings. The Section headings herein are for convenience only and will not affect the construction hereof.
SECTION 10. Novation. This Amendment does not constitute a novation or termination of the Receivables Loan Agreement or any Facility Document and all obligations thereunder are in all respects continuing with only the terms thereof being modified as provided herein.
SECTION 11. Counterparts. This Amendment may be executed in any number of counterparts, each of which so executed will be deemed to be an original, but all such counterparts will together constitute but one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by facsimile or by electronic mail in a “.pdf” file shall be effective as delivery of a manually executed counterpart of this Amendment.
SECTION 12. Fees, Costs and Expenses. The Borrower agrees to pay on demand all reasonable fees and out-of-pocket expenses of Morgan, Lewis & Bockius LLP, counsel for the Administrative Agent, incurred in connection with the preparation, execution and delivery of this Amendment and the other instruments and documents to be delivered in connection herewith.
[Signature Pages Follow]
DB1/ 107266975.4 |
3 |
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective authorized officers as of the date first above written.
HILTON GRAND VACATIONS TRUST I LLC, |
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as Borrower |
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By: |
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/s/ Charles R. Corbin |
Name: |
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Charles R. Corbin |
Title: |
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Executive Vice President, Chief Legal Officer, Chief Development Officer and Secretary |
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HILTON RESORTS CORPORATION, |
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as Seller |
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By: |
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/s/ Daniel J. Mathewes |
Name: |
|
Daniel J. Mathewes |
Title: |
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Executive Vice President and Chief Financial Officer |
[Signature Page to Amendment No. 12 to Receivables Loan Agreement]
BANK OF AMERICA, N.A. |
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as Administrative Agent |
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By: |
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/s/ Carl W. Anderson |
Name: |
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Carl W. Anderson |
Title: |
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Managing Director |
BANK OF AMERICA, N.A. |
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as a Committed Lender and a Managing Agent |
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By: |
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/s/ Carl W. Anderson |
Name: |
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Carl W. Anderson |
Title: |
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Managing Director |
[Signature Page to Amendment No. 12 to Receivables Loan Agreement]
DEUTSCHE BANK AG, NEW YORK BRANCH |
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as a Committed Lender and a Managing Agent |
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By: |
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/s/ Robert Sannicandro |
Name: |
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Robert Sannicandro |
Title: |
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Managing Director |
By: |
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/s/ Kai Ang |
Name: |
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Kai Ang |
Title: |
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Director |
[Signature Page to Amendment No. 12 to Receivables Loan Agreement]
BARCLAYS BANK PLC. |
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as a Committed Lender and a Managing Agent |
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By: |
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/s/ Chin-Yong Choe |
Name: |
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Chin-Yong Cho |
Title: |
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Director |
SHEFFIELD RECEIVABLES COMPANY LLC, |
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as a Conduit Lender |
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By: |
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Barclays Bank PLC, |
|
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as attorney-in-fact |
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By: |
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/s/ Chin-Yong Choe |
Name: |
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Chin-Yong Cho |
Title: |
|
Director |
[Signature Page to Amendment No. 12 to Receivables Loan Agreement]
WELLS FARGO BANK, NATIONAL ASSOCIATION, |
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as a Committed Lender and a Managing Agent |
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By: |
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/s/ Leigh Poltrack |
Name: |
|
Leigh Poltrack |
Title: |
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Vice President |
[Signature Page to Amendment No. 12 to Receivables Loan Agreement]
SUNTRUST BANK, |
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as a Committed Lender and a Managing Agent |
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By: |
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/s/ LLeana I. Chu |
Name: |
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LLeana I. Chu |
Title: |
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Senior Vice President |
[Signature Page to Amendment No. 12 to Receivables Loan Agreement]
GRAND VACATIONS SERVICES LLC, |
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as Servicer |
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By: |
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/s/ Mark Laurent |
Name: |
|
Mark Laurent |
Title: |
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Vice President |
[Signature Page to Amendment No. 12 to Receivables Loan Agreement]
WELLS FARGO BANK, NATIONAL ASSOCIATION |
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as Paying Agent and Securities Intermediary |
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By: |
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/s/ Jennifer C. Westberg |
Name: |
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Jennifer C. Westberg |
Title: |
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Vice President |
Acknowledged and Agreed:
WELLS FARGO BANK, NATIONAL ASSOCIATION |
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as Backup Servicer and Custodian |
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By: |
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/s/ Jennifer C. Westberg |
Name: |
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Jennifer C. Westberg |
Title: |
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Vice President |
[Signature Page to Amendment No. 12 to Receivables Loan Agreement]
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Mark D. Wang, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 of Hilton Grand Vacations Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
By: |
/s/ Mark D. Wang |
|
Mark D. Wang |
|
President and Chief Executive Officer (Principal Executive Officer) |
|
|
|
October 31, 2019 |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Daniel J. Mathewes, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 of Hilton Grand Vacations Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
By: |
/s/ Daniel J. Mathewes |
|
Daniel J. Mathewes |
|
Executive Vice President and Chief Financial Officer |
|
(principal financial officer) |
|
|
|
October 31, 2019 |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Hilton Grand Vacations Inc. (the “Company”) for the quarter ended September 30, 2019 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark D. Wang, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
/s/ Mark D. Wang |
|
|
|
Mark D. Wang |
|
|
President and Chief Executive Officer (Principal Executive Officer) |
|
|
|
October 31, 2019 |
A signed original of this certification required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Hilton Grand Vacations Inc. (the “Company”) for the quarterly period ended September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel J. Mathewes, Executive Vice President and Chief Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, certify that:
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
By: |
|
/s/ Daniel J. Mathewes |
|
|
Daniel J. Mathewes |
|
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
|
|
|
October 31, 2019 |
A signed original of this certification required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.