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, 2020
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 23, 2020 was 85,106,483.
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 |
26 |
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Item 3. |
45 |
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Item 4. |
46 |
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Item 1. |
47 |
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Item 1A. |
47 |
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Item 2. |
50 |
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Item 3. |
50 |
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Item 4. |
50 |
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Item 5. |
50 |
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Item 6. |
51 |
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53 |
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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, |
|
||
|
|
|
2020 |
|
|
2019 |
|
||
|
|
|
(unaudited) |
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
625 |
|
|
$ |
67 |
|
|
Restricted cash |
|
|
92 |
|
|
|
85 |
|
|
Accounts receivable, net of allowance for credit losses of $18 and $21 |
|
|
109 |
|
|
|
174 |
|
|
Timeshare financing receivables, net |
|
|
1,012 |
|
|
|
1,156 |
|
|
Inventory |
|
|
933 |
|
|
|
558 |
|
|
Property and equipment, net |
|
|
488 |
|
|
|
778 |
|
|
Operating lease right-of-use assets, net |
|
|
55 |
|
|
|
60 |
|
|
Investments in unconsolidated affiliates |
|
|
49 |
|
|
|
44 |
|
|
Intangible assets, net |
|
|
80 |
|
|
|
77 |
|
|
Other assets |
|
|
101 |
|
|
|
80 |
|
|
TOTAL ASSETS (variable interest entities - $866 and $748) |
|
$ |
3,544 |
|
|
$ |
3,079 |
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other |
|
$ |
264 |
|
|
$ |
298 |
|
|
Advanced deposits |
|
|
119 |
|
|
|
115 |
|
|
Debt, net |
|
|
1,262 |
|
|
|
828 |
|
|
Non-recourse debt, net |
|
|
837 |
|
|
|
747 |
|
|
Operating lease liabilities |
|
|
70 |
|
|
|
76 |
|
|
Deferred revenues |
|
|
261 |
|
|
|
186 |
|
|
Deferred income tax liabilities |
|
|
209 |
|
|
|
259 |
|
|
Total liabilities (variable interest entities - $842 and $750) |
|
|
3,022 |
|
|
|
2,509 |
|
|
Commitments and contingencies - see Note 19 |
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 300,000,000 authorized shares, none issued or outstanding as of September 30, 2020 and December 31, 2019 |
|
|
— |
|
|
|
— |
|
|
Common stock, $0.01 par value; 3,000,000,000 authorized shares, 85,086,548 shares issued and outstanding as of September 30, 2020 and 85,535,501 shares issued and outstanding as of December 31, 2019 |
|
|
1 |
|
|
|
1 |
|
|
Additional paid-in capital |
|
|
186 |
|
|
|
179 |
|
|
Accumulated retained earnings |
|
|
335 |
|
|
|
390 |
|
|
Total equity |
|
|
522 |
|
|
|
570 |
|
|
TOTAL LIABILITIES AND EQUITY |
|
$ |
3,544 |
|
|
$ |
3,079 |
|
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, |
|
||||||||||
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2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of VOIs, net |
|
$ |
24 |
|
|
$ |
138 |
|
|
$ |
80 |
|
|
$ |
383 |
|
|
Sales, marketing, brand and other fees |
|
|
52 |
|
|
|
143 |
|
|
|
171 |
|
|
|
429 |
|
|
Financing |
|
|
40 |
|
|
|
43 |
|
|
|
127 |
|
|
|
127 |
|
|
Resort and club management |
|
|
39 |
|
|
|
45 |
|
|
|
122 |
|
|
|
130 |
|
|
Rental and ancillary services |
|
|
20 |
|
|
|
54 |
|
|
|
77 |
|
|
|
173 |
|
|
Cost reimbursements |
|
|
33 |
|
|
|
43 |
|
|
|
105 |
|
|
|
128 |
|
|
Total revenues |
|
|
208 |
|
|
|
466 |
|
|
|
682 |
|
|
|
1,370 |
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of VOI sales |
|
|
8 |
|
|
|
24 |
|
|
|
21 |
|
|
|
92 |
|
|
Sales and marketing |
|
|
79 |
|
|
|
188 |
|
|
|
297 |
|
|
|
544 |
|
|
Financing |
|
|
13 |
|
|
|
14 |
|
|
|
39 |
|
|
|
39 |
|
|
Resort and club management |
|
|
9 |
|
|
|
11 |
|
|
|
27 |
|
|
|
34 |
|
|
Rental and ancillary services |
|
|
24 |
|
|
|
36 |
|
|
|
85 |
|
|
|
108 |
|
|
General and administrative |
|
|
22 |
|
|
|
30 |
|
|
|
65 |
|
|
|
87 |
|
|
Depreciation and amortization |
|
|
11 |
|
|
|
12 |
|
|
|
34 |
|
|
|
32 |
|
|
License fee expense |
|
|
11 |
|
|
|
26 |
|
|
|
39 |
|
|
|
75 |
|
|
Cost reimbursements |
|
|
33 |
|
|
|
43 |
|
|
|
105 |
|
|
|
128 |
|
|
Total operating expenses |
|
|
210 |
|
|
|
384 |
|
|
|
712 |
|
|
|
1,139 |
|
|
Interest expense |
|
|
(10 |
) |
|
|
(12 |
) |
|
|
(32 |
) |
|
|
(33 |
) |
|
Equity in (losses) earnings from unconsolidated affiliates |
|
|
(1 |
) |
|
|
1 |
|
|
|
3 |
|
|
|
4 |
|
|
Other gain (loss), net |
|
|
1 |
|
|
|
(1 |
) |
|
|
— |
|
|
|
(3 |
) |
|
(Loss) Income before income taxes |
|
|
(12 |
) |
|
|
70 |
|
|
|
(59 |
) |
|
|
199 |
|
|
Income tax benefit (expense) |
|
|
5 |
|
|
|
(20 |
) |
|
|
12 |
|
|
|
(55 |
) |
|
Net (loss) income |
|
$ |
(7 |
) |
|
$ |
50 |
|
|
$ |
(47 |
) |
|
$ |
144 |
|
|
(Loss) Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.08 |
) |
|
$ |
0.59 |
|
|
$ |
(0.55 |
) |
|
$ |
1.61 |
|
|
Diluted |
|
$ |
(0.08 |
) |
|
$ |
0.59 |
|
|
$ |
(0.55 |
) |
|
$ |
1.60 |
|
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, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
Operating Activities |
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(47 |
) |
|
$ |
144 |
|
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
34 |
|
|
|
32 |
|
|
Amortization of deferred financing costs, contract costs, and other |
|
|
13 |
|
|
|
12 |
|
|
Provision for financing receivables losses |
|
|
57 |
|
|
|
60 |
|
|
Other loss, net |
|
|
— |
|
|
|
3 |
|
|
Share-based compensation |
|
|
10 |
|
|
|
18 |
|
|
Deferred income tax benefit |
|
|
(50 |
) |
|
|
(21 |
) |
|
Equity in earnings from unconsolidated affiliates |
|
|
(3 |
) |
|
|
(4 |
) |
|
Net changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
65 |
|
|
|
17 |
|
|
Timeshare financing receivables, net |
|
|
87 |
|
|
|
(79 |
) |
|
Inventory |
|
|
(59 |
) |
|
|
(6 |
) |
|
Purchases and development of real estate for future conversion to inventory |
|
|
(27 |
) |
|
|
(107 |
) |
|
Other assets |
|
|
(25 |
) |
|
|
(24 |
) |
|
Accounts payable, accrued expenses and other |
|
|
(48 |
) |
|
|
20 |
|
|
Advanced deposits |
|
|
4 |
|
|
|
11 |
|
|
Deferred revenues |
|
|
75 |
|
|
|
70 |
|
|
Net cash provided by operating activities |
|
|
86 |
|
|
|
146 |
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
Capital expenditures for property and equipment |
|
|
(6 |
) |
|
|
(25 |
) |
|
Software capitalization costs |
|
|
(16 |
) |
|
|
(17 |
) |
|
Investments in unconsolidated affiliates |
|
|
(2 |
) |
|
|
(2 |
) |
|
Net cash used in investing activities |
|
|
(24 |
) |
|
|
(44 |
) |
|
Financing Activities |
|
|
|
|
|
|
|
|
|
Issuance of debt |
|
|
495 |
|
|
|
455 |
|
|
Issuance of non-recourse debt |
|
|
495 |
|
|
|
365 |
|
|
Repayment of debt |
|
|
(62 |
) |
|
|
(272 |
) |
|
Repayment of non-recourse debt |
|
|
(403 |
) |
|
|
(327 |
) |
|
Debt issuance costs |
|
|
(8 |
) |
|
|
(6 |
) |
|
Repurchase and retirement of common stock |
|
|
(10 |
) |
|
|
(283 |
) |
|
Payment of withholding taxes on vesting of restricted stock units |
|
|
(3 |
) |
|
|
(3 |
) |
|
Proceeds from employee stock plan purchases |
|
|
1 |
|
|
|
2 |
|
|
Other financing activity |
|
|
(2 |
) |
|
|
(2 |
) |
|
Net cash provided by (used in) financing activities |
|
|
503 |
|
|
|
(71 |
) |
|
Net increase in cash, cash equivalents and restricted cash |
|
|
565 |
|
|
|
31 |
|
|
Cash, cash equivalents and restricted cash, beginning of period |
|
|
152 |
|
|
|
180 |
|
|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
717 |
|
|
$ |
211 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash operating activities: |
|
|
|
|
|
|
|
|
|
Non-cash transfers from Property and Equipment to Inventory(2) |
|
$ |
301 |
|
|
$ |
— |
|
|
Non-cash transfers from Other Assets to Inventory(1) |
|
|
|
|
|
|
2 |
|
|
Non-cash transfers from Inventory to Property and Equipment(2) |
|
|
|
|
|
|
16 |
|
|
Non-cash transfers from Other Assets to Property and Equipment(2) |
|
|
|
|
|
|
40 |
|
|
Supplemental disclosure of non-cash financing activities: |
|
|
|
|
|
|
|
|
|
Issuance of other debt |
|
$ |
— |
|
|
$ |
23 |
|
|
(1) |
See Note 7: Inventory for more information. |
|
(2) |
See Note 8: Property and Equipment for more information. |
See notes to unaudited condensed consolidated financial statements.
4
HILTON GRAND VACATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in millions)
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Accumulated |
|
|
|
|
|
||
|
|
|
Common Stock |
|
|
Paid-in |
|
|
Retained |
|
|
Total |
|
||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Equity |
|
|||||
|
Balance as of December 31, 2019 |
|
|
85 |
|
|
$ |
1 |
|
|
$ |
179 |
|
|
$ |
390 |
|
|
$ |
570 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8 |
|
|
|
8 |
|
|
Activity related to share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
(5 |
) |
|
|
— |
|
|
|
(5 |
) |
|
Repurchase and retirement of common stock |
|
|
(1 |
) |
|
|
— |
|
|
|
(2 |
) |
|
|
(8 |
) |
|
|
(10 |
) |
|
Balance as of March 31, 2020 |
|
|
84 |
|
|
|
1 |
|
|
|
172 |
|
|
|
390 |
|
|
|
563 |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(48 |
) |
|
|
(48 |
) |
|
Activity related to share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
8 |
|
|
|
— |
|
|
|
8 |
|
|
Balance as of June 30, 2020 |
|
|
84 |
|
|
|
1 |
|
|
|
180 |
|
|
|
342 |
|
|
|
523 |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7 |
) |
|
|
(7 |
) |
|
Activity related to share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
6 |
|
|
Balance as of September 30, 2020 |
|
|
84 |
|
|
|
1 |
|
|
$ |
186 |
|
|
$ |
335 |
|
|
$ |
522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Accumulated |
|
|
|
|
|
||
|
|
|
Common Stock |
|
|
Paid-in |
|
|
Retained |
|
|
Total |
|
||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Equity |
|
|||||
|
Balance as of December 31, 2018 |
|
|
94 |
|
|
$ |
1 |
|
|
$ |
174 |
|
|
$ |
441 |
|
|
$ |
616 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
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 |
|
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,” “HGV” or the “Company”) is a global timeshare company engaged in developing, marketing, selling and managing timeshare resorts primarily under the Hilton Grand Vacations brand. Our operations primarily consist of: selling vacation ownership intervals (“VOIs”) for us and third parties; financing and servicing loans provided to consumers for their timeshare purchases; operating resorts; and managing our points-based Hilton Grand Vacations Club exchange program (collectively the “Club”). As of September 30, 2020, we had 60 properties, comprised of 9,594 units, located in the United States (“U.S.”), Japan, the United Kingdom, Italy and Barbados. A significant number of our properties and units are concentrated in Florida, Hawaii, Nevada, New York, and South Carolina, with particular concentration of our units in Florida, Hawaii and New York.
Note 2: Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements presented herein include 100 percent of our assets, liabilities, revenues, expenses and cash flows as well as all entities in which we have a controlling financial interest. In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods. All material intercompany transactions and balances have been eliminated in consolidation.
The unaudited condensed consolidated financial statements reflect our financial position, results of operations and cash flows as prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Although we believe the disclosures made are adequate to prevent information presented from being misleading, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto as of and for the year ended December 31, 2019, included in our Annual Report on Form 10-K filed with the SEC on March 2, 2020.
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.
COVID-19
The novel coronavirus (“COVID-19”) pandemic continues to significantly negatively impact the hospitality, travel and leisure industries due to various mandates and orders to close non-essential businesses, impose travel restrictions, require “stay-at-home” and/or self-quarantine, and require similar actions. Such restrictions and directives have resulted in cancellations and significant reductions in travel around the world, as well as the negative global economic conditions resulting from the impact of the COVID-19 pandemic. As a result of the reduction in travel, during the first quarter of 2020 we closed substantially all of our resorts and sales centers.
In addition, in response to the impact of COVID-19, we have taken a variety of actions to ensure the continuity of our business and operations, including workforce furlough, implementing temporary salary reductions for the remaining active employees primarily during the second quarter of 2020, eliminating all discretionary spending, and reducing our planned investment in new inventory by approximately $200 million. Further, during the first quarter of 2020, we drew down on the availability under our credit facility as a precautionary measure to ensure liquidity for a sustained period and on May 8, 2020, we amended our Credit Agreement which amended certain terms of the credit facilities (“Senior Secured Credit Facilities”) to provide us with both near-term and long-term flexibility with respect to satisfying certain negative and financial covenant ratios as may be needed due to the ongoing and uncertain future impact of the COVID-19 pandemic on our business and operations. See Note 11: Debt and Non-recourse debt for additional actions taken with respect to our financial flexibility. Recently, we announced a workforce reduction plan that will affect approximately 1,600 team members in order to better align our workforce with the Company’s needs in light of the current environment. In addition, approximately 2,000 of our team members remain furloughed.
6
Prior to re-opening our resorts and sales centers, we introduced the HGV Enhanced Care Guidelines, designed to provide owners, guests and team members with the highest level of cleaning protocols and safety standards recommended by the Center for Disease Control and Prevention and cleaning solutions approved by the Environmental Protection Agency in response to the COVID-19 pandemic. Along with providing personal protective equipment to team members, these Enhanced Care Guidelines include low-touch arrivals and departures, frequent and thorough cleaning, reduction of paper items, reduced capacity for our pool decks and fitness centers, and new technologies. While operations were suspended, essential resort personnel worked diligently maintaining the resorts for a safe re-opening. Annual deep cleanings, typically scheduled during slower seasons, were moved up and completed, allowing the resorts to be in top shape when owners and guests arrive.
Beginning in May 2020, various states and counties started to allow gradual relaxation of restrictions on activities and a resumption of businesses. In response, we began a phased reopening of resorts and resumption of our business activities during the second quarter of 2020, but under new operating guidelines and with safety measures. As of September 30, 2020, we have over three quarters of our resorts and sales centers open and currently operating however, many of our resorts and sales centers are operating with significant capacity constraints and subject to various safety measures. In addition, ongoing strict travel and other restrictions in regions and locations where we have a significant number of resorts and concentration of units, in particular, Hawaii and New York, are significantly impacting consumer demand for our resorts in those areas.
While we plan to continue to reopen our resorts and resume our business as conditions permit, the pandemic continues to be unprecedented and rapidly changing, and has unknown duration and severity. Further, various state and local government officials may issue new or revised orders that are different than current ones under which we are operating. Accordingly, there remains significant uncertainty as to the degree of impact and duration of the conditions stemming from the ongoing pandemic on our revenues, net income and other operating results, as well as our business and operations generally. Any significantly extended duration or worsening of the conditions associated with the pandemic may adversely impact our liquidity in the longer term, including our ability to finance our day-to-day business and operations, and may adversely affect our ability to comply with our maintenance and financial covenants and ratios under our debt obligations notwithstanding the recent amendments discussed above. However, we believe that prior to triggering an event of default, if any, in connection with the financial covenants under our debt agreements we would be able to reach an agreement with our lenders to amend such covenants in advance of any potential default.
Additionally, as a result of the ongoing COVID-19 pandemic, we are performing a review over certain of our long-lived assets in order to determine our optimal strategic direction with regards to these assets. These assets include undeveloped parcels of land and certain unallocated infrastructure costs related to future phases of existing resorts. The result of this review could have a material impact on the carrying value of certain assets, which could result in non-cash impairments.
Summary of Significant Accounting Policies
Accounts Receivable and Allowance for Credit Losses
Accounts receivable primarily consists of trade receivables and is reported at the customers’ outstanding balances, less any allowance for credit losses. The expected credit losses are measured using an expected-loss model that reflects the risk of loss and considers the losses expected over the outstanding period of the receivable.
Cloud Computing Arrangements
We capitalize certain costs associated with cloud computing arrangements (“CCAs”). These costs are included in Other assets in our condensed consolidated balance sheets and are expensed in the same line as the hosting arrangement in our condensed consolidated statements of operations using the straight-line method over the assets’ estimated useful lives, which is generally three to five years. We review the CCAs for impairment when circumstances indicate that their carrying amounts may not be recoverable. If the carrying value of an asset group is not recoverable, we recognize an impairment loss for the excess of carrying value over the fair value in our condensed consolidated statements of operations.
Derivative Instruments
We use derivative instruments as part of our overall strategy to manage our exposure to market risks primarily associated with fluctuations in interest rates and do not use derivatives for trading or speculative purposes. We record the derivative instrument at fair value either as an asset or liability. We assess the effectiveness of our hedging instruments
7
quarterly and record changes in fair value in accumulated other comprehensive income (“AOCI”) for the effective portion of the hedge and record the ineffectiveness of a hedge immediately in earnings in our condensed consolidated statements of operations. We release the derivative’s gain or loss from AOCI to match the timing of the underlying hedged items’ effect on earnings.
Recently Issued Accounting Pronouncements
Adopted Accounting Standards
On January 1, 2020, we adopted Accounting Standards Update (ASU) No. 2016-13, (“ASU 2016-13”), Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”), using the modified retrospective approach. The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis are measured using an expected-loss model, replacing the current incurred-loss model, and recorded through an allowance for credit losses. The adoption of ASU 2016-13 did not have a material impact on our condensed consolidated financial statements and related disclosures and no cumulative adjustment was recorded primarily as our timeshare financing receivables are recorded net of an allowance that is calculated in accordance with ASC 606, Revenue from Contracts with Customers.
On January 1, 2020, we adopted ASU 2018-15 (“ASU 2018-15”), Customer’s Accounting Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an asset. ASU 2018-15 generally aligns the guidance on recognizing implementation costs incurred in a cloud computing arrangement that is a service contract with that for implementation costs incurred to develop or obtain internal-use software, including hosting arrangements that include an internal-use software license. This ASU has been adopted using the retrospective approach. Accordingly, previously reported financial information has been restated to reflect the application of the new standard to the comparative periods presented. The adoption of ASU 2018-15 did not have a material impact on our condensed consolidated financial statements.
In March 2020, the SEC issued a final rule, Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities, which simplifies the disclosure requirements related to registered securities under Rule 3-10 of Regulation S-X. The rule replaces the requirement for a parent entity to provide detailed disclosures with regard to guarantors of registered debt offerings within the footnotes to the consolidated financial statements. Under the final rule, a parent entity is required to present summarized financial information of the issuers’ and guarantors’ balance sheets and statements of operations on a consolidated basis. It also requires qualitative disclosures with respect to information about guarantors and the terms and conditions of guarantees. These disclosures may be provided outside the footnotes to the Company’s consolidated financial statements. We early adopted the reporting requirements of the rule in the second quarter of 2020 and elected to provide these disclosures in Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Accounting Standards Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12 (“ASU 2019-12”), Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to simplify various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and which also clarifies and amends existing guidance to improve consistent application. The provisions of this ASU are effective for reporting periods after December 15, 2020. We are currently evaluating the effect that this ASU will have on our condensed consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04 (“ASU 2020-04”), Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. We are currently evaluating the effect that this ASU will have on our condensed consolidated financial statements.
8
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) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Real Estate and Financing Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of VOIs, net |
|
$ |
24 |
|
|
$ |
138 |
|
|
$ |
80 |
|
|
$ |
383 |
|
|
Sales, marketing, brand and other fees |
|
|
52 |
|
|
|
143 |
|
|
|
171 |
|
|
|
429 |
|
|
Interest income |
|
|
34 |
|
|
|
37 |
|
|
|
108 |
|
|
|
109 |
|
|
Other financing revenue |
|
|
6 |
|
|
|
6 |
|
|
|
19 |
|
|
|
18 |
|
|
Real estate and financing segment revenues |
|
$ |
116 |
|
|
$ |
324 |
|
|
$ |
378 |
|
|
$ |
939 |
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Resort Operations and Club Management Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Club management |
|
$ |
23 |
|
|
$ |
28 |
|
|
$ |
70 |
|
|
$ |
80 |
|
|
Resort management |
|
|
16 |
|
|
|
17 |
|
|
|
52 |
|
|
|
50 |
|
|
Rental(1) |
|
|
19 |
|
|
|
48 |
|
|
|
71 |
|
|
|
153 |
|
|
Ancillary services |
|
|
1 |
|
|
|
6 |
|
|
|
6 |
|
|
|
20 |
|
|
Resort operations and club management segment revenues |
|
$ |
59 |
|
|
$ |
99 |
|
|
$ |
199 |
|
|
$ |
303 |
|
|
(1) |
Excludes intersegment eliminations. See Note 18: Business Segments for additional information. |
Contract Balances
The following table provides information on our accounts receivable from contracts with customers which are included in Accounts receivable, net on our condensed consolidated balance sheets:
|
|
|
September 30, |
|
|
December 31, |
|
||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
||
|
Receivables |
|
$ |
67 |
|
|
$ |
129 |
|
The following table presents the composition of our contract liabilities.
|
|
|
September 30, |
|
|
December 31, |
|
||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
||
|
Contract liabilities: |
|
|
|
|
|
|
|
|
|
Advanced deposits |
|
$ |
119 |
|
|
$ |
115 |
|
|
Deferred Sales of VOIs of projects under construction |
|
|
148 |
|
|
|
84 |
|
|
Club activation fees, annual dues and other |
|
|
96 |
|
|
|
86 |
|
|
Club Bonus Point incentive liability(1) |
|
|
60 |
|
|
|
59 |
|
|
(1) |
Amounts related to the Club Bonus Point incentive liability are included in Accounts payable, accrued expenses and other on our condensed consolidated balance sheets. This liability is comprised of unrecognized revenue for incentives from VOI sales and sales and marketing expenses in conjunction with our fee-for-service arrangements. |
Revenue earned for the three and nine months ended September 30, 2020 that was included in the contract liabilities balance at December 31, 2019 was approximately $10 million and $63 million, respectively.
9
Our accounts receivables that relate to our contracts with customers includes amounts associated with our contractual right to consideration for completed performance obligations related primarily to our fee-for-service arrangements and homeowners’ associations (“HOA”) management agreements and are settled when the related cash is received. Accounts receivable are recorded when the right to consideration becomes unconditional and is only contingent on the passage of time. Refer to Note 6: Timeshare Financing Receivables for information on balances and changes in balances during the period related to our timeshare financing receivables.
Contract assets relate to incentive fees that can be earned for meeting certain target on sales of VOIs at properties under our fee-for-service arrangements; however, our right to consideration is conditional upon completing the requirements of the annual incentive fee period.
Contract liabilities include payments received or due in advance of satisfying our performance obligations. Such contract liabilities include advance deposits received on prepaid vacation packages for future stays at our resorts, deferred revenues related to sales of VOIs of projects under construction, club activation fees and annual dues and the liability for Club Bonus Points awarded to our customers for purchase of VOIs at our properties or properties under our fee-for-service arrangements that may be redeemed in the future.
Transaction Price Allocated to Remaining Performance Obligations
Transaction price allocated to remaining performance obligations represents contract revenue that has not yet been recognized. Our contracts with remaining performance obligations primarily include (i) sales of VOIs under construction, (ii) Club activation fees paid at closing of a VOI purchase, (iii) customers’ advanced deposits on prepaid vacation packages and (iv) Club Bonus Points that may be redeemed in the future. The following table represents the deferred revenue, cost of VOI sales and direct selling costs from sales of VOIs related to projects under construction as of September 30, 2020:
|
|
|
September 30, |
|
|
December 31, |
|
||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
||
|
Sales of VOIs, net |
|
$ |
148 |
|
|
$ |
84 |
|
|
Cost of VOI sales(1) |
|
|
44 |
|
|
|
27 |
|
|
Sales and marketing expense |
|
|
21 |
|
|
|
12 |
|
|
(1) |
Includes anticipated Cost of VOI sales related to inventory associated with Sales of VOIs under construction that will be acquired under a just-in-time arrangement once construction is complete. |
We expect to recognize the revenue, costs of VOI sales and direct selling costs upon completion of the projects in 2021.
The following table includes the remaining transaction price related to Advanced deposits, Club activation fees and Club Bonus Points as of September 30, 2020:
|
($ in millions) |
|
Remaining Transaction Price |
|
|
Recognition Period |
|
Recognition Method |
|
|
Advanced deposits |
|
$ |
119 |
|
|
18 months |
|
Upon customer stays |
|
Club activation fees |
|
|
66 |
|
|
7 years |
|
Straight-line basis over average inventory holding period |
|
Club Bonus Points |
|
|
60 |
|
|
24 months |
|
Upon redemption |
10
Note 4: Restricted Cash
Restricted cash was as follows:
|
|
|
September 30, |
|
|
December 31, |
|
||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
||
|
Escrow deposits on VOI sales |
|
$ |
61 |
|
|
$ |
59 |
|
|
Reserves related to non-recourse debt(1) |
|
|
31 |
|
|
|
26 |
|
|
|
|
$ |
92 |
|
|
$ |
85 |
|
|
(1) |
See Note 11: Debt & Non-recourse Debt for further discussion. |
Note 5: Accounts Receivable
The following table represents our accounts receivable, net of allowance for credit losses. Following the adoption of ASC 326 on January 1, 2020, accounts receivable within the scope of ASC 326 are measured at amortized cost.
|
($ in millions) |
September 30, 2020 |
|
|
|
Fee-for-service commissions(1) |
$ |
23 |
|
|
Real estate and financing |
8 |
|
|
|
Resort and club operations |
32 |
|
|
|
Tax receivables |
42 |
|
|
|
Other receivables(2) |
|
4 |
|
|
Total |
$ |
109 |
|
|
(1) |
Net of allowance. |
|
(2) |
Primarily includes individually insignificant accounts receivable recognized in the ordinary course of business, the allowances for which are individually insignificant. |
Our accounts receivable are all due within one year of origination. We use delinquency status and economic factors as credit quality indicators to monitor our receivables within the scope of ASC 326 and use these as a basis for how we develop our expected loss estimates.
We sell VOIs on behalf of third-party developers using the Hilton Grand Vacations brand in exchange for sales, marketing and brand fees. We use historical losses and economic factors as a basis to develop our allowance for credit losses. Under these fee-for-service arrangements, we earn commission fees based on a percentage of total interval sales. Additionally, the terms include provisions requiring the reduction of fees earned for defaults and cancellations.
The changes in our allowance for fee-for-service commissions were as follows:
|
($ in millions) |
September 30, 2020 |
|
|
|
Balance as of December 31, 2019 |
$ |
19 |
|
|
Current period provision for expected credit losses |
5 |
|
|
|
Write-offs charged against the allowance |
|
(8 |
) |
|
Balance at September 30, 2020 |
$ |
16 |
|
11
Note 6: Timeshare Financing Receivables
Timeshare financing receivables were as follows:
|
|
|
September 30, 2020 |
|
|||||||||
|
($ in millions) |
|
Securitized |
|
|
Unsecuritized(1) |
|
|
Total |
|
|||
|
Timeshare financing receivables |
|
$ |
879 |
|
|
$ |
350 |
|
|
$ |
1,229 |
|
|
Less: allowance for financing receivables losses |
|
|
(70 |
) |
|
|
(147 |
) |
|
|
(217 |
) |
|
|
|
$ |
809 |
|
|
$ |
203 |
|
|
$ |
1,012 |
|
|
|
|
December 31, 2019 |
|
|||||||||
|
($ in millions) |
|
Securitized |
|
|
Unsecuritized(1) |
|
|
Total |
|
|||
|
Timeshare financing receivables |
|
$ |
758 |
|
|
$ |
582 |
|
|
$ |
1,340 |
|
|
Less: allowance for financing receivables losses |
|
|
(54 |
) |
|
|
(130 |
) |
|
|
(184 |
) |
|
|
|
$ |
704 |
|
|
$ |
452 |
|
|
$ |
1,156 |
|
|
(1) |
Includes amounts used as collateral to secure a non-recourse revolving timeshare receivable credit facility ("Timeshare Facility") as well as amounts held as future collateral for securitization activities. |
As of September 30, 2020, we had timeshare financing receivables with a carrying value of $19 million securing the Timeshare Facility in anticipation of future financing activities. As of December 31, 2019, we had no timeshare receivables pledged to the Timeshare Facility. We record an estimate of variable consideration for estimated defaults as a reduction of revenue from VOI sales at the time revenue is recognized on a VOI sale. We record the difference between the timeshare financing receivable and the variable consideration included in the transaction price for the sale of the related VOI as an allowance for financing receivables and record the receivable net of the allowance. During the nine months ended September 30, 2020, we recorded an adjustment to our estimate of variable consideration of $57 million, which includes a $23 million revenue reduction related to changes in estimates primarily driven by economic factors surrounding the COVID-19 pandemic.
In June 2020, we completed a securitization of $300 million of gross timeshare financing receivables, which included a $15 million cash deposit that was subsequently released during the third quarter of 2020 upon pledging of qualified collateral, and issued approximately $186 million of 2.74 percent notes, $66 million of 4.22 percent notes and $48 million of 6.42 percent notes, which have a stated maturity date of February 25, 2039. The securitization transaction did not qualify as a sale and, accordingly, no gain or loss was recognized. The transaction is considered a secured borrowing; therefore, the proceeds from the transaction are presented as non-recourse debt (collectively, the “Securitized Debt”). The proceeds were primarily used to pay down the remaining borrowings on our Timeshare Facility and general corporate operating expenses. See Note 11: Debt and Non-recourse Debt for additional information.
Our timeshare financing receivables as of September 30, 2020 mature as follows:
|
($ in millions) |
Securitized |
|
|
Unsecuritized |
|
|
Total |
|
|||
|
Year |
|
|
|
|
|
|
|
|
|
|
|
|
2020 (remaining) |
$ |
25 |
|
|
$ |
9 |
|
|
$ |
34 |
|
|
2021 |
|
103 |
|
|
|
32 |
|
|
|
135 |
|
|
2022 |
|
107 |
|
|
|
33 |
|
|
|
140 |
|
|
2023 |
|
110 |
|
|
|
35 |
|
|
|
145 |
|
|
2024 |
|
113 |
|
|
|
36 |
|
|
|
149 |
|
|
Thereafter |
|
421 |
|
|
|
205 |
|
|
|
626 |
|
|
|
|
879 |
|
|
|
350 |
|
|
|
1,229 |
|
|
Less: allowance for financing receivables losses |
|
(70 |
) |
|
|
(147 |
) |
|
|
(217 |
) |
|
|
$ |
809 |
|
|
$ |
203 |
|
|
$ |
1,012 |
|
12
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 estimating expected defaults and determining our allowance for financing receivables losses on our timeshare financing receivables. For static pool analysis, we use certain key dimensions to stratify our portfolio, including FICO scores, equity percentage at the time of sale and certain other factors. The adequacy of the related allowance is determined by management through analysis of several factors, such as current economic conditions and industry trends, as well as the specific risk characteristics of the portfolio including assumed default rates, aging and historical write-offs of these receivables. The allowance is maintained at a level deemed adequate by management based on a periodic analysis of the mortgage portfolio.
We recognize interest income on our timeshare financing receivables as earned. As of September 30, 2020 and December 31, 2019, we had interest receivable outstanding of $8 million and $9 million, respectively, included in our condensed consolidated balance sheets. The interest rate charged on the notes correlates to the risk profile of the customer at the time of purchase and the percentage of the purchase that is financed, among other factors. As of September 30, 2020, our timeshare financing receivables had interest rates ranging from 3.90 percent to 20.50 percent, a weighted-average interest rate of 12.60 percent, a weighted-average remaining term of 7.6 years and maturities through 2035.
Our gross timeshare financing receivables balances by average FICO score were as follows:
|
|
|
September 30, |
|
|
December 31, |
|
||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
||
|
FICO score |
|
|
|
|
|
|
|
|
|
700+ |
|
$ |
669 |
|
|
$ |
818 |
|
|
600-699 |
|
|
291 |
|
|
|
292 |
|
|
<600 |
|
|
51 |
|
|
|
39 |
|
|
No score(1) |
|
|
218 |
|
|
|
191 |
|
|
|
|
$ |
1,229 |
|
|
$ |
1,340 |
|
|
(1) |
Timeshare financing receivables without a FICO score are primarily related to foreign borrowers. |
The following table details the origination year of our gross timeshare financing receivables by average FICO score as of September 30, 2020:
|
($ in millions) |
|
2020 |
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|
2016 |
|
|
Prior |
|
|
Total |
|
|||||||
|
FICO score |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
700+ |
|
$ |
86 |
|
|
$ |
209 |
|
|
$ |
142 |
|
|
$ |
91 |
|
|
$ |
61 |
|
|
$ |
80 |
|
|
$ |
669 |
|
|
600-699 |
|
|
40 |
|
|
|
91 |
|
|
|
62 |
|
|
|
39 |
|
|
|
23 |
|
|
|
36 |
|
|
|
291 |
|
|
<600 |
|
|
7 |
|
|
|
16 |
|
|
|
11 |
|
|
|
6 |
|
|
|
4 |
|
|
|
7 |
|
|
|
51 |
|
|
No score(1) |
|
|
34 |
|
|
|
67 |
|
|
|
40 |
|
|
|
27 |
|
|
|
18 |
|
|
|
32 |
|
|
|
218 |
|
|
|
|
$ |
167 |
|
|
$ |
383 |
|
|
$ |
255 |
|
|
$ |
163 |
|
|
$ |
106 |
|
|
$ |
155 |
|
|
$ |
1,229 |
|
|
(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.
13
As of September 30, 2020 and December 31, 2019, we had ceased accruing interest on timeshare financing receivables with an aggregate principal balance of $117 million and $74 million, respectively. The following tables detail an aged analysis of our gross timeshare receivables balance:
|
|
|
September 30, 2020 |
|
|||||||||
|
($ in millions) |
|
Securitized |
|
|
Unsecuritized |
|
|
Total |
|
|||
|
Current |
|
$ |
858 |
|
|
$ |
230 |
|
|
$ |
1,088 |
|
|
31 - 90 days past due |
|
|
12 |
|
|
|
12 |
|
|
|
24 |
|
|
91 - 120 days past due |
|
|
5 |
|
|
|
3 |
|
|
|
8 |
|
|
121 days and greater past due |
|
|
4 |
|
|
|
105 |
|
|
|
109 |
|
|
|
|
$ |
879 |
|
|
$ |
350 |
|
|
$ |
1,229 |
|
|
|
|
December 31, 2019 |
|
|||||||||
|
($ in millions) |
|
Securitized |
|
|
Unsecuritized |
|
|
Total |
|
|||
|
Current |
|
$ |
743 |
|
|
$ |
502 |
|
|
$ |
1,245 |
|
|
31 - 90 days past due |
|
|
9 |
|
|
|
12 |
|
|
|
21 |
|
|
91 - 120 days past due |
|
|
3 |
|
|
|
4 |
|
|
|
7 |
|
|
121 days and greater past due |
|
|
3 |
|
|
|
64 |
|
|
|
67 |
|
|
|
|
$ |
758 |
|
|
$ |
582 |
|
|
$ |
1,340 |
|
The changes in our allowance for financing receivables losses were as follows:
|
|
|
September 30, 2020 |
|
|||||||||
|
($ in millions) |
|
Securitized |
|
|
Unsecuritized |
|
|
Total |
|
|||
|
Balance as of December 31, 2019 |
|
$ |
54 |
|
|
$ |
130 |
|
|
$ |
184 |
|
|
Provision for financing receivables losses(1) |
|
|
(17 |
) |
|
|
74 |
|
|
|
57 |
|
|
Write-offs |
|
|
— |
|
|
|
(24 |
) |
|
|
(24 |
) |
|
Securitization |
|
|
33 |
|
|
|
(33 |
) |
|
|
— |
|
|
Balance as of September 30, 2020 |
|
$ |
70 |
|
|
$ |
147 |
|
|
$ |
217 |
|
|
|
|
September 30, 2019 |
|
|||||||||
|
($ in millions) |
|
Securitized |
|
|
Unsecuritized |
|
|
Total |
|
|||
|
Balance as of December 31, 2018 |
|
$ |
43 |
|
|
$ |
129 |
|
|
$ |
172 |
|
|
Provision for financing receivables losses(1) |
|
|
(12 |
) |
|
|
72 |
|
|
|
60 |
|
|
Write-offs |
|
|
— |
|
|
|
(53 |
) |
|
|
(53 |
) |
|
Securitization |
|
|
29 |
|
|
|
(29 |
) |
|
|
— |
|
|
Balance as of September 30, 2019 |
|
$ |
60 |
|
|
$ |
119 |
|
|
$ |
179 |
|
|
(1) |
Includes incremental provision for financing receivables losses, net of activity related to the repurchase of defaulted and upgraded securitized timeshare financing receivables. |
Note 7: Inventory
Inventory was as follows:
|
|
|
September 30, |
|
|
December 31, |
|
||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
||
|
Completed unsold VOIs |
|
$ |
402 |
|
|
$ |
241 |
|
|
Construction in process |
|
|
273 |
|
|
|
59 |
|
|
Land, infrastructure and other |
|
|
258 |
|
|
|
258 |
|
|
|
|
$ |
933 |
|
|
$ |
558 |
|
14
During the nine months ended September 30, 2020, we recorded non-cash operating activity transfers from Property and equipment to Inventory. See Note 8: Property and Equipment.
Shown below are costs of sales true-ups relating to VOI products and the related impacts to the carrying value of inventory.
|
|
|
Nine Months Ended September 30, |
|
|||||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
||
|
Cost of sales true-up(1) |
|
$ |
4 |
|
|
$ |
14 |
|
|
(1) |
Costs of sales true ups reduced costs of VOI sales and increased inventory in the periods presented. |
Shown below are expenses incurred, recorded in Cost of VOI sales, related to granting credit to customers for their existing ownership when upgrading into fee-for service projects.
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Cost of VOI sales related to fee-for-service upgrades |
|
$ |
2 |
|
|
$ |
8 |
|
|
$ |
7 |
|
|
$ |
24 |
|
Note 8: Property and Equipment
Property and equipment was as follows:
|
|
|
September 30, |
|
|
December 31, |
|
||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
||
|
Land |
|
$ |
104 |
|
|
$ |
154 |
|
|
Building and leasehold improvements |
|
|
247 |
|
|
|
286 |
|
|
Furniture and equipment |
|
|
68 |
|
|
|
65 |
|
|
Construction in progress |
|
|
198 |
|
|
|
383 |
|
|
|
|
|
617 |
|
|
|
888 |
|
|
Accumulated depreciation |
|
|
(129 |
) |
|
|
(110 |
) |
|
|
|
$ |
488 |
|
|
$ |
778 |
|
During the nine months ended September 30, 2020, we recorded non-cash operating activity transfers of $301 million related to the registrations for timeshare units under construction from Property and equipment to Inventory. Non-cash transfers are reflected in our unaudited condensed consolidated statements of cash flows.
Note 9: Consolidated Variable Interest Entities
As of September 30, 2020 and December 31, 2019, we consolidated 4 variable interest entities (“VIEs”), respectively, that issued non-recourse debt backed by pledged assets consisting primarily of a pool of timeshare financing receivables which is without recourse to us. We are the primary beneficiaries of these VIEs as we have the power to direct the activities that most significantly affect their economic performance. We are also the servicer of these timeshare financing receivables and we are required to replace or repurchase timeshare financing receivables that are in default at their outstanding principal amounts. Additionally, we have the obligation to absorb their losses and the right to receive benefits that could be significant to them. Only the assets of our VIEs are available to settle the obligations of the respective entities.
15
Our condensed consolidated balance sheets included the assets and liabilities of these entities, which primarily consisted of the following:
|
|
|
September 30, |
|
|
December 31, |
|
||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
||
|
Restricted cash |
|
$ |
30 |
|
|
$ |
26 |
|
|
Timeshare financing receivables, net |
|
|
809 |
|
|
|
704 |
|
|
Non-recourse debt(1) |
|
|
837 |
|
|
|
747 |
|
|
(1) |
Net of deferred financing costs. |
During the nine months ended September 30, 2020 and 2019, 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 10: Investments in Unconsolidated Affiliates
As of September 30, 2020, we have 25 percent and 50 percent ownership interests in BRE Ace LLC and 1776 Holding LLC, respectively, that are deemed as VIEs. We do not consolidate BRE Ace LLC and 1776 Holding LLC because we are not the primary beneficiary. Our investment interests in and equity earned from both VIEs are included in the consolidated balance sheets as Investments in unconsolidated affiliates and in the consolidated statements of operations as Equity in earnings(losses) from unconsolidated affiliates, respectively.
We held investments in our two unconsolidated affiliates with aggregated debt balances of $458 million and $479 million as of September 30, 2020 and December 31, 2019, respectively. The debt is secured by their assets and is without recourse to us. Our maximum exposure to loss as a result of our investment interests in the two unconsolidated affiliates is primarily limited to (i) the carrying amount of the investments which totals $49 million and $44 million as of September 30, 2020 and December 31, 2019, respectively and (ii) receivables for commission and other fees earned under fee-for-service arrangements. See Note 17: Related Party Transactions for additional information.
Note 11: Debt & Non-recourse Debt
Debt
The following table details our outstanding debt balance and its associated interest rates:
|
|
|
September 30, |
|
|
December 31, |
|
||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
||
|
Debt(1) |
|
|
|
|
|
|
|
|
|
Senior secured credit facilities: |
|
|
|
|
|
|
|
|
|
Term loan with a rate of 2.000%, due 2023 |
|
$ |
180 |
|
|
$ |
187 |
|
|
Revolver with a weighted average rate of 2.000%, due 2023 |
|
|
760 |
|
|
|
320 |
|
|
Senior notes with a rate of 6.125%, due 2024 |
|
|
300 |
|
|
|
300 |
|
|
Other debt |
|
|
28 |
|
|
|
27 |
|
|
|
|
|
1,268 |
|
|
|
834 |
|
|
Less: unamortized deferred financing costs and discount(2)(3) |
|
|
(6 |
) |
|
|
(6 |
) |
|
|
|
$ |
1,262 |
|
|
$ |
828 |
|
|
(1) |
As of September 30, 2020 and December 31, 2019, weighted-average interest rates were 3.082 percent and 4.571 percent, respectively. |
|
(2) |
Amount includes deferred financing costs related to our term loan of $1 million and senior notes of $5 million, respectively, as of September 30, 2020 and December 31, 2019. |
|
(3) |
Amount does not include deferred financing costs of $4 million as of September 30, 2020 and $5 million as of December 31, 2019, relating to our revolving facility included in Other Assets in our condensed consolidated balance sheets. |
16
In May 2020, we amended our Credit Agreement which amended certain terms of the Senior Secured Credit Facilities to provide flexibility with respect to satisfying certain negative and financial covenants and ratios as may be needed due to the ongoing and uncertain future impact of the COVID-19 pandemic on our business and operations. The borrowing capacity under the Credit Agreement remained the same. In connection with the Amendment we incurred $1 million in debt issuance costs.
During the nine months ended September 30, 2020, we borrowed $495 million and repaid $62 million (including recurring payments) under the senior secured credit facilities with an interest rate based on one month LIBOR plus 1.75 percent, subject to a 0.25 percent floor.
We primarily use interest rate swaps as part of our interest rate risk management strategy for our variable-rate debt. As of September 30, 2020, we had approximately $180 million of our Term Loan subject to interest rate swap. Such interest rate swaps converted the LIBOR-based variable rates on our Term Loan to an average fixed annual rate of 0.53 percent per annum through November 2023. Our interest rate swaps have been designated and qualify as cash flow hedges of interest rate risk and recorded as a liability in Accounts payable, accrued expenses and other in our condensed consolidated balance sheets as of September 30, 2020. We characterize payments we make in connection with these derivative instruments as interest expense and a reclassification of accumulated other comprehensive income for presentation purposes. For the nine months ended September 30, 2020, we recorded less than $1 million in accumulated other comprehensive loss related to the hedge.
As of September 30, 2020 and December 31, 2019, we had $1 million of outstanding letters of credit under the revolving credit facility. We were in compliance with all applicable maintenance and financial covenants and ratios as of September 30, 2020.
Non-recourse Debt
The following table details our outstanding non-recourse debt balance and its associated interest rates:
|
|
|
September 30, |
|
|
December 31, |
|
||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
||
|
Non-recourse debt(1) |
|
|
|
|
|
|
|
|
|
Securitized Debt with an average rate of 1.810%, due 2026 |
|
$ |
— |
|
|
$ |
46 |
|
|
Securitized Debt with an average rate of 2.711%, due 2028 |
|
|
116 |
|
|
|
149 |
|
|
Securitized Debt with an average rate of 3.602%, due 2032 |
|
|
220 |
|
|
|
275 |
|
|
Securitized Debt with an average rate of 2.431%, due 2033 |
|
|
238 |
|
|
|
285 |
|
|
Securitized Debt with an average rate of 3.658%, due 2039 |
|
|
273 |
|
|
|
— |
|
|
|
|
|
847 |
|
|
|
755 |
|
|
Less: unamortized deferred financing costs(2) |
|
|
(10 |
) |
|
|
(8 |
) |
|
|
|
$ |
837 |
|
|
$ |
747 |
|
|
(1) |
As of September 30, 2020 and December 31, 2019, weighted-average interest rates were 3.169 percent and 2.876 percent, respectively. |
|
(2) |
Amount relates to securitized debt only and does not include deferred financing costs of $3 million as of September 30, 2020 and December 31, 2019 relating to our Timeshare Facility which are included in Other Assets in our condensed consolidated balance sheets. |
In June 2020, we completed a securitization of $300 million of gross timeshare financing receivables, which included a $15 million cash deposit that was subsequently released during the third quarter of 2020 upon pledging of qualified collateral, and issued approximately $186 million of 2.74 percent notes, $66 million of 4.22 percent notes and $48 million of 6.42 percent notes due February 2039. The Securitized Debt is backed by pledged assets, consisting primarily of a pool of timeshare financing receivables secured by first mortgages or deeds of trust on timeshare interests. The Securitized Debt is a non-recourse obligation and is payable solely from the pool of timeshare financing receivables pledged as collateral to the debt. The proceeds were primarily used to pay down the remaining borrowings on our Timeshare Facility and general corporate operating expenses. In connection with the securitization we incurred $5 million in debt issuance costs.
17
In September 2020, we exercised our call option on the remaining outstanding principal balance on our securitized debt with an average rate of 1.810%, due 2026 (“2014-A Notes”) and prepaid the remaining balance in accordance with the terms of the arrangement.
The Timeshare Facility is a non-recourse obligation with a borrowing capacity of $450 million and is payable solely from the pool of timeshare financing receivables pledged as collateral and related assets. As of September 30, 2020 and December 31, 2019, we had $450 million remaining borrowing capacity under our Timeshare Facility. During the second quarter of 2020, we amended the Timeshare Facility, temporarily changing certain covenant requirements pricing and advance rates to be consistent with the amended Credit Agreement. On August 14, 2020, we amended the Timeshare Facility to extend the maturity date from April 2022 to August 2023. Additionally, the amendment reduces the maximum advance rate, replaces LIBOR with a successor benchmark interest rate, increases the excess spread percentage level that will trigger interest hedging obligations, and increases certain used and unused fees. In connection with the Amendment we incurred $2 million in debt issuance costs.
We are required to deposit payments received from customers on the timeshare financing receivables securing the Timeshare Facility and Securitized Debt into depository accounts maintained by third parties. On a monthly basis, the depository accounts are utilized to make required principal, interest and other payments due under the respective loan agreements. The balances in the depository accounts were $31 million and $26 million as of September 30, 2020 and December 31, 2019, respectively, and were included in Restricted cash in our condensed consolidated balance sheets.
Debt Maturities
The contractual maturities of our debt and non-recourse debt as of September 30, 2020 were as follows:
|
($ in millions) |
|
Debt |
|
|
Non-recourse Debt |
|
|
Total |
|
|||
|
Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 (remaining) |
|
$ |
3 |
|
|
$ |
72 |
|
|
$ |
75 |
|
|
2021 |
|
|
12 |
|
|
|
292 |
|
|
|
304 |
|
|
2022 |
|
|
12 |
|
|
|
130 |
|
|
|
142 |
|
|
2023 |
|
|
918 |
|
|
|
131 |
|
|
|
1,049 |
|
|
2024 |
|
|
300 |
|
|
|
74 |
|
|
|
374 |
|
|
Thereafter |
|
|
23 |
|
|
|
148 |
|
|
|
171 |
|
|
|
|
$ |
1,268 |
|
|
$ |
847 |
|
|
$ |
2,115 |
|
Note 12: Fair Value Measurements
The carrying amounts and estimated fair values of our financial assets and liabilities were as follows:
|
|
|
September 30, 2020 |
|
|||||||||
|
|
|
|
|
|
|
Hierarchy Level |
|
|||||
|
($ in millions) |
|
Carrying Amount |
|
|
Level 1 |
|
|
Level 3 |
|
|||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Timeshare financing receivables, net(1) |
|
$ |
1,012 |
|
|
$ |
— |
|
|
$ |
1,293 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt, net(2) |
|
|
1,262 |
|
|
|
311 |
|
|
|
965 |
|
|
Non-recourse debt, net(2) |
|
|
837 |
|
|
|
— |
|
|
|
835 |
|
|
(1) |
Carrying amount net of allowance for financing receivables losses. |
|
(2) |
Carrying amount net of unamortized deferred financing costs and discount. |
18
|
|
|
December 31, 2019 |
|
|||||||||
|
|
|
|
|
|
|
Hierarchy Level |
|
|||||
|
($ in millions) |
|
Carrying Amount |
|
|
Level 1 |
|
|
Level 3 |
|
|||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Timeshare financing receivables, net(1) |
|
$ |
1,156 |
|
|
$ |
— |
|
|
$ |
1,446 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt, net(2) |
|
|
828 |
|
|
|
326 |
|
|
|
544 |
|
|
Non-recourse debt, net(2) |
|
|
747 |
|
|
|
— |
|
|
|
749 |
|
|
(1) |
Carrying amount net of allowance for financing receivables losses. |
|
(2) |
Carrying amount net of unamortized deferred financing costs and discount. |
Our estimates of the fair values were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop the estimated fair values. The table above excludes cash and cash equivalents, restricted cash, accounts receivable, accounts payable, advance deposits and accrued liabilities, all of which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments.
The estimated fair values of our timeshare financing receivables were determined using a discounted cash flow model. Our model incorporates default rates, coupon rates, credit quality and borrowing 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 or non-recurring basis as of September 30, 2020.
Note 13: Leases
We lease sales centers, office space and equipment under operating leases. Our leases expire at various dates from 2021 through 2030, with varying renewal and termination options. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.
We recognize rent expense on leases with both contingent and non-contingent lease payment terms. Rent associated with non-contingent lease payments are recognized on a straight-line basis over the lease term. Rent expense for all operating leases for the three months ended September 30, 2020 and 2019 was $5 million and $6 million, respectively, and $15 million and $16 million for the nine months ended September 30, 2020 and 2019, respectively. These amounts include $1 million of short-term and variable lease costs for the three months ended September 30, 2020 and 2019 and $2 million and $4 million for the nine months ended September 30, 2020 and 2019, respectively.
Supplemental cash flow information related to operating leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|||||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
||
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
Operating cash outflows from operating leases |
|
$ |
14 |
|
|
$ |
12 |
|
|
Right-of-use assets obtained in exchange for new lease liabilities: |
|
|
|
|
|
|
|
|
|
Operating Leases |
|
|
4 |
|
|
|
9 |
|
19
Supplemental balance sheet information related to operating leases was as follows:
|
|
|
September 30 |
|
|
December 31, |
|
||
|
|
|
2020 |
|
|
2019 |
|
||
|
Weighted-average remaining lease term of operating leases (in years) |
|
5.6 |
|
|
6.1 |
|
||
|
Weighted-average discount rate of operating leases |
|
|
4.93 |
% |
|
|
5.34 |
% |
Future minimum lease payments under noncancelable operating leases, due in each of the next five years and thereafter as of September 30, 2020, are as follows:
|
($ in millions) |
|
Operating Leases |
|
|
|
Year |
|
|
|
|
|
2020 (remaining) |
|
$ |
5 |
|
|
2021 |
|
|
17 |
|
|
2022 |
|
|
13 |
|
|
2023 |
|
|
12 |
|
|
2024 |
|
|
11 |
|
|
Thereafter |
|
|
22 |
|
|
Total future minimum lease payments |
|
$ |
80 |
|
|
Less: imputed interest |
|
|
(10 |
) |
|
Present value of lease liabilities |
|
$ |
70 |
|
Note 14: Income Taxes
At the end of each quarter, we estimate the effective tax rate expected to be applied for the full year. The effective tax rate is determined by the level and composition of pre-tax ordinary income or loss, which is subject to federal, foreign and state and local income taxes. The effective tax rate for the nine months ended September 30, 2020 and 2019 was approximately 20 percent and 28 percent, respectively. The decrease in the effective tax rate is primarily due to the tax benefit on our worldwide estimated ordinary loss being reduced by the incremental tax expense from the estimated ordinary income in our foreign jurisdictions, the interest due on income deferred related to installment sales, and the impact of estimated permanent differences between financial reporting and taxable income.
We have considered the income tax accounting and disclosure implications of the relief provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted on March 27, 2020. The effect of tax law changes is required to be recognized either in the interim period in which the legislation is enacted or reflected in the computation of the annual effective tax rate, depending on the nature of the change. As of September 30, 2020, we evaluated the income tax provisions of the CARES Act and have determined there to be no effect on either the September 30, 2020 tax rate or the computation of the estimated effective tax rate for the year. We will continue to evaluate the income tax provisions of the CARES Act and monitor the developments in the jurisdictions where we have significant operations for tax law changes that could have income tax accounting and disclosure implications.
We have requested a change in accounting method effective for the taxable year beginning on January 1, 2020 and ending on December 31, 2020 which is pending IRS review as of September 30, 2020. The impact of the requested method change will be included in the financial statements upon IRS consent.
20
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 for the three months ended September 30, 2020 and 2019, and $10 million and $18 million for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, unrecognized compensation costs for unvested awards were approximately $19 million, which is expected to be recognized over a weighted average period of 1.8 years. As of September 30, 2020, there were 5,213,524 shares of common stock available for future issuance under this plan.
Service RSUs
During the nine months ended September 30, 2020, we issued 652,583 Service RSUs with a grant date fair value of $25.24, which generally vest in equal annual installments over three years from the date of grant.
Options
During the nine months ended September 30, 2020, we issued 566,401 Options with an exercise price of $25.80, which vest over three years from the date of the grant.
The weighted-average grant date fair value of these options was $9.14, which was determined using the Black-Scholes-Merton option-pricing model with the following assumptions:
|
Expected volatility |
|
|
35.4 |
% |
|
Dividend yield |
|
|
— |
% |
|
Risk-free rate |
|
|
1.0 |
% |
|
Expected term (in years) |
|
|
6.0 |
|
As of September 30, 2020, we had 1,102,064 Options outstanding that were exercisable.
Performance Shares
During the nine months ended September 30, 2020, we issued 172,620 Performance RSUs with a grant date fair value of $25.80. 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. In March 2020, we determined that the performance conditions for the 2018, 2019, and 2020 Performance RSU awards were improbable of achievement due to the significantly negative impact of the COVID-19 pandemic on the global economy, demand for travel and leisure, and our business. As a result, we reversed $8 million of previously recognized share-based compensation expense related to our 2018 and 2019 Performance RSUs and ceased accruing expense related to Performance RSUs granted in 2018, 2019, and 2020, during the three months ended March 31, 2020. As of September 30, 2020, we determined the performance conditions continue to be improbable of achievement and therefore no expense was recognized in the current period.
Employee Stock Purchase Plan
In March 2017, the Board of Directors adopted the Hilton Grand Vacations Inc. Employee Stock Purchase Plan (the “ESPP”), which became effective during 2017. In connection with the Plan, we issued 2.5 million shares of common stock which may be purchased under the ESPP. The ESPP allows eligible employees to purchase shares of our common stock at a price per share not less than 95 percent of the fair market value per share of common stock on the purchase date, up to a maximum threshold established by the plan administrator for the offering period. During the three and nine months ended September 30, 2020 and 2019, we recognized less than $1 million of compensation expense related to this plan.
21
Note 16: (Loss) Earnings Per Share
The following table presents the calculation of our basic and diluted (loss) earnings per share (“EPS”). The weighted- average shares outstanding used to compute basic EPS and diluted EPS for the three months ended September 30, 2020 was 85,082,124 and for the nine months ended September 30, 2020 was 85,198,910. The weighted-average shares outstanding used to compute basic EPS and diluted EPS for the three months ended September 30, 2019 was 85,704,321 and 86,272,979, respectively, and for the nine months ended September 30, 2019 was 89,863,807 and 90,348,418, respectively.
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
($ and shares outstanding in millions, except per share amounts) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Basic EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income(1) |
|
$ |
(7 |
) |
|
$ |
50 |
|
|
$ |
(47 |
) |
|
$ |
144 |
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
85 |
|
|
|
86 |
|
|
|
85 |
|
|
|
90 |
|
|
Basic EPS |
|
$ |
(0.08 |
) |
|
$ |
0.59 |
|
|
$ |
(0.55 |
) |
|
$ |
1.61 |
|
|
Diluted EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income(1) |
|
$ |
(7 |
) |
|
$ |
50 |
|
|
$ |
(47 |
) |
|
$ |
144 |
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
85 |
|
|
|
86 |
|
|
|
85 |
|
|
|
90 |
|
|
Diluted EPS |
|
$ |
(0.08 |
) |
|
$ |
0.59 |
|
|
$ |
(0.55 |
) |
|
$ |
1.60 |
|
|
(1) |
Net (loss) income for the three months ended September 30, 2020 and 2019 was $(6,846,654) and $50,659,927, respectively, and for the nine months ended September 30, 2020 and 2019 was $(46,771,239) and $144,352,584, respectively. |
The dilutive effect of outstanding share-based compensation awards is reflected in diluted earnings per common share by application of the treasury stock method using average market prices during the period. Potentially dilutive shares of 308,441 and 332,883 for the three and nine months ended September 30, 2020, respectively, were excluded from the calculation of diluted weighted average shares outstanding and diluted earnings per share as a result of our net loss position.
For the three and nine months ended September 30, 2020, we excluded 2,816,707 and 2,506,497, respectively, and for the three and nine months ended September 30, 2019, we excluded 887,859 and 979,779 share-based compensation awards, respectively, because their effect would have been anti-dilutive under the treasury stock method.
Note 17: Related Party Transactions
BRE Ace LLC and 1776 Holding, LLC
We hold a 25 percent ownership interest in BRE Ace LLC, a VIE, which owns a timeshare resort property and related operations, commonly known as “Elara, by Hilton Grand Vacations.”
We hold a 50 percent ownership interest in 1776 Holding, LLC, a VIE, which will construct a timeshare resort property, known as “Liberty Place Charleston, by Hilton Club.”
We record Equity in earnings (losses) from our unconsolidated affiliates in our condensed consolidated statements of operations. See Note 10: Investments in Unconsolidated Affiliates for additional information. Additionally, we earn commissions and other fees related to fee-for-service agreements with the investees to sell VOIs at Elara, by Hilton Grand Vacations and Liberty Place Charleston, by Hilton Club. These amounts are summarized in the following table and are included in our condensed consolidated statements of operations as of the date they became related parties.
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Equity in (losses) earnings from unconsolidated affiliates |
|
$ |
(1 |
) |
|
$ |
1 |
|
|
$ |
3 |
|
|
$ |
4 |
|
|
Commissions and other fees |
|
|
16 |
|
|
|
31 |
|
|
|
43 |
|
|
|
99 |
|
22
We also have $7 million and $25 million of outstanding receivables related to the fee-for-service agreements as of September 30, 2020 and December 31, 2019, respectively.
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 and earn activation fees, annual dues and transaction fees from member exchanges for other vacation products. We also earn fees for managing the timeshare properties. In addition, we generate rental revenue from unit rentals of unsold inventory and inventory made available due to ownership exchanges under our Club program. Our timeshare properties also earn revenue from food and beverage, retail and spa outlets. |
The performance of our operating segments is evaluated primarily based on adjusted earnings before interest expense (excluding non-recourse debt), taxes, depreciation and amortization (“EBITDA”). We define Adjusted EBITDA as EBITDA which has been further adjusted to exclude certain items, including, but not limited to, gains, losses and expenses in connection with: (i) 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) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate sales and financing |
|
$ |
116 |
|
|
$ |
324 |
|
|
$ |
378 |
|
|
$ |
939 |
|
|
Resort operations and club management(1)(2) |
|
|
61 |
|
|
|
108 |
|
|
|
209 |
|
|
|
332 |
|
|
Total segment revenues |
|
|
177 |
|
|
|
432 |
|
|
|
587 |
|
|
|
1,271 |
|
|
Cost reimbursements |
|
|
33 |
|
|
|
43 |
|
|
|
105 |
|
|
|
128 |
|
|
Intersegment eliminations(1)(2) |
|
|
(2 |
) |
|
|
(9 |
) |
|
|
(10 |
) |
|
|
(29 |
) |
|
Total revenues |
|
$ |
208 |
|
|
$ |
466 |
|
|
$ |
682 |
|
|
$ |
1,370 |
|
|
(1) |
Includes charges to the real estate sales and financing segment from the resort operations and club management segment for fulfillment of discounted marketing package stays at resorts. These charges totaled $2 million and $9 million for the three months ended September 30, 2020 and 2019, and $10 million and $29 million for the nine months ended September 30, 2020 and 2019, respectively. |
|
(2) |
Includes charges to the real estate sales and financing segment from the resort operations and club management segment for the rental of model units to show prospective buyers. These charges totaled less than $1 million for the three and nine months ended September 30, 2020 and 2019. |
23
The following table presents Segment Adjusted EBITDA for our reportable segments reconciled to net (loss) income:
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate sales and financing(1) |
|
$ |
15 |
|
|
$ |
94 |
|
|
$ |
16 |
|
|
$ |
243 |
|
|
Resort operations and club management(1) |
|
|
30 |
|
|
|
62 |
|
|
|
100 |
|
|
|
193 |
|
|
Segment Adjusted EBITDA |
|
|
45 |
|
|
|
156 |
|
|
|
116 |
|
|
|
436 |
|
|
General and administrative |
|
|
(22 |
) |
|
|
(30 |
) |
|
|
(65 |
) |
|
|
(87 |
) |
|
Depreciation and amortization |
|
|
(11 |
) |
|
|
(12 |
) |
|
|
(34 |
) |
|
|
(32 |
) |
|
License fee expense |
|
|
(11 |
) |
|
|
(26 |
) |
|
|
(39 |
) |
|
|
(75 |
) |
|
Other gain (loss), net |
|
|
1 |
|
|
|
(1 |
) |
|
|
— |
|
|
|
(3 |
) |
|
Interest expense |
|
|
(10 |
) |
|
|
(12 |
) |
|
|
(32 |
) |
|
|
(33 |
) |
|
Income tax benefit (expense) |
|
|
5 |
|
|
|
(20 |
) |
|
|
12 |
|
|
|
(55 |
) |
|
Equity in (losses) earnings from unconsolidated affiliates |
|
|
(1 |
) |
|
|
1 |
|
|
|
3 |
|
|
|
4 |
|
|
Other adjustment items(2) |
|
|
(3 |
) |
|
|
(6 |
) |
|
|
(8 |
) |
|
|
(11 |
) |
|
Net (loss) income |
|
$ |
(7 |
) |
|
$ |
50 |
|
|
$ |
(47 |
) |
|
$ |
144 |
|
|
(1) |
Includes intersegment transactions. Refer to our table presenting revenues by reportable segment above for additional discussion. |
|
(2) |
For the three and nine months ended September 30, 2020 and 2019, this amount includes costs associated with restructuring, one-time charges and other non-cash items. |
Note 19: Commitments and Contingencies
We have entered into certain arrangements with developers whereby we have committed to purchase vacation ownership units or other real estate at a future date to be marketed and sold under our Hilton Grand Vacations brand. As of September 30, 2020, we were committed to purchase approximately $457 million of inventory and land over a period of 10 years and $16 million of other commitments under the normal course of business. Additionally, we have committed to develop additional vacation ownership units at an existing resort in Japan. During the second quarter of 2020, we entered into an agreement to exchange parcels of land in Hawaii, subject to the successful completion of zoning, land use requirements and other applicable regulatory requirements. The actual amount and timing of the acquisitions is subject to change pursuant to the terms of the respective arrangements, which could also allow for cancellation in certain circumstances. During the nine months ended September 30, 2020 and 2019, we purchased $16 million and $66 million, respectively, as required under our inventory-related purchase commitments. As of September 30, 2020, our remaining obligation pursuant to these arrangements were expected to be incurred as follows:
|
($ in millions) |
|
2020 (remaining) |
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|
2024 |
|
|
Thereafter |
|
|
Total |
|
|||||||
|
Inventory purchase obligations |
|
$ |
10 |
|
|
$ |
225 |
|
|
$ |
110 |
|
|
$ |
58 |
|
|
$ |
40 |
|
|
$ |
14 |
|
|
$ |
457 |
|
|
Other commitments(1) |
|
|
1 |
|
|
|
10 |
|
|
|
3 |
|
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
16 |
|
|
Total |
|
$ |
11 |
|
|
$ |
235 |
|
|
$ |
113 |
|
|
$ |
60 |
|
|
$ |
40 |
|
|
$ |
14 |
|
|
$ |
473 |
|
|
(1) |
Primarily relates to commitments related to information technology and brand licensing under the normal course of business. |
We are involved in litigation arising from the normal course of business, some of which includes claims for substantial sums. Management has evaluated these legal matters and we believe that possible losses derived from an unfavorable outcome that is reasonably possible or remote is not reasonably estimable. While the actual results of claims and litigation cannot be predicted with certainty, we expect that the resolution of all pending or threatened claims and litigation as of September 30, 2020, will not materially affect our unaudited condensed consolidated financial statements.
24
Note 20: Subsequent Events
On October 15, 2020, we announced a workforce reduction plan in response to the continuing adverse impact of the COVID-19 pandemic and related government orders and mandates restricting travel and operations on our business and the travel and leisure industry in general. The reduction in force is expected to reduce our workforce by approximately 1,600 team members and better align the workforce with the evolving business needs.
The reduction in force is estimated to result in approximately $10 million to $12 million in restructuring and related expenses and charges, primarily related to employee severance, benefits and related costs. We expect to incur a majority of these costs during the last quarter of 2020. All of the restructuring and related expenses and charges are expected to result in cash expenditures.
Additionally, in October 2020, we repaid $100 million under our revolving credit facility.
25
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2019.
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, including those related to our revenues, earnings, cash flow and operations, and may be identified by terminology such as the words “outlook,” “believe,” “expect,” “potential,” “goal,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “projects,” predicts,” “intends,” “plans,” “estimates,” “anticipates” “future,” “guidance,” “target,” or the negative version of these words or other comparable words.
We caution you that our forward-looking statements involve known and unknown risks, uncertainties and other factors, including those that are beyond our control, that may cause our actual results, performance or achievements to be materially different from the future results. Factors that could cause our actual results to differ materially from those contemplated by our forward-looking statements include: the material impact of the COVID-19 pandemic on our business, operating results, and financial condition; the extent and duration of the impact of the COVID-19 pandemic on global economic conditions; our ability to meet our liquidity needs; risks related to our indebtedness; inherent business risks, market trends and competition within the timeshare and hospitality industries; our ability to successfully source inventory and market, sell and finance VOIs; default rates on our financing receivables; the reputation of and our ability to access Hilton brands and programs, including the risk of a breach or termination of our license agreement with Hilton; compliance with and changes to United States and global laws and regulations, including those related to anti-corruption and privacy; risks related to our acquisitions, joint ventures, and other partnerships; our dependence on third-party development activities to secure just-in-time inventory; the performance of our information technology systems and our ability to maintain data security; regulatory proceedings or litigation; adequacy of our workforce to meet our business and operation needs; our ability to attract and retain key executives and employees with skills and capacity to meet our needs; and natural disasters or adverse geo-political conditions. Any one or more of the foregoing factors could adversely impact our 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, 2019, as supplemented and updated by the risk factors discussed in “Part II-Item 1A. Risk Factors” of our Quarterly Reports on Forms 10-Q for the quarter ended March 31, 2020, June 30, 2020 and this Report, as well as those described from time to time other periodic reports that we file with the SEC. Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments, changes in management’s expectations, or otherwise.
Terms Used in this Quarterly Report on Form 10-Q
Except where the context requires otherwise, references in this Quarterly Report on Form 10-Q to “Hilton Grand Vacations,” “HGV,” “the Company,” “we,” “us” and “our” refer to Hilton Grand Vacations Inc., together with its consolidated subsidiaries. Except where the context requires otherwise, references to our “properties” or “resorts” and “units” refer to the timeshare properties that we manage or own. Of these resorts and units, a portion is directly owned by us or our joint ventures in which we have an interest and the remaining resorts and units are owned by our third-party owners.
“Developed” refers to VOI inventory that is sourced from projects developed by HGV.
“Fee for service” refers to VOI inventory that we sell and manage on behalf of third-party developers.
“Just-in-time” refers to VOI inventory that is primarily sourced in transactions that are designed to closely correlate the timing of the acquisition by us with our sale of that inventory to purchasers.
“VOI” refers to vacation ownership intervals.
26
Non-GAAP Financial Measures
This Quarterly Report on Form 10-Q includes discussion of terms that are not recognized terms under U.S. Generally Accepted Accounting Principles (“U.S. GAAP”), and financial measures that are not calculated in accordance with U.S. GAAP, including earnings before interest expense (excluding interest expense relating to our non-recourse debt), taxes and depreciation and amortization (“EBITDA”), Adjusted EBITDA, free cash flow and adjusted free cash flow.
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, and volume per guest.
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 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, 2020, we have 60 properties, representing 9,594 units, that are primarily located in vacation destinations such as Orlando, Las Vegas, the Hawaiian Islands, New York City, Washington D.C., and South Carolina and feature spacious, condominium-style accommodations with superior amenities and quality service. As of September 30, 2020, we have approximately 328,000 Hilton Grand Vacations Club and Hilton Club (collectively the “Club”) members. Club members have the flexibility to exchange their VOIs for stays at any Hilton Grand Vacations resort or any property in the Hilton system of 18 industry-leading brands across approximately 6,200 properties, as well as numerous experiential vacation options, such as cruises and guided tours. Our business has been and continues to be adversely impacted by the COVID-19 pandemic and its effects on the global economy, including the various government orders and mandates for closures of non-essential businesses. Please see “Recent Events” and other discussions throughout this Report for additional information regarding such impacts.
We operate our business across two segments: (1) real estate sales and financing; and (2) resort operations and club management.
Real Estate Sales and Financing
Our primary product is the marketing and selling of fee-simple VOIs deeded in perpetuity and right to use real estate interests, developed either by us or by third parties. This ownership interest is an interest in real estate generally equivalent to one week on an annual basis, at the timeshare resort where the VOI was purchased. Traditionally, timeshare operators have funded 100 percent of the investment necessary to acquire land and construct timeshare properties. We source VOIs through fee-for-service and just-in-time agreements with third-party developers and have focused our inventory strategy on developing an optimal inventory mix focused on developed properties as well as fee-for-service and just-in-time agreements. The fee-for-service agreements enable us to generate fees from the sales and marketing of the VOIs and Club memberships and from the management of the timeshare properties without requiring us to fund acquisition and construction costs. The just-in-time agreements enable us to source VOI inventory in a manner that allows us to correlate the timing of acquisition of the inventory with the sale to purchasers. Sales of owned, including just-in-time inventory, generally result in greater Adjusted EBITDA contributions, while fee-for-service sales require less initial investment and allow us to accelerate our sales growth. Both sales of owned inventory and fee-for-service sales generate long-term, predictable fee streams, by adding to the Club membership base and properties under management, that generate strong returns on invested capital.
For the nine months ended September 30, 2020, sales from fee-for-service, just-in-time and developed inventory sources were 55 percent, 22 percent and 23 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. The estimated contract sales value related to our inventory that is currently available for sale at open or soon-to-be open projects and inventory at new or existing projects that will become available for sale in the future upon registration, delivery or construction is $10 billion at current pricing.
27
Capital efficient arrangements represent approximately 52 percent of that supply. We believe that the visibility into our long-term supply allows us to efficiently manage inventory to meet predicted sales, reduce capital investments, minimize our exposure to the cyclicality of the real estate market and mitigate the risks of entering into new markets.
We sell our vacation ownership products under the Hilton Grand Vacations brand primarily through our distribution network of both in-market and off-site sales centers. Our products are currently marketed for sale throughout the United States and the Asia-Pacific region. We operate sales distribution centers in major markets and popular leisure destinations with year-round demand and a history of being a friendly environment for vacation ownership. We have sales distribution centers in Las Vegas, Orlando, Oahu, Japan, New York, Myrtle Beach, Waikoloa, Washington D.C., Hilton Head, Park City, Chicago, Korea and Carlsbad. Our marketing and sales activities are based on targeted direct marketing and a highly personalized sales approach. We use targeted direct marketing to reach potential members who are identified as having the financial ability to pay for our products and have an affinity with Hilton and are frequent leisure travelers. Tour flow quality impacts key metrics such as close rate and VPG, defined in “Key Business and Financial Metrics and Terms Used by Management——Real Estate Sales Metrics.” Additionally, the quality of tour flow impacts sales revenue and the collectability of our timeshare financing receivables. For the nine months ended September 30, 2020, 60 percent of our contract sales were to our existing owners.
We provide financing for members purchasing our developed and acquired inventory and generate interest income. Our timeshare financing receivables are collateralized by the underlying VOIs and are generally structured as 10-year, fully-amortizing loans that bear a fixed interest rate typically ranging from 9 percent to 18 percent per annum. Financing propensity was 65 percent and 67 percent for the nine months ended September 30, 2020 and 2019, respectively. We calculate financing propensity as contract sales volume of financed contracts originated in the period divided by contract sales volume of all contracts originated in the period.
The interest rate on our loans is determined by, among other factors, the amount of the down payment, the borrower’s credit profile and the loan term. The weighted-average FICO score for new loans to U.S. and Canadian borrowers at the time of origination were as follows:
|
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
Weighted-average FICO score |
|
|
734 |
|
|
|
735 |
|
Prepayment is permitted without penalty. When a member defaults, we ultimately return their VOI to inventory for resale and that member no longer participates in our Club.
Some of our timeshare financing receivables have been pledged as collateral in our securitization transactions, which have in the past and may in the future provide funding for our business activities. In these securitization transactions, special purpose entities are established to issue various classes of debt securities which are generally collateralized by a single pool of assets, consisting of timeshare financing receivables that we service and related cash deposits. For additional information see Note 6: Timeshare Financing Receivables in our unaudited condensed consolidated financial statements.
In addition, we earn fees from servicing the loans provided by third-party developers of our fee-for-service projects to purchasers of their VOIs and from our securitized timeshare financing receivables.
Resort Operations and Club Management
We enter into management agreements with the HOAs of the VOI owners for timeshare resorts developed by us or a third party. Each of the HOAs is governed by a board of directors comprised of owner and developer representatives that are charged with ensuring the resorts are well-maintained and financially stable. Our management services include day-to-day operations of the resorts, maintenance of the resorts, preparation of reports, budgets and projections and employee training and oversight. Our HOA management agreements provide for a cost-plus management fee, which means we generally earn a fee equal to 10 percent to 15 percent of the costs to operate the applicable resort. The fees we earn are highly predictable due to the relatively fixed nature of resort operating expenses and our management fees are unaffected by changes in rental rate or occupancy. We are reimbursed for the costs incurred to perform our services, principally related to personnel providing on-site services. The initial term of our management agreements typically ranges from three to five years and the agreements are subject to periodic renewal for one to three-year periods. Many of these agreements renew automatically unless either party provides advance notice of termination before the expiration of the term.
We also manage and operate the points-based Hilton Grand Vacations Club and Hilton Club exchange programs, which provide exclusive exchange, leisure travel and reservation services to our Club members. When owners purchase a
28
VOI, they are generally enrolled in the Club and given an annual allotment of points that allow the member to exchange their annual usage rights in the VOI that they own for a number of vacation and travel options. In addition to an annual membership fee, Club members pay incremental fees depending on exchanges they choose within the Club system.
We rent unsold VOI inventory, third-party inventory and inventory made available due to ownership exchanges through our club programs. We earn a fee from rentals of third-party inventory. Additionally, we provide ancillary offerings including food and beverage, retail and spa offerings at these timeshare properties.
Key Business and Financial Metrics and Terms Used by Management
Real Estate Sales Operating Metrics
We measure our performance using the following key operating metrics:
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|
• |
Contract sales represents the total amount of VOI products (fee-for-service and developed) under purchase agreements signed during the period where we have received a down payment of at least 10 percent of the contract price. Contract sales differ from revenues from the Sales of VOIs, net that we report in our condensed consolidated statements of operations due to the requirements for revenue recognition, as well as adjustments for incentives. We consider contract sales to be an important operating measure because it reflects the pace of sales in our business and is used to manage the performance of the sales organization. While we do not record the purchase price of sales of VOI products developed by fee-for-service partners as revenue in our condensed consolidated financial statements, rather recording the commission earned as revenue in accordance with U.S. GAAP, we believe contract sales to be an important operational metric, reflective of the overall volume and pace of sales in our business and believe it provides meaningful comparability of our results to the results of our competitors which may source their VOI products differently. |
We believe that the presentation of contract sales on a combined basis (fee-for-service and developed) is most appropriate for the purpose of the operating metric, additional information regarding the split of contract sales, is included in “—Real Estate” below. See Note 2: Basis of Presentation and Summary of Significant Accounting Policies in our audited consolidated financial statements included in Item 8 in our Annual Report on form 10-K for the year ended December 31, 2019, for additional information on Sales of VOI, net.
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• |
Sales revenue represents Sales of VOIs, net, commissions and brand fees earned from the sale of fee-for-service intervals. |
|
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• |
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. |
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• |
Tour flow represents the number of sales presentations given at our sales centers during the period. |
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• |
Volume per guest (“VPG”) represents the sales attributable to tours at our sales locations and is calculated by dividing Contract sales, excluding telesales, by tour flow. We consider VPG to be an important operating measure because it measures the effectiveness of our sales process, combining the average transaction price with the closing rate. |
For further information see Item 8. Financial Statements and Supplementary Data - Note 2: Basis of Presentation and Summary of Significant Accounting Policies in our Annual Report on Form 10-K for the year ended December 31, 2019.
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.
29
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:
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• |
EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; |
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|
• |
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; |
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|
• |
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 |
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|
• |
EBITDA and Adjusted EBITDA may be calculated differently from other companies in our industry limiting their usefulness as comparative measures. |
Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.
Recent Events Related to the COVID-19 Pandemic and Impact on Our Results of Operations, Financial Condition, and Business During the Three and Nine Months Ended September 30, 2020.
In March 2020, a National Public Health Emergency was declared in response to the coronavirus, known as COVID-19. As a result, many local, county and state government officials have issued, and continue to issue, various mandates and orders to close non-essential businesses, impose travel restrictions, and require “stay-at-home” and/or self-quarantine in certain cases, all in an effort to protect the health and safety of individuals and aimed at slowing and ultimately stopping the spread and transmission of the virus.
Accordingly, commencing in March 2020, we started to temporarily close substantially all of our properties and suspended our U.S sales operations and closed such sales offices. We took a number of other actions to reduce our expenses and preserve liquidity, including workforce furlough, implementing salary reductions for the remaining active employees primarily during the second quarter of 2020, implementing hiring freezes, eliminating all discretionary spending, and reducing our planned investment in new inventory by approximately $200 million. Recently, we announced a workforce reduction plan that will impact approximately 1,600 team members, and approximately 2,000 of our team members remain furloughed.
30
Furthermore, we believe the following actions will provide adequate capital to meet our short-and long-term liquidity requirements for anticipated operating expenses and other expenditures, including payroll and related benefits, legal costs, and additional costs related to complying with various regulatory requirements and best practices for opening under the current environment resulting from the pandemic, and to finance our long-term growth plan and capital expenditures for the foreseeable future.
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• |
In March 2020, we drew down the substantial remainder of our borrowing capacity under our revolver facility through net borrowings of $445 million as a precautionary measure to ensure liquidity for a sustained period in the economic environment resulting from the COVID-19 pandemic. We expect the proceeds would be used for general corporate and working capital purposes in the ordinary course of business. |
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|
• |
In April 2020, we amended certain key definitions related to delinquency level calculations of underlying timeshare loans that are used as collateral for borrowings under our Timeshare Facility, and generated added flexibility to manage any potential increase in the rate of delinquency as a result of the impact of the COVID-19 pandemic. |
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• |
In May 2020, we amended our Credit Agreement which amended certain terms of the credit facilities (“Senior Secured Credit Facilities”) to provide us with both near-term and long-term flexibility with respect to satisfying certain negative and financial covenants and ratios as may be needed due to the ongoing and uncertain future impact of the COVID-19 pandemic on our business and operations. |
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• |
In June 2020, we completed a securitization of $300 million of gross timeshare financing receivables and used the proceeds to pay down the $195 million outstanding balance on our Timeshare Facility and for general corporate operating expenses. As of September 30, 2020, we have $450 million remaining borrowing capacity under our Timeshare Facility. See Note 11: Debt and Non-Recourse Debt for additional information. |
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• |
In August 2020, we renewed and extended our Timeshare Facility and amended certain provisions relating to advance rate, successor benchmark interest rate, certain used and unused fees, and thresholds for interest rate hedging obligations and transactions. |
The closure of our resorts and sales centers, and the related suspensions of our operations, expectedly have had a materially adverse impact on our revenues, net income (loss) and other operating results during the third quarter, as well as our business and operations generally, as more fully discussed below. As discussed in further detail below, substantially all of the unfavorable changes in our operating results during the three and nine months ended September 30, 2020 as compared to prior periods were as a result of the ongoing impact of the COVID-19 pandemic on travel demand, along with the temporary closure of substantially all of our properties and suspension of our sales and related operations during the first half of 2020.
Additionally, as a result of the ongoing COVID-19 pandemic, we are performing a review over certain of our long-lived assets in order to determine our optimal strategic direction with regards to these assets. These assets include undeveloped parcels of land and certain unallocated infrastructure costs related to future phases of existing resorts. The result of this review could have a material impact on the carrying value of certain assets, which could result in non-cash impairments.
Outlook
The COVID-19 pandemic has created an unprecedented and challenging time. Our current focus is on taking critical actions that are aimed at positioning the Company in a sound position from an operational, liquidity, credit access, and compliance perspective for a strong recovery when the impact of COVID-19 subsides. As discussed above, we have taken several steps to enhance our liquidity, preserve cash, reduce our expenditures and provide financial flexibility. We will continue to assess the evolving COVID-19 pandemic, including the various government mandates and orders that impact the re-opening of our properties and any new recommended or required business practices, and will take additional actions as appropriate.
Prior to re-opening our resorts and sales centers, we introduced the HGV Enhanced Care Guidelines, designed to provide owners, guests and team members with the highest level of cleaning protocols and safety standards recommended by the Center for Disease Control and Prevention and cleaning solutions approved by the Environmental Protection Agency in response to the COVID-19 pandemic. Along with providing personal protective equipment to team members, these Enhanced Care Guidelines include low-touch arrivals and departures, frequent and thorough cleaning, reduction of paper items, reduced capacity for our pool decks and fitness centers, and new technologies. While operations were suspended,
31
essential resort personnel worked diligently maintaining the resorts for a safe re-opening. Annual deep cleanings, typically scheduled during slower seasons, were moved up and completed, allowing the resorts to be in top shape when owners and guests arrive.
Beginning in May 2020, various states and counties started to allow gradual relaxation of restrictions on activities and a resumption of businesses. In response, we began a phased reopening of resorts and resumption of our business activities during the second quarter of 2020, but under new operating guidelines and with safety measures. As of October 2020, we have over three quarters of our resorts and sales centers open and currently operating however, many of our resorts and sales centers are operating with significant capacity constraints and subject to various safety measures.
Although we have started re-opening our sales centers, they have initially been operating at lower levels of utilization than they were prior to the temporary shutdown. This includes lower levels of sales staff, modified operating schedules to stagger tours in compliance with social distancing rules, and running a reduced weekly operating calendar. As we respond to changes in tour flow, we intend to adjust our sales operations accordingly while complying with all applicable social distancing rules and our own safety measures.
While we plan to continue to reopen our resorts and resume our business as conditions and applicable rules and regulations permit, the pandemic continues to be unprecedented and rapidly changing, and has unknown duration and severity. Further, ongoing strict travel and other restrictions in regions and locations where we have a significant concentration of our properties and units, in particular, Hawaii and New York, are significantly impacting consumer demand for our resorts in those areas.
Accordingly, there remains significant uncertainty as to the degree of impact and duration of the conditions stemming from the ongoing pandemic on our revenues, net income and other operating results, as well as our business and operations generally. Any significantly extended duration or worsening of the conditions associated with the pandemic may adversely impact our liquidity in the longer term, including our ability to finance our day-to-day business and operations, and may adversely affect our ability to comply with our maintenance and financial covenants and ratios under our debt obligations notwithstanding the recent amendments discussed above. However, we believe that prior to triggering an event of default, if any, in connection with the financial covenants under our debt agreements we would be able to reach an agreement with our lenders to amend such covenants in advance of any potential default.
Please review carefully the risk factors contained in our Form 10-K for the year ended December 31, 2019 and those that are included in our Forms 10-Q for the quarters ended March 31, 2020 and June 30, 2020 and this Report for discussions of various factors and uncertainties related to the pandemic that may materially impact us.
Results of Operations
Three and Nine Months Ended September 30, 2020 Compared with the Three and Nine Months Ended September 30, 2019
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:
32
|
|
|
Three Months Ended September 30, |
|
|
Variance |
|
|
Nine Months Ended September 30, |
|
|
Variance |
|
||||||||||||||||||||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
||||||||
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate sales and financing |
|
$ |
116 |
|
|
$ |
324 |
|
|
$ |
(208 |
) |
|
|
(64.2 |
)% |
|
$ |
378 |
|
|
$ |
939 |
|
|
$ |
(561 |
) |
|
|
(59.7 |
)% |
|
Resort operations and club management |
|
|
61 |
|
|
|
108 |
|
|
|
(47 |
) |
|
|
(43.5 |
) |
|
|
209 |
|
|
|
332 |
|
|
|
(123 |
) |
|
|
(37.0 |
) |
|
Segment revenues |
|
|
177 |
|
|
|
432 |
|
|
|
(255 |
) |
|
|
(59.0 |
) |
|
|
587 |
|
|
|
1,271 |
|
|
|
(684 |
) |
|
|
(53.8 |
) |
|
Cost reimbursements |
|
|
33 |
|
|
|
43 |
|
|
|
(10 |
) |
|
|
(23.3 |
) |
|
|
105 |
|
|
|
128 |
|
|
|
(23 |
) |
|
|
(18.0 |
) |
|
Intersegment eliminations(1) |
|
|
(2 |
) |
|
|
(9 |
) |
|
|
7 |
|
|
|
(77.8 |
) |
|
|
(10 |
) |
|
|
(29 |
) |
|
|
19 |
|
|
|
(65.5 |
) |
|
Total revenues |
|
$ |
208 |
|
|
$ |
466 |
|
|
$ |
(258 |
) |
|
|
(55.4 |
) |
|
$ |
682 |
|
|
$ |
1,370 |
|
|
$ |
(688 |
) |
|
|
(50.2 |
) |
|
(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 (loss) income, our most comparable U.S. GAAP financial measure, to EBITDA and Adjusted EBITDA:
|
|
|
Three Months Ended September 30, |
|
|
Variance |
|
|
Nine Months Ended September 30, |
|
|
Variance |
|
||||||||||||||||||||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
||||||||
|
Net (loss) income |
|
$ |
(7 |
) |
|
$ |
50 |
|
|
$ |
(57 |
) |
|
NM(1) |
|
|
$ |
(47 |
) |
|
$ |
144 |
|
|
$ |
(191 |
) |
|
NM(1) |
|
||
|
Interest expense |
|
|
10 |
|
|
|
12 |
|
|
|
(2 |
) |
|
|
(16.7 |
)% |
|
|
32 |
|
|
|
33 |
|
|
|
(1 |
) |
|
|
(3.0 |
)% |
|
Income tax (benefit) expense |
|
|
(5 |
) |
|
|
20 |
|
|
|
(25 |
) |
|
NM(1) |
|
|
|
(12 |
) |
|
|
55 |
|
|
|
(67 |
) |
|
NM(1) |
|
||
|
Depreciation and amortization |
|
|
11 |
|
|
|
12 |
|
|
|
(1 |
) |
|
|
(8.3 |
) |
|
|
34 |
|
|
|
32 |
|
|
|
2 |
|
|
|
6.3 |
|
|
Interest expense, depreciation and amortization included in equity in (losses) earnings from unconsolidated affiliates |
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
|
NM(1) |
|
|
|
2 |
|
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
EBITDA |
|
|
10 |
|
|
|
94 |
|
|
|
(84 |
) |
|
|
(89.4 |
) |
|
|
9 |
|
|
|
266 |
|
|
|
(257 |
) |
|
|
(96.6 |
) |
|
Other (gain) loss, net |
|
|
(1 |
) |
|
|
1 |
|
|
|
(2 |
) |
|
NM(1) |
|
|
|
— |
|
|
|
3 |
|
|
|
(3 |
) |
|
|
(100.0 |
) |
|
|
Share-based compensation expense(2) |
|
|
6 |
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
10 |
|
|
|
18 |
|
|
|
(8 |
) |
|
|
(44.4 |
) |
|
Other adjustment items(3) |
|
|
4 |
|
|
|
10 |
|
|
|
(6 |
) |
|
|
(60.0 |
) |
|
|
14 |
|
|
|
16 |
|
|
|
(2 |
) |
|
|
(12.5 |
) |
|
Adjusted EBITDA |
|
$ |
19 |
|
|
$ |
111 |
|
|
$ |
(92 |
) |
|
|
(82.9 |
) |
|
$ |
33 |
|
|
$ |
303 |
|
|
$ |
(270 |
) |
|
|
(89.1 |
) |
|
(1) |
Fluctuation in terms of percentage change is not meaningful. |
33
|
(2) |
As of March 31, 2020, we determined that the performance conditions for our 2018, 2019, and 2020 Performance RSUs were improbable of achievement therefore we reversed $8 million of share-based compensation expense recognized in prior years and ceased accruing expenses related to Performance RSUs granted in 2018, 2019, and 2020, during the three months ended March 31, 2020. As of September 30, 2020, we determined the performance conditions continue to be improbable of achievement and therefore no expense was recognized for our Performance RSUs in the current period. |
|
(3) |
For the three and nine months ended September 30, 2020 and 2019, this amount includes costs associated with restructuring, one-time charges and other non-cash items. |
The following table reconciles our segment Adjusted EBITDA to Adjusted EBITDA:
|
|
|
Three Months Ended September 30, |
|
|
Variance |
|
|
Nine Months Ended September 30, |
|
|
Variance |
|
||||||||||||||||||||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
||||||||
|
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate sales and financing(1) |
|
$ |
15 |
|
|
$ |
94 |
|
|
$ |
(79 |
) |
|
|
(84.0 |
)% |
|
$ |
16 |
|
|
$ |
243 |
|
|
$ |
(227 |
) |
|
|
(93.4 |
)% |
|
Resort operations and club management(1) |
|
|
30 |
|
|
|
62 |
|
|
|
(32 |
) |
|
|
(51.6 |
) |
|
|
100 |
|
|
|
193 |
|
|
|
(93 |
) |
|
|
(48.2 |
) |
|
Segment Adjusted EBITDA |
|
|
45 |
|
|
|
156 |
|
|
|
(111 |
) |
|
|
(71.2 |
) |
|
|
116 |
|
|
|
436 |
|
|
|
(320 |
) |
|
|
(73.4 |
) |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA from unconsolidated affiliates |
|
|
— |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
(100.0 |
) |
|
|
5 |
|
|
|
6 |
|
|
|
(1 |
) |
|
|
(16.7 |
) |
|
License fee expense |
|
|
(11 |
) |
|
|
(26 |
) |
|
|
15 |
|
|
|
(57.7 |
) |
|
|
(39 |
) |
|
|
(75 |
) |
|
|
36 |
|
|
|
(48.0 |
) |
|
General and administrative(2) |
|
|
(15 |
) |
|
|
(20 |
) |
|
|
5 |
|
|
|
(25.0 |
) |
|
|
(49 |
) |
|
|
(64 |
) |
|
|
15 |
|
|
|
(23.4 |
) |
|
Adjusted EBITDA |
|
$ |
19 |
|
|
$ |
111 |
|
|
$ |
(92 |
) |
|
|
(82.9 |
) |
|
$ |
33 |
|
|
$ |
303 |
|
|
$ |
(270 |
) |
|
|
(89.1 |
) |
|
(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) |
|
2020 |
|
|
2019 |
|
|
$ |
|
|
2020 |
|
|
2019 |
|
|
$ |
|
||||||
|
Sales of VOIs (deferrals) |
|
$ |
(13 |
) |
|
$ |
(15 |
) |
|
$ |
2 |
|
|
$ |
(64 |
) |
|
$ |
(49 |
) |
|
$ |
(15 |
) |
|
Sales of VOIs recognitions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net Sales of VOIs (deferrals) recognitions |
|
|
(13 |
) |
|
|
(15 |
) |
|
|
2 |
|
|
|
(64 |
) |
|
|
(49 |
) |
|
|
(15 |
) |
|
Cost of VOI sales (deferrals)(1) |
|
|
(4 |
) |
|
|
(5 |
) |
|
|
1 |
|
|
|
(17 |
) |
|
|
(16 |
) |
|
|
(1 |
) |
|
Cost of VOI sales recognitions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net Cost of VOI sales (deferrals) recognitions(1) |
|
|
(4 |
) |
|
|
(5 |
) |
|
|
1 |
|
|
|
(17 |
) |
|
|
(16 |
) |
|
|
(1 |
) |
|
Sales and marketing expense (deferrals) |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
1 |
|
|
|
(9 |
) |
|
|
(7 |
) |
|
|
(2 |
) |
|
Sales and marketing expense recognitions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net Sales and marketing expense (deferrals) recognitions |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
1 |
|
|
|
(9 |
) |
|
|
(7 |
) |
|
|
(2 |
) |
|
Net construction (deferrals) recognitions |
|
$ |
(8 |
) |
|
$ |
(8 |
) |
|
$ |
— |
|
|
$ |
(38 |
) |
|
$ |
(26 |
) |
|
$ |
(12 |
) |
34
|
(1) |
Includes anticipated Costs of VOI sales of VOIs under construction that will be acquired under a just-in-time arrangement once construction is complete for the three and nine months ended September 30, 2020 and 2019. |
Real estate sales and financing segment revenues decreased by $208 million for the three months ended September 30, 2020 and $561 million for the nine months ended September 30, 2020, compared to the same periods in 2019, primarily due to decreases in sales revenue and marketing revenue as a result of the ongoing impact of the COVID-19 pandemic on travel demand, along with the temporary closure of substantially all of our properties and suspension of our sales and related operations during the first half of 2020.
Real estate sales and financing Adjusted EBITDA decreased by $79 million for the three months ended September 30, 2020 and $227 million for the nine months ended September 30, 2020, compared to the same periods in 2019, primarily due to the decreases in segment revenues associated with segment performance discussed herein partially offset by a decrease in related expenses. In addition, real estate sales and financing segment Adjusted EBITDA was impacted by $9 million in one-time payroll related expenses, net of an employee retention credit granted primarily under the CARES Act, primarily related to payments made to employees as a result of operational closures caused by the COVID-19 pandemic for the nine months ended September 30, 2020.
Refer to “—Real Estate” and “—Financing” for further discussion on the revenues and expenses of the real estate sales and financing segment.
Resort Operations and Club Management
Resort operations and club management segment revenues decreased $47 million and $123 million for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019, primarily due to decreases in rental and ancillary revenues as a result of the ongoing impact of the COVID-19 pandemic on travel demand, along with the temporary closure of substantially all of our properties and suspension of our sales and related operations during the first half of 2020.
Resort operations and club management segment Adjusted EBITDA decreased $32 million and $93 million for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019, primarily due to the decreases in segment margin associated with segment performance discussed herein.
Refer to “— Resort and Club Management” and “—Rental and Ancillary Services” for further discussion on the revenues and expenses of the resort operations and club management segment.
Real Estate Sales and Financing Segment
Real Estate
|
|
|
Three Months Ended September 30, |
|
|
Variance |
|
|
Nine Months Ended September 30, |
|
|
Variance |
|
||||||||||||||||||||
|
($ in millions, except Tour flow and VPG) |
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
||||||||
|
Contract sales |
|
$ |
117 |
|
|
$ |
360 |
|
|
$ |
(243 |
) |
|
|
(67.5 |
) |
|
$ |
396 |
|
|
$ |
1,045 |
|
|
$ |
(649 |
) |
|
|
(62.1 |
) |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee-for-service sales(2) |
|
|
(67 |
) |
|
|
(194 |
) |
|
|
127 |
|
|
|
(65.5 |
) |
|
|
(216 |
) |
|
|
(569 |
) |
|
|
353 |
|
|
|
(62.0 |
) |
|
Provision for financing receivables losses |
|
|
(12 |
) |
|
|
(22 |
) |
|
|
10 |
|
|
|
(45.5 |
) |
|
|
(57 |
) |
|
|
(60 |
) |
|
|
3 |
|
|
|
(5.0 |
) |
|
Reportability and other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferral (recognition) of sales of VOIs under construction(3) |
|
|
(13 |
) |
|
|
(15 |
) |
|
|
2 |
|
|
|
(13.3 |
) |
|
|
(64 |
) |
|
|
(49 |
) |
|
|
(15 |
) |
|
|
30.6 |
|
|
Fee-for-service sale upgrades, net |
|
|
4 |
|
|
|
15 |
|
|
|
(11 |
) |
|
|
(73.3 |
) |
|
|
13 |
|
|
|
39 |
|
|
|
(26 |
) |
|
|
(66.7 |
) |
|
Other(4) |
|
|
(5 |
) |
|
|
(6 |
) |
|
|
1 |
|
|
|
(16.7 |
) |
|
|
8 |
|
|
|
(23 |
) |
|
|
31 |
|
|
NM(1) |
|
|
|
Sales of VOIs, net |
|
$ |
24 |
|
|
$ |
138 |
|
|
$ |
(114 |
) |
|
|
(0.8 |
) |
|
$ |
80 |
|
|
$ |
383 |
|
|
$ |
(303 |
) |
|
|
(0.8 |
) |
|
Tour flow |
|
|
25,488 |
|
|
|
102,911 |
|
|
|
(77,423 |
) |
|
|
(75.2 |
) |
|
|
98,263 |
|
|
|
287,267 |
|
|
|
(189,004 |
) |
|
|
(65.8 |
) |
|
VPG |
|
$ |
4,205 |
|
|
$ |
3,363 |
|
|
$ |
842 |
|
|
|
25.0 |
|
|
$ |
3,763 |
|
|
$ |
3,464 |
|
|
$ |
299 |
|
|
|
8.6 |
|
|
(1) |
Fluctuation in terms of percentage change is not meaningful. |
35
|
(2) |
Represents contract sales from fee-for-service properties on which we earn commissions and brand fees. |
|
(3) |
Represents the net impact of deferred revenues related to the Sales of VOIs under construction that are recognized when construction is complete. |
|
(4) |
Includes adjustments for revenue recognition, including amounts in rescission and sales incentives. |
Contract sales decreased $243 million and $649 million for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019, primarily due to a decrease in tour flow related to the ongoing impact of the COVID-19 pandemic on travel demand, along with the temporary closure of substantially all of our properties and suspension of our sales and related operations during the first half of 2020.
Beginning in May 2020, we began a phased reopening of resorts and resumption of our business activities, however many of our resorts and sales centers are operating with significant capacity constraints and are subject to various safety measures. As of September 30, 2020, we have over three quarters of our resorts and sales centers open and currently operating.
|
|
|
Three Months Ended September 30, |
|
|
Variance |
|
|
Nine Months Ended September 30, |
|
|
Variance |
|
||||||||||||||||||||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
||||||||
|
Sales, marketing, brand and other fees |
|
$ |
52 |
|
|
$ |
143 |
|
|
$ |
(91 |
) |
|
|
(63.6 |
)% |
|
$ |
171 |
|
|
$ |
429 |
|
|
$ |
(258 |
) |
|
|
(60.1 |
)% |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing revenue and other fees |
|
|
11 |
|
|
|
34 |
|
|
|
(23 |
) |
|
|
(67.6 |
) |
|
|
40 |
|
|
|
102 |
|
|
|
(62 |
) |
|
|
(60.8 |
) |
|
Commissions and brand fees |
|
|
41 |
|
|
|
109 |
|
|
|
(68 |
) |
|
|
(62.4 |
) |
|
|
131 |
|
|
|
327 |
|
|
|
(196 |
) |
|
|
(59.9 |
) |
|
Sales of VOIs, net |
|
|
24 |
|
|
|
138 |
|
|
|
(114 |
) |
|
|
(82.6 |
) |
|
|
80 |
|
|
|
383 |
|
|
|
(303 |
) |
|
|
(79.1 |
) |
|
Sales revenue |
|
|
65 |
|
|
|
247 |
|
|
|
(182 |
) |
|
|
(73.7 |
) |
|
|
211 |
|
|
|
710 |
|
|
|
(499 |
) |
|
|
(70.3 |
) |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of VOI sales |
|
|
8 |
|
|
|
24 |
|
|
|
(16 |
) |
|
|
(66.7 |
) |
|
|
21 |
|
|
|
92 |
|
|
|
(71 |
) |
|
|
(77.2 |
) |
|
Sales and marketing expense, net(2) |
|
|
66 |
|
|
|
145 |
|
|
|
(79 |
) |
|
|
(54.5 |
) |
|
|
247 |
|
|
|
415 |
|
|
|
(168 |
) |
|
|
(40.5 |
) |
|
Real estate margin |
|
$ |
(9 |
) |
|
$ |
78 |
|
|
$ |
(87 |
) |
|
NM(1) |
|
|
$ |
(57 |
) |
|
$ |
203 |
|
|
$ |
(260 |
) |
|
NM(1) |
|
||
|
Real estate margin percentage |
|
|
(13.8 |
)% |
|
|
31.6 |
% |
|
|
|
|
|
|
|
|
|
|
(27.0 |
)% |
|
|
28.6 |
% |
|
|
|
|
|
|
|
|
|
(1) |
Fluctuation in terms of percentage change is not meaningful. |
|
(2) |
Includes revenue recognized through our marketing programs for existing owners and prospective first-time buyers and revenue associated with sales incentives, title service and document compliance. |
Sales revenue decreased for the three and nine months ended September 30, 2020, compared to the same periods in 2019, due to decreases in sales revenue, commissions and brand fees and related expenses as a result of the ongoing impact of the COVID-19 pandemic on travel demand, along with the temporary closure of substantially all of our properties and suspension of our sales and related operations during the first half of 2020.
Financing
|
|
|
Three Months Ended September 30, |
|
|
Variance |
|
|
Nine Months Ended September 30, |
|
|
Variance |
|
||||||||||||||||||||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
||||||||
|
Interest income |
|
$ |
34 |
|
|
$ |
37 |
|
|
$ |
(3 |
) |
|
|
(8.1 |
) |
|
$ |
108 |
|
|
$ |
109 |
|
|
$ |
(1 |
) |
|
|
(0.9 |
)% |
|
Other financing revenue |
|
|
6 |
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
19 |
|
|
|
18 |
|
|
|
1 |
|
|
|
5.6 |
|
|
Financing revenue |
|
|
40 |
|
|
|
43 |
|
|
|
(3 |
) |
|
|
(7.0 |
) |
|
|
127 |
|
|
|
127 |
|
|
|
— |
|
|
|
— |
|
|
Consumer financing interest expense |
|
|
9 |
|
|
|
8 |
|
|
|
1 |
|
|
|
12.5 |
|
|
|
23 |
|
|
|
22 |
|
|
|
1 |
|
|
|
4.5 |
|
|
Other financing expense |
|
|
4 |
|
|
|
6 |
|
|
|
(2 |
) |
|
|
(33.3 |
) |
|
|
16 |
|
|
|
17 |
|
|
|
(1 |
) |
|
|
(5.9 |
) |
|
Financing expense |
|
|
13 |
|
|
|
14 |
|
|
|
(1 |
) |
|
|
(7.1 |
) |
|
|
39 |
|
|
|
39 |
|
|
|
— |
|
|
|
— |
|
|
Financing margin |
|
$ |
27 |
|
|
$ |
29 |
|
|
$ |
(2 |
) |
|
|
(6.9 |
) |
|
$ |
88 |
|
|
$ |
88 |
|
|
$ |
— |
|
|
|
— |
|
|
Financing margin percentage |
|
|
67.5 |
% |
|
|
67.4 |
% |
|
|
|
|
|
|
|
|
|
|
69.3 |
% |
|
|
69.3 |
% |
|
|
|
|
|
|
|
|
36
Financing revenue decreased $3 million for the three months ended September 30, 2020 and remained flat for the nine months ended September 30, 2020, compared to the same periods in 2019 primarily due to a decrease in the timeshare financing receivables portfolio balance.
Financing margin decreased for the three months ended September 30, 2020, compared to the same period in 2019 related to the aforementioned decrease in interest income partially offset primarily by a decrease in other financing expenses. Financing margin percentage remained relatively flat for the three and nine months ended September 30, 2020 compared to the same periods in 2019.
Resort Operations and Club Management Segment
Resort and Club Management
|
|
|
Three Months Ended September 30, |
|
|
Variance |
|
|
Nine Months Ended September 30, |
|
|
Variance |
|
||||||||||||||||||||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
||||||||
|
Club management revenue |
|
$ |
23 |
|
|
$ |
28 |
|
|
$ |
(5 |
) |
|
|
(17.9 |
)% |
|
$ |
70 |
|
|
$ |
80 |
|
|
$ |
(10 |
) |
|
|
(12.5 |
)% |
|
Resort management revenue |
|
|
16 |
|
|
|
17 |
|
|
|
(1 |
) |
|
|
(5.9 |
) |
|
|
52 |
|
|
|
50 |
|
|
|
2 |
|
|
|
4.0 |
|
|
Resort and club management revenues |
|
|
39 |
|
|
|
45 |
|
|
|
(6 |
) |
|
|
(13.3 |
) |
|
|
122 |
|
|
|
130 |
|
|
|
(8 |
) |
|
|
(6.2 |
) |
|
Club management expense |
|
|
6 |
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
18 |
|
|
|
20 |
|
|
|
(2 |
) |
|
|
(10.0 |
) |
|
Resort management expense |
|
|
3 |
|
|
|
5 |
|
|
|
(2 |
) |
|
|
(40.0 |
) |
|
|
9 |
|
|
|
14 |
|
|
|
(5 |
) |
|
|
(35.7 |
) |
|
Resort and club management expenses |
|
|
9 |
|
|
|
11 |
|
|
|
(2 |
) |
|
|
(18.2 |
) |
|
|
27 |
|
|
|
34 |
|
|
|
(7 |
) |
|
|
(20.6 |
) |
|
Resort and club management margin |
|
$ |
30 |
|
|
$ |
34 |
|
|
$ |
(4 |
) |
|
|
(11.8 |
) |
|
$ |
95 |
|
|
$ |
96 |
|
|
$ |
(1 |
) |
|
|
(1.0 |
) |
|
Resort and club management margin percentage |
|
|
76.9 |
% |
|
|
75.6 |
% |
|
|
|
|
|
|
|
|
|
|
77.9 |
% |
|
|
73.8 |
% |
|
|
|
|
|
|
|
|
Resort and club management revenues decreased for the three and nine months ended September 30, 2020, compared to the same periods in 2019, primarily due to a decrease in club management revenue related to the refunding and waiving of club transaction fees to accommodate our guests impacted by the COVID-19 pandemic. For the nine months ended September 30, 2020, the decrease in revenue was partially offset by (i) an increase of approximately 6,000 Club members and (ii) an increase in resort management revenue from the launch of new properties, compared to the same period in 2019.
Resort and club management margin percentage increased for the three and nine months ended September 30, 2020, primarily due to a reduction in resort and club management expenses driven by the ongoing impact of the COVID-19 pandemic on travel demand, along with the temporary closure of substantially all of our resort operations during the first half of 2020.
Rental and Ancillary Services
|
|
|
Three Months Ended September 30, |
|
|
Variance |
|
|
Nine Months Ended September 30, |
|
|
Variance |
|
||||||||||||||||||||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
||||||||
|
Rental revenues |
|
$ |
19 |
|
|
$ |
48 |
|
|
$ |
(29 |
) |
|
|
(60.4 |
)% |
|
$ |
71 |
|
|
$ |
153 |
|
|
$ |
(82 |
) |
|
|
(53.6 |
)% |
|
Ancillary services revenues |
|
|
1 |
|
|
|
6 |
|
|
|
(5 |
) |
|
|
(83.3 |
) |
|
|
6 |
|
|
|
20 |
|
|
|
(14 |
) |
|
|
(70.0 |
) |
|
Rental and ancillary services revenues |
|
|
20 |
|
|
|
54 |
|
|
|
(34 |
) |
|
|
(63.0 |
) |
|
|
77 |
|
|
|
173 |
|
|
|
(96 |
) |
|
|
(55.5 |
) |
|
Rental expenses |
|
|
23 |
|
|
|
30 |
|
|
|
(7 |
) |
|
|
(23.3 |
) |
|
|
77 |
|
|
|
89 |
|
|
|
(12 |
) |
|
|
(13.5 |
) |
|
Ancillary services expense |
|
|
1 |
|
|
|
6 |
|
|
|
(5 |
) |
|
|
(83.3 |
) |
|
|
8 |
|
|
|
19 |
|
|
|
(11 |
) |
|
|
(57.9 |
) |
|
Rental and ancillary services expenses |
|
|
24 |
|
|
|
36 |
|
|
|
(12 |
) |
|
|
(33.3 |
) |
|
|
85 |
|
|
|
108 |
|
|
|
(23 |
) |
|
|
(21.3 |
) |
|
Rental and ancillary services margin |
|
$ |
(4 |
) |
|
$ |
18 |
|
|
$ |
(22 |
) |
|
NM(1) |
|
|
$ |
(8 |
) |
|
$ |
65 |
|
|
$ |
(73 |
) |
|
NM(1) |
|
||
|
Rental and ancillary services margin percentage |
|
|
(20.0 |
)% |
|
|
33.3 |
% |
|
|
|
|
|
|
|
|
|
|
(10.4 |
)% |
|
|
37.6 |
% |
|
|
|
|
|
|
|
|
37
|
(1) |
Fluctuation in terms of percentage change is not meaningful. |
Rental and ancillary services revenues, expenses, and margin percentage decreased for the three and nine months ended September 30, 2020, compared to the same periods in 2019, due to the ongoing impact of the COVID-19 pandemic on travel demand, along with the temporary closure of substantially all of our resort operations during the first half of 2020.
Beginning in May 2020, we began a phased reopening of resorts and resumption of our business activities; however, many of our resorts are operating at significant capacity constraints and are subject to various safety measures. As of September 30, 2020, we have over three quarters of our resorts open and currently operating.
Other Operating Expenses
|
|
|
Three Months Ended September 30, |
|
|
Variance |
|
|
Nine Months Ended September 30, |
|
|
Variance |
|
||||||||||||||||||||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
||||||||
|
General and administrative |
|
$ |
22 |
|
|
$ |
30 |
|
|
$ |
(8 |
) |
|
|
(26.7 |
)% |
|
$ |
65 |
|
|
$ |
87 |
|
|
$ |
(22 |
) |
|
|
(25.3 |
)% |
|
Depreciation and amortization |
|
|
11 |
|
|
|
12 |
|
|
|
(1 |
) |
|
|
(8.3 |
) |
|
|
34 |
|
|
|
32 |
|
|
|
2 |
|
|
|
6.3 |
|
|
License fee expense |
|
|
11 |
|
|
|
26 |
|
|
|
(15 |
) |
|
|
(57.7 |
) |
|
|
39 |
|
|
|
75 |
|
|
|
(36 |
) |
|
|
(48.0 |
) |
The change in other operating expenses for the three and nine months ended September 30, 2020, compared to the same periods in 2019, is driven by a decrease in General and administrative expenses related to (i) decreases in salaries and wages from the furloughs and pay decreases announced during the second quarter of 2020, (ii) the reversal of previously recognized expense related to our 2018 and 2019 Performance RSUs which are not expected to achieve certain performance targets during the first quarter of 2020 and (iii) lower license fee expense related to the corresponding decrease in real estate sales and resort operations revenue.
Non-Operating Expenses
|
|
|
Three Months Ended September 30, |
|
|
Variance |
|
|
Nine Months Ended September 30, |
|
|
Variance |
|
||||||||||||||||||||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
||||||||
|
Interest expense |
|
$ |
10 |
|
|
$ |
12 |
|
|
$ |
(2 |
) |
|
|
(16.7 |
)% |
|
$ |
32 |
|
|
$ |
33 |
|
|
$ |
(1 |
) |
|
|
(3.0 |
)% |
|
Equity in losses (earnings) from unconsolidated affiliates |
|
|
1 |
|
|
|
(1 |
) |
|
|
2 |
|
|
NM(1) |
|
|
|
(3 |
) |
|
|
(4 |
) |
|
|
1 |
|
|
|
(25.0 |
) |
|
|
Other (gain) loss, net |
|
|
(1 |
) |
|
|
1 |
|
|
|
(2 |
) |
|
NM(1) |
|
|
|
— |
|
|
|
3 |
|
|
|
(3 |
) |
|
|
(100.0 |
) |
|
|
Income tax (benefit) expense |
|
|
(5 |
) |
|
|
20 |
|
|
|
(25 |
) |
|
NM(1) |
|
|
|
(12 |
) |
|
|
55 |
|
|
|
(67 |
) |
|
NM(1) |
|
||
|
(1) |
Fluctuation in terms of percentage change is not meaningful. |
38
The change in non-operating expenses for the three and nine months ended September 30, 2020, compared to the same periods in 2019, is primarily due to a decrease in income tax expense due to a decrease in income before taxes combined with a decrease in the effective tax rate. See Note 14: Income Taxes for additional information.
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 through cash and cash equivalents, cash generated from our operations, draws on our senior secured credit facility and our non-recourse revolving timeshare credit facility (“Timeshare Facility”), and through periodic securitizations of our timeshare financing receivables.
|
|
• |
In March 2020, we drew down the substantial remainder of our borrowing capacity under the revolver facility through net borrowings of $445 million as a precautionary measure to ensure liquidity for a sustained period in the economic environment resulting from the COVID-19 pandemic. We do not have a plan for the use of the proceeds other than for general corporate and working capital purposes in the ordinary course of business. As of September 30, 2020, we have $39 million remaining borrowing capacity under the revolver facility (“Revolver”). See Note 11: Debt and Non-Recourse Debt for additional information. |
|
|
• |
In April 2020, we amended certain key definitions related to delinquency level calculations of underlying timeshare loans that are used as collateral for borrowings under our Timeshare Facility, and generated added flexibility to manage any potential increase in the rate of delinquency as a result of the impact of the COVID-19 pandemic. |
|
|
• |
In May 2020, we amended our Credit Agreement which amended certain terms of the credit facilities (“Senior Secured Credit Facilities”) to provide us with both near-term and long-term flexibility with respect to satisfying certain negative and financial covenants and ratios as may be needed due to the ongoing and uncertain future impact of the COVID-19 pandemic on our business and operations. |
|
|
• |
In June 2020, we completed a securitization of $300 million of gross timeshare financing receivables and used the proceeds to pay down the $195 million outstanding balance on our Timeshare Facility and for general corporate operating expenses. As of September 30, 2020, we have $450 million remaining borrowing capacity under our Timeshare Facility. See Note 11: Debt and Non-Recourse Debt for additional information. |
|
|
• |
In August 2020, we renewed and extended our Timeshare Facility and amended certain provisions relating to advance rate, successor benchmark interest rate, certain used and unused fees, and thresholds for interest rate hedging obligations and transactions. |
|
|
• |
As of September 30, 2020, we had total cash and cash equivalents of $717 million, including $92 million of restricted cash. The restricted cash balance relates to escrowed cash from sales of our VOIs and reserves related to our non-recourse debt. |
39
To optimize our liquidity and access to capital in light of the significant adverse impact of the COVID-19 pandemic, particularly as substantially all of our properties were temporarily closed and substantially all of our sales, operations and other activities were suspended during the first and second quarter of 2020, in addition to the steps discussed above, we have undertaken efforts to increase our capital and decrease our expenses. These include workforce furloughs, temporary salary reductions for employees primarily during the second quarter of 2020, eliminating discretionary spending, and reducing our planned investment in new inventory by approximately $200 million. We have also suspended the share repurchase program that was initially authorized by our Board in March 2020. Recently, we announced a workforce reduction plan that will impact approximately 1,600 team members for which we expect to incur between $10 million to $12 million in restructuring and related expenses and charges, primarily related to employee severance, benefits and related costs, primarily during the fourth quarter of 2020. In addition, approximately 2,000 of our workers remain furloughed.
We believe that these actions, together with drawing on available borrowings under our Revolver and preserving our capacity under our Timeshare Facility as described above, will provide adequate capital to meet our short- and long-term liquidity requirements for operating expenses and other expenditures, including payroll and related benefits, legal costs, and additional costs related to complying with various regulatory requirements and best practices for opening under the current environment resulting from the pandemic, and to finance our long-term growth plan and capital expenditures for the foreseeable future.
In addition, as noted previously, beginning in May 2020, in response to various states and counties starting to allow gradual relaxation of restrictions on activities and a resumption of businesses, we began a phased reopening of resorts and resumption of our business activities, including our sales activities. However, we are operating under new guidelines and with safety measures that did not exist prior to the onset of the pandemic. As of October 2020, we have over three quarters of our resorts and sales centers open and currently operating; however, many of our resorts and sales centers are operating with significant capacity constraints and subject to various safety measures. While we plan to continue to reopen our resorts and resume our business as conditions permit, the pandemic continues to be unprecedented and rapidly changing, and has unknown duration and severity. Accordingly, there remains significant uncertainty as to the degree of impact and duration of the conditions stemming from the ongoing pandemic on our revenues, net income (loss) and other operating results, as well as our business and operations generally and, accordingly, our future cash flows and our liquidity in the longer term. Any sustained material adverse impact on our revenues, net income (loss) and other operating results due to COVID-19 could adversely affect our ability to comply with our maintenance and financial covenants and ratios under our debt obligations.
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) |
|
2020 |
|
|
2019 |
|
|
$ |
|
|||
|
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
86 |
|
|
$ |
146 |
|
|
$ |
(60 |
) |
|
Investing activities |
|
|
(24 |
) |
|
|
(44 |
) |
|
|
20 |
|
|
Financing activities |
|
|
503 |
|
|
|
(71 |
) |
|
|
574 |
|
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.
40
The change in net cash flows provided by operating activities for the nine months ended September 30, 2020, compared to the same period in 2019 was primarily due to a reduction in the purchase and development of real estate for future conversion to inventory, partially offset by decreased sources of cash from working capital.
The following table exhibits our VOI inventory spending:
|
|
|
Nine Months Ended September 30, |
|
|||||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
||
|
VOI spending - owned properties |
|
$ |
70 |
|
|
$ |
61 |
|
|
VOI spending - fee-for-service upgrades(1) |
|
|
11 |
|
|
|
36 |
|
|
Purchases and development of real estate for future conversion to inventory |
|
|
27 |
|
|
|
107 |
|
|
Total VOI inventory spending |
|
$ |
108 |
|
|
$ |
204 |
|
|
(1) |
Includes expense related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects from developed projects of $7 million and $24 million recorded in Costs of VOI sales for the nine months ended September 30, 2020 and 2019, respectively. |
Investing Activities
The following table summarizes our net cash used in investing activities:
|
|
|
Nine Months Ended September 30, |
|
|
Variance |
|
||||||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
|
$ |
|
|||
|
Capital expenditures for property and equipment |
|
$ |
(6 |
) |
|
$ |
(25 |
) |
|
$ |
19 |
|
|
Software capitalization costs |
|
|
(16 |
) |
|
|
(17 |
) |
|
|
1 |
|
|
Investments in unconsolidated affiliates |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
— |
|
|
Net cash used in investing activities |
|
$ |
(24 |
) |
|
$ |
(44 |
) |
|
$ |
20 |
|
The change in net cash used in investing activities for the nine months ended September 30, 2020, compared to the same period in 2019, was primarily due to a reduction of property and equipment spending.
Our capital expenditures include spending related to technology, 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) |
|
2020 |
|
|
2019 |
|
|
$ |
|
|||
|
Issuance of debt |
|
$ |
495 |
|
|
$ |
455 |
|
|
$ |
40 |
|
|
Issuance of non-recourse debt |
|
|
495 |
|
|
|
365 |
|
|
|
130 |
|
|
Repayment of debt |
|
|
(62 |
) |
|
|
(272 |
) |
|
|
210 |
|
|
Repayment of non-recourse debt |
|
|
(403 |
) |
|
|
(327 |
) |
|
|
(76 |
) |
|
Debt issuance costs |
|
|
(8 |
) |
|
|
(6 |
) |
|
|
(2 |
) |
|
Repurchase and retirement of common stock |
|
|
(10 |
) |
|
|
(283 |
) |
|
|
273 |
|
|
Payment of withholding taxes on vesting of restricted stock units |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
— |
|
|
Proceeds from employee stock plan purchases |
|
|
1 |
|
|
|
2 |
|
|
|
(1 |
) |
|
Other financing activity |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
— |
|
|
Net cash provided by (used in) financing activities |
|
$ |
503 |
|
|
$ |
(71 |
) |
|
$ |
574 |
|
41
The change in net cash provided by (used in) financing activities for the nine months ended September 30, 2020, compared to the same period in 2019, was primarily due to (i) the change in debt borrowings and repayments under our Revolver of $40 million and $210 million, respectively, (ii) additional repayments of $66 million of our securitized debt, (iii) the additional net borrowing of $120 million on our Timeshare Facility, and (iv) a reduction in repurchases and retirement of common stock.
Contractual Obligations
The following table summarizes our significant contractual obligations as of September 30, 2020:
|
|
|
Payments Due by Period |
|
|||||||||||||||||
|
($ in millions) |
|
Total |
|
|
Less Than 1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
More Than 5 Years |
|
|||||
|
Debt |
|
$ |
1,268 |
|
|
$ |
12 |
|
|
$ |
23 |
|
|
$ |
1,210 |
|
|
$ |
23 |
|
|
Non-recourse debt |
|
|
847 |
|
|
|
301 |
|
|
|
304 |
|
|
|
160 |
|
|
|
82 |
|
|
Interest on debt(1) |
|
|
222 |
|
|
|
63 |
|
|
|
104 |
|
|
|
40 |
|
|
|
15 |
|
|
Operating leases |
|
|
80 |
|
|
|
18 |
|
|
|
26 |
|
|
|
23 |
|
|
|
13 |
|
|
Inventory purchase commitments |
|
|
457 |
|
|
|
235 |
|
|
|
168 |
|
|
|
42 |
|
|
|
12 |
|
|
Other commitments(2) |
|
|
16 |
|
|
|
5 |
|
|
|
9 |
|
|
|
1 |
|
|
|
1 |
|
|
Total contractual obligations |
|
$ |
2,890 |
|
|
$ |
634 |
|
|
$ |
634 |
|
|
$ |
1,476 |
|
|
$ |
146 |
|
|
(1) |
Includes interest on our debt and non-recourse debt. For our variable-rate debt, we have assumed a constant 30-day LIBOR rate of 0.15 percent, subject to a 0.25 percent floor, as of September 30, 2020. |
|
(2) |
Primarily relates to commitments related to information technology and brand licensing under the normal course of business. |
We have made commitments with developers to purchase vacation ownership units at a future date to be marketed and sold under our Hilton Grand Vacations brand. As of September 30, 2020, our inventory-related purchase commitments totaled $457 million over 10 years of which we expect to purchase $10 million for the remainder of 2020.
We utilize surety bonds related to the sales of VOIs in order to meet regulatory requirements of certain states. The availability, terms and conditions and pricing of such bonding capacity are dependent on, among other things, continued financial strength and stability of the insurance company affiliates providing the bonding capacity, general availability of such capacity and our corporate credit rating. We have commitments from surety providers in the amount of $571 million as of September 30, 2020 which primarily consist of escrow and construction related bonds.
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements as of September 30, 2020 consisted of $457 million of certain commitments with developers whereby we have committed to purchase vacation ownership units at a future date to be marketed and sold under our Hilton Grand Vacations brand and $16 million of other commitments under the normal course of business. The ultimate amount and timing of the acquisitions is subject to change pursuant to the terms of the respective arrangements, which could also allow for cancellation in certain circumstances. See Note 19: Commitments and Contingencies in our unaudited condensed consolidated financial statements for a discussion of our off-balance sheet arrangements.
Guarantor Financial Information
Certain subsidiaries, which are listed on Exhibit 22 of this Quarterly Report on Form 10-Q, have guaranteed our obligations related to our senior unsecured notes (the “Notes”). The notes were issued in November 2016 with an aggregate principal balance of $300 million, an interest rate of 6.125 percent, and maturity in December 2024.
Our senior unsecured notes were co-issued by Hilton Grand Vacations Borrower LLC and Hilton Grand Vacations Borrower Inc. (the “Issuers”) and are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by Hilton Grand Vacations Inc. (the “Parent”), Hilton Grand Vacations Parent LLC (the “Intermediate Parent”), the Issuers, and each of the Issuer’s existing and future wholly owned domestic restricted subsidiaries (all entities that guarantee the Notes, collectively, the “Obligor group”).
The Notes rank equally in right of payment with all of our existing and future senior unsecured obligations, are senior in right of payment to any of our Guarantor’s subordinated indebtedness, and are subordinate to all existing and future liabilities of our entities that do not guarantee the Notes and our secured indebtedness, including our senior secured credit facilities and securitized non-recourse debt.
42
The guarantee of each guarantor subsidiary is limited to a maximum amount, subject to applicable U.S. and non-U.S. laws. The guarantees can also be released upon the sale or transfer of a guarantor subsidiary’s capital stock or substantially all of its assets, becoming designated as an unrestricted subsidiary, or upon its consolidation into a co-Issuer or another subsidiary Guarantor.
The following tables provide summarized financial information of the Obligor group on a combined basis after elimination of (i) intercompany transactions and balances between the Parent Company and the subsidiary Guarantors and (ii) investments in and equity in the earnings of non-Guarantor subsidiaries and unconsolidated affiliates:
Summarized Financial Information
|
|
|
September 30, |
|
|
December 31, |
|
||
|
($ in millions) |
|
2020 |
|
|
2019 |
|
||
|
Assets |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
587 |
|
|
$ |
35 |
|
|
Restricted cash |
|
|
62 |
|
|
|
59 |
|
|
Accounts receivable, net - due from non-guarantor subsidiaries |
|
|
19 |
|
|
|
41 |
|
|
Accounts receivable, net - due from related parties |
|
|
7 |
|
|
|
25 |
|
|
Accounts receivable, net - other |
|
|
85 |
|
|
|
126 |
|
|
Timeshare financing receivables, net |
|
|
178 |
|
|
|
449 |
|
|
Inventory |
|
|
843 |
|
|
|
524 |
|
|
Property and equipment, net |
|
|
477 |
|
|
|
718 |
|
|
Operating lease right-of-use assets, net |
|
|
53 |
|
|
|
58 |
|
|
Intangible assets, net |
|
|
80 |
|
|
|
77 |
|
|
Other assets |
|
|
88 |
|
|
|
69 |
|
|
Total assets |
|
$ |
2,479 |
|
|
$ |
2,181 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other - due from non-guarantor subsidiaries |
|
$ |
19 |
|
|
$ |
41 |
|
|
Accounts payable, accrued expenses and other - other |
|
|
254 |
|
|
|
288 |
|
|
Advanced deposits |
|
|
119 |
|
|
|
115 |
|
|
Debt, net |
|
|
1,262 |
|
|
|
828 |
|
|
Operating lease liabilities |
|
|
69 |
|
|
|
74 |
|
|
Deferred revenues |
|
|
261 |
|
|
|
186 |
|
|
Deferred income tax liabilities |
|
|
209 |
|
|
|
259 |
|
|
Total liabilities |
|
$ |
2,193 |
|
|
$ |
1,791 |
|
|
|
|
Nine Months Ended September 30, |
|
|
|
($ in millions) |
|
2020 |
|
|
|
Total revenues - transactions with non-guarantor subsidiaries |
|
$ |
5 |
|
|
Total revenues - other |
|
|
584 |
|
|
Operating loss |
|
|
(83 |
) |
|
Net loss |
|
|
(103 |
) |
Subsequent Events
On October 15, 2020, we announced a workforce reduction plan in response to the continuing adverse impact of the COVID-19 pandemic and related government orders and mandates restricting travel and operations on our business and the travel and leisure industry in general. The reduction in force is expected to reduce our workforce by approximately 1,600 team members and better align the workforce with the evolving business needs.
The reduction in force is estimated to result in approximately $10 million to $12 million in restructuring and related expenses and charges, primarily related to employee severance, benefits and related costs. We expect to incur the majority
43
of these costs during the last quarter of 2020. All of the restructuring and related expenses and charges are expected to result in cash expenditures.
Additionally, in October 2020, we repaid $100 million under our revolving credit facility.
Critical Accounting Policies and Estimates
The preparation of our unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts and related disclosures. We have discussed those policies and estimates that we believe are critical and require the use of complex judgment in their application in our Annual Report on Form 10-K for the year ended December 31, 2019.
44
|
ITEM 3. |
Quantitative and Qualitative Disclosures about Market Risk |
We are exposed to market risk from changes in interest rates and currency exchange rates. We manage our exposure to these risks by monitoring available financing alternatives and through pricing policies that may take into account currency exchange rates. Our exposure to market risk has not materially changed from what we previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.
Interest Rate Risk
We are exposed to interest rate risk on our variable-rate debt, comprised of the term loans, Revolver and our Timeshare Facility, of which the Timeshare Facility is without recourse to us. The interest rates are based on one-month LIBOR and we are most vulnerable to changes in this rate. We primarily use interest rate swaps as part of our interest rate risk management strategy for our variable-rate debt.
We intend to securitize timeshare financing receivables in the asset-backed financing market periodically. We expect to secure fixed-rate funding to match our fixed-rate timeshare financing receivables. However, if we have variable-rate debt in the future, we will monitor the interest rate risk and evaluate opportunities to mitigate such risk through the use of derivative instruments.
To the extent we continue to have variable-rate borrowings and continue to utilize variable-rate indebtedness in the future, any increase in interest rates beyond amounts covered under any corresponding derivative financial instruments, particularly if sustained, could have an adverse effect on our net income (loss), cash flows and financial position. While we have entered into certain hedging transactions to address such potential risk, such transactions and any future hedging transactions we may enter into may not adequately mitigate the adverse effects of interest rate increases or that counterparties in those transactions will honor their obligations.
The following table sets forth the contractual maturities, weighted-average interest rates and the total fair values as of September 30, 2020, for our financial instruments that are materially affected by interest rate risk:
|
|
|
|
|
|
|
Maturities by Period |
|
|||||||||||||||||||||||||||||
|
($ in millions) |
|
Weighted Average Interest Rate(1) |
|
|
2020 |
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|
2024 |
|
|
There- after |
|
|
Total(2) |
|
|
Fair Value |
|
|||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate securitized timeshare financing receivables |
|
|
12.253 |
% |
|
$ |
25 |
|
|
$ |
103 |
|
|
$ |
107 |
|
|
$ |
110 |
|
|
$ |
113 |
|
|
$ |
421 |
|
|
$ |
879 |
|
|
$ |
920 |
|
|
Fixed-rate unsecuritized timeshare financing receivables |
|
|
13.421 |
% |
|
|
9 |
|
|
|
32 |
|
|
|
33 |
|
|
|
35 |
|
|
|
36 |
|
|
|
205 |
|
|
|
350 |
|
|
|
373 |
|
|
Liabilities:(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate debt |
|
|
4.011 |
% |
|
|
72 |
|
|
|
294 |
|
|
|
132 |
|
|
|
131 |
|
|
|
374 |
|
|
|
171 |
|
|
|
1,174 |
|
|
|
1,181 |
|
|
Variable-rate debt(4) |
|
|
2.000 |
% |
|
|
3 |
|
|
|
10 |
|
|
|
10 |
|
|
|
918 |
|
|
|
— |
|
|
|
— |
|
|
|
941 |
|
|
|
930 |
|
|
(1) |
Weighted-average interest rate as of September 30, 2020. |
|
(2) |
Amount excludes unamortized deferred financing costs. |
|
(3) |
Includes debt and non-recourse debt. |
|
(4) |
Variable-rate debt includes principal outstanding debt of $940 million as of September 30, 2020. See Note 11: Debt & Non-recourse Debt in our unaudited condensed consolidated financial statements for additional information. |
Foreign Currency Exchange Rate Risk
Though the majority of our operations are conducted in United States dollar (“U.S. dollar”), we are exposed to earnings and cash flow volatility associated with changes in foreign currency exchange rates. Our principal exposure results from our timeshare financing receivables denominated in Japanese yen, 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 change our gross timeshare financing receivables by less than $1 million. A 10 percent change in the foreign exchange rate of Mexican Peso to U.S. dollar would change our gross VAT receivable by less than $1 million.
45
|
ITEM 4. |
Controls and Procedures |
Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) or our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of the controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error and mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of effectiveness of controls and procedures to future periods are subject to the risk that the controls and procedures may become inadequate because of changes in conditions, or that the degree of compliance with the controls and procedures may have deteriorated.
In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of the end of the period covered by this quarterly report, were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We will continue to assess the adequacy of our disclosure controls and procedures and make any appropriate changes given the various government mandates and orders of business closures and the resulting remote working conditions as a result of the COVID-19 pandemic.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We will continue to assess the effectiveness of our internal controls over financial reporting consistent with past practice, particularly in light of the various government mandates and orders of business closures and the resulting remote working conditions as a result of the COVID-19 pandemic.
46
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, 2020 will not have a material effect on our unaudited condensed consolidated financial statements.
|
Item 1A. |
Risk Factors |
The following represents important changes and updates to the risk factors previously disclosed in Item 1A. of Part I of our Annual Report on Form 10-K for the year ended December 31, 2019 (our “2019 Form 10-K”) and Item 1A. of Part II of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020 (our “Prior Forms 10-Q”). The risk factors discussed below and the risk factors included in our 2019 Form 10-K and our Prior Forms 10-Q are important to understanding our business, operation, results of operations, financial condition, and prospects, especially during the current environment, and our statements generally in this Form 10-Q. Therefore, they should be read in conjunction with the unaudited condensed consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q.
In addition, the following risks and those risks described in our 2019 Form 10-K and our Prior Forms 10-Q contain forward-looking statements, and they may not be the only risks facing the Company. The future business, results of operations and financial condition of the Company can be affected by the risk factors described in such reports and by other factors currently unknown, that management presently believes not to be material, that management has made certain forward looking projections, estimates or assumptions, or that may rapidly evolve, develop or change, including those that are caused, directly or indirectly, by the COVID-19 pandemic. Any one or more of such factors could, directly or indirectly, cause our actual financial condition and results of operations to vary materially from past, or from anticipated future, financial condition and results of operations. Any of these factors, in whole or in part, could materially and adversely affect our business, results of operations and financial condition and the trading price of our common stock. Because of these factors affecting our financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.
The COVID-19 pandemic and related events, including the various measures implemented or adopted to respond to the pandemic, have had, and will continue to have, a material adverse effect on our business, financial condition and results of operations for the foreseeable future.
The global COVID-19 pandemic and the various measures taken or implemented by governments and other authorities in the United States and around the world, businesses, organizations and individuals have had, and will continue to have, a significant adverse impact on domestic and international travel, consumer demand for travel, commercial activities across the travel, lodging and hospitality industries, businesses generally, and consequently, on our business and operations. The COVID-19 pandemic also has had, and will continue to have, significant adverse impacts on global economic, capital market, financial, healthcare, societal, and government regulatory conditions. In response to the growing pandemic and various governmental orders, we took certain significant actions to ensure the continuity of our business and operations beginning at the end of the first quarter 2020, including temporarily closing operations at substantially all of our resorts, closing substantially all of our sales centers, implementing salary reductions and workforce furloughs, implementing hiring freezes, drawing down substantial amounts under our credit facility as a precautionary measure to ensure liquidity and amending both our credit facility and our warehouse facility to provide near-term flexibility on certain maintenance and financial covenants and ratios. On October 15, 2020, our board of directors approved a workforce reduction plan that is expected to result in the reduction of our workforce by approximately 1,600 members. All of these actions have had, and will likely continue to have, a material adverse effect on our results of operations, financial condition, and business.
47
Beginning in May 2020, various cities, counties and states in the US started to allow gradual relaxation of restrictions on activities and a resumption of businesses. We began a phased reopening of our resorts and resumption of our sales activities in accordance with applicable orders, and we plan to continue to reopen those of our resorts which remain closed as conditions permit. We have implemented a variety of measures that are required, or we believe are advisable, for our business with the goal of keeping our customers, owners, team members, and the communities we serve as safe as reasonably feasible from the COVID-19 virus. These measures include additional cleaning and sanitation of our resorts and common areas, providing our team members with personal protective equipment, requiring our guests and owners use face masks based on CDC or other federal, state, or local health guidelines, and implementing physical distancing practices.
The conditions caused by the pandemic continues to be unprecedented and rapidly changing. Accordingly, there remains significant uncertainties and risks around the duration and severity of the pandemic in the US and around the world, the breadth and duration of business disruptions resulting from COVID-19, the pandemic’s impact on the global economy, consumer confidence, various businesses, and, consequently, our business and operations.
Some of these uncertainties and risks may include the following:
|
|
• |
resurgences, new outbreaks, increases in the rate of infection, and/or increasing death rates related to the COVID-19 virus, including in certain regions and locations where we have a significant number of resorts and concentration of units, such as seen earlier in the year in the states of Florida, Hawaii, and New York and the various cities and counties located within such states, which may lead to another series of temporary closures, either out of abundance of caution or as may be required by new regulations; |
|
|
• |
potentiality of "second waves" of outbreak and spreading of the disease later in 2020 as certain healthcare officials have warned, which may result in further disruptions and additional governmental COVID-19 restrictions, closure orders and/or or “shelter in place” health orders, or similar restrictions; |
|
|
• |
ongoing issuances of new orders, amendments to existing orders, and conflicting directives by different governmental bodies or changes in federal and local policy, rules or regulations resulting from the outcome of the upcoming elections in the U.S., which could disrupt, change, or otherwise adversely impact our safety protocols and measures that are intended to protect our guests, owners, and team members; |
|
|
• |
travel bans, quarantine requirements upon entry, and significant restrictions on travel among the states within the U.S., including states where we have a significant number of resorts such as Hawaii and New York, as well as between the U.S. and specific countries, including restrictions placed by foreign governments on citizens of the U.S. entering their countries; |
|
|
• |
continued closures and/or curtailment of operations at many popular tourist destinations, reducing the demand for leisure travel; |
|
|
• |
changing behavior of individuals and unwillingness to travel and stay at hotels, resorts, timeshares, and other lodging facilities due to the pandemic which may continue beyond the time global health and safety conditions improve; |
|
|
• |
various safety measures that— |
|
|
o |
may continue to be challenging to implement due to uncertainties in how to correctly implement such measures, lack of availability of needed supplies or other issues, |
|
|
o |
we have already adopted but may need to change rapidly based on the status of the pandemic, applicable governmental actions, industry practices, and guidance or recommendations from leading healthcare experts, |
|
|
o |
may result in significant costs to us, or |
|
|
o |
may cause guests to not visit our resorts because they do not want to abide by such measures, do not fully understand or agree with such requested measures, and/or are wary of the risk of infection despite such measures, |
48
|
|
• |
potential cases of infection and transmission at our resorts despite the implementation of our safety measures efforts, which would be disruptive and may lead to exposure to assertions of liability, |
|
|
• |
our ability to effectively operate our business in light of significant workforce changes, and our ability to recruit additional talent as needed; |
|
|
• |
other actions we have taken or may take, or decisions we have made or may make, as a consequence of the COVID-19 pandemic that may result in investigations, legal claims (with or without merit) or litigation against us, and |
|
|
• |
inability to repay on time or at all the significant increases in our indebtedness and inadequacies of our liquidity, limitations on our ability to incur additional indebtedness or access available debt capital, and recent amendments to our credit facility and warehouse facility, if the pandemic worsens and continues for significant duration. |
In addition to the foregoing, the COVID-19 pandemic and the resulting adverse conditions are likely to continue to implicate or exacerbate the risk factors that we identified in our 2019 Form 10-K and our Prior Forms 10-Q. We encourage you to review such risk factors and related disclosure in such filings, together with the foregoing supplemental risk factors.
Any of the foregoing or other risks, factors, and events that are not foreseeable can result in significant negative impact on our results of operations, financial condition, business and operations, and reputation.
49
|
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
None.
|
Item 3. |
Defaults Upon Senior Securities |
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Item 4. |
Mine Safety Disclosures |
Not applicable.
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Other Information |
None.
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Exhibits |
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Description |
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101.INS |
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Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL |
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Inline XBRL Taxonomy Calculation Linkbase Document. |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB |
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Inline XBRL Taxonomy Label Linkbase Document. |
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Exhibit No. |
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Description |
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101.PRE |
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Inline XBRL Taxonomy Presentation Linkbase Document. |
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104 |
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The cover page for the Company’s Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101 |
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* |
Filed herewith. |
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Compensatory arrangement. |
52
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 29th day of October 2020.
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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 |
53
Exhibit 10.2
EXECUTION VERSION
HILTON GRAND VACATIONS INC.
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (the “Agreement”) is entered into effective as of September 21, 2020 (the “Effective Date”), by and between HILTON GRAND VACATIONS INC., a Delaware corporation (the “Company”), and Matthew A. Sparks (the “Executive”).
WHEREAS, the Executive is currently employed by the Company; and
WHEREAS, the Company considers the establishment and maintenance of a sound and vital management group to be essential to protecting and enhancing the best interests of the Company and its stockholders; and
WHEREAS, the Company has determined that the best interests of the Company and its stockholders will be served by reinforcing and encouraging the continued dedication of the Executive to his or her assigned duties without distractions, including but not limited to distractions arising from a potential change in control of the Company; and
WHEREAS, this Agreement is intended to remove such distractions and to reinforce the continued attention and dedication of the Executive to his or her assigned duties;
NOW, THEREFORE, in consideration of the mutual promises and agreements contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Executive and the Company hereby agree as follows:
1.Certain Defined Terms. In addition to other terms defined herein, for purposes of the Agreement, the following terms shall have the meanings indicated below:
1.1“Accrued Amounts” means (a) accrued but unpaid base salary through the Termination Date; (b) a cash payment in lieu of any accrued but unused vacation through the Termination Date; (c) any unreimbursed business expenses incurred through the Termination Date and payable to Executive, in accordance with any Company business expense policies (as applicable); (d) if the Executive’s termination occurs after the end of the annual bonus performance period but before the annual bonus for the preceding year is paid, the annual bonus for the preceding year, to the extent earned; and (e) any payments and benefits to which Executive is entitled pursuant to the terms of any employee benefit or compensation plan or program in which Executive participates (or participated). The Company shall pay Executive the items in (a) through (c) within 30 days following the Termination Date; the item in (d) on or before March 15 of the year following the performance year; and the item in (e) in accordance with the terms of such plans or programs or agreements.
1.2“Affiliate” means a Subsidiary and any other corporation or other entity or Person controlling, controlled by or under common control with the Company.
1.3“Annual Base Salary” means the Executive’s annual base salary at the rate in effect immediately prior to a Qualifying Termination.
1.4“Applicable Law” means any applicable laws, rules and regulations (or similar guidance), including but not limited to the General Corporation Law of the State of Delaware, the Securities Act of 1933, the Securities Exchange Act of 1934 and the Code, in each case as amended. References to any applicable laws, rules and regulations shall also refer to any successor or amended provisions thereto and shall be deemed to include any regulations or other interpretive guidance, unless the Committee determines otherwise.
1.5“Board” means the Board of Directors of the Company.
1.6“Business” means the business of owning, financing, developing, redeveloping, managing, marketing, operating, licensing, leasing and/or franchising vacation, timeshare or lodging properties, and natural ancillary business products and services related to such business, including, without limitation, membership services, exchange programs, rental programs and provision of amenities.
1.7“Cause” means any of the following: (a) the Executive’s refusal substantially to perform the Executive’s material duties or carry out the lawful instructions of the Company (other than as a result of total or partial incapacity due to physical or mental illness); (b) the conclusive finding of the Executive’s fraud or embezzlement of Company property; (c) the Executive’s material dishonesty in the performance of his or her duties resulting in significant harm to the Company; (d) Executive’s conviction of a felony under the laws of the United States or any state thereof or, where applicable, any equivalent offence (including a crime subject to a custodial sentence of one year or more) under the laws of the applicable jurisdiction; (e) the Executive’s gross misconduct in connection with the Executive’s duties to the Company which could reasonably be expected to be materially injurious to the Company; or (f) the Executive’s material breach of this Agreement, in each as determined in good faith by the Board or the Committee.
1.8A “Change in Control” shall have the meaning given such term in the Company’s 2017 Omnibus Incentive Plan or any successor Company stock incentive plan, in each case as amended (such plan(s) being collectively referred to herein as the “Stock Plan”); provided, however, that the term “Change in Control” shall be construed in accordance with Code Section 409A if and to the extent required under Code Section 409A.
1.9“Code” means the Internal Revenue Code of 1986.
1.10“Committee” means the Compensation Committee of the Board.
1.11“Company” means Hilton Grand Vacations Inc., a Delaware corporation, and any successors thereto. References to the “Company” also include references to the Company’s Subsidiaries and its other Affiliates (and their successors), unless the Committee or the Board determines otherwise.
1.12“Competitor” means any Person engaged in the Business, including but not limited to any vacation, timeshare or lodging companies that are comparable in size to the Company, including, without limitation, Marriott Vacations Worldwide, Wyndham Vacation Ownership, Interval Leisure Group, Disney Vacation Club, Hyatt Vacation
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Ownership, Holiday Inn Club Vacations, Bluegreen Vacations, Diamond Resorts International and Westgate Resorts.
1.13“Disability” means the inability of the Executive to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death, or which has lasted or can be expected to last for a continuous period of not less than 12 months.
1.14“Effective Date” means the effective date of the Agreement, as specified on page one of the Agreement.
1.15“Employment Term” means the entire time period of the Executive’s employment with or service to the Company.
1.16“Good Reason” means the occurrence of any of the following, without the Executive’s written consent:
(a)Any material diminution in the Executive’s base salary or annual bonus opportunity, other than a material diminution in base salary and/or annual bonus opportunity that applies to senior executive officers of the Company generally or that, with respect to annual bonus opportunities, is due to the failure to attain performance or other business objectives;
(b)A material diminution in the Executive’s titles, authority, duties, responsibilities or position;
(c)A permanent reassignment by the Company of the Executive’s primary office to a location that is more than 50 miles from the Executive’s assigned primary office as of the Effective Date;
(d)Any failure by the Company or any Affiliate to pay Executive any amounts due and payable under, and in accordance with the terms of, this Agreement, the indemnification agreement substantially similar to the form of attached to this Agreement as Exhibit A (the “Indemnification Agreement”), or any equity award agreement under the Stock Plan or any successor equity plan of the Company; or
(e)Any other action or inaction that constitutes a material breach by the Company of the Agreement;
provided, however, that a termination by the Executive for any of the reasons listed in (a) through (e) above shall not constitute termination for Good Reason unless the Executive shall first have delivered to the Company written notice setting forth with specificity the occurrence deemed to give rise to a right to terminate for Good Reason (which notice must be given no later than 90 days after the initial occurrence of such event), and the Company fails to cure such event within 30 days after receipt of this written notice. The Executive’s employment must be terminated for Good Reason within 150 days following the initial
3
occurrence of the event of Good Reason. Good Reason shall not include the Executive’s death or Disability.
1.17“Person” means any person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise whatsoever.
1.18“Qualifying Termination” means the Executive’s termination of employment with the Company (a) by the Company without Cause, (b) by the Executive for Good Reason, or (c) in the case of a termination after the occurrence of a Change in Control, by the Company without Cause or by the Executive for Good Reason which, in each case, occurs within 24 months after the occurrence of such Change in Control. For the avoidance of doubt, in no event shall the Executive be deemed to have experienced a Qualifying Termination as a result of the Executive’s death, Disability or voluntary termination without Good Reason.
1.19“Restricted Period” means a period of 24 months following the Termination Date.
1.20“Severance Benefits” has the meaning provided in Section 2 hereof.
1.21“Subsidiary” means a corporation, company or other entity (a) more than 50% of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are, or (b) which does not have outstanding shares or securities (as may be the case in a partnership, joint venture, limited liability company, or unincorporated association), but more than 50% of whose ownership interest representing the right generally to make decisions for such other entity is, now or hereafter, owned or controlled, directly or indirectly, by the Company.
1.22“Target Bonus” means the Executive’s target annual bonus for the year in which the Qualifying Termination occurs.
1.23“Termination Date” means the date that the Executive’s employment with the Company terminates for all purposes, as reflected in the writing documenting the termination from the party terminating the employment relationship to the other party, in accordance with Section 5 hereof.
2.Qualifying Termination; Severance Benefits.
2.1Severance Benefits. Subject to the terms and conditions herein, upon the Executive’s Qualifying Termination, the Executive shall receive the following benefits (the benefits provided in Section 2.1(a) and Section 2.1(b) being collectively referred to as the “Severance Benefits”):
(a)A cash payment equal to the sum of (A) 2.0 times the Executive’s Annual Base Salary, and (B) 2.0 times the Executive’s Target Bonus. In the event that the Executive terminates employment due to a Qualifying Termination and a Change in Control has occurred, such payment shall be made within 60 days following the Termination Date. In the event that the Executive terminates
4
employment due to a Qualifying Termination and a Change in Control has not occurred, the following shall apply: That portion of the Severance Benefits payable to the Executive pursuant to this Section 2.1(a) that exceeds the “separation pay limit,” if any, shall be paid to the Executive in a lump sum payment within 60 days following the Termination Date (or such earlier date, if any, as may be required under applicable wage payment laws). The “separation pay limit” shall mean two times the lesser of: (i) the sum of the Executive’s annualized compensation based upon the annual rate of pay for services provided to the Company for the calendar year immediately preceding the calendar year in which the Executive’s Termination Date occurs (adjusted for any increase during that calendar year that was expected to continue indefinitely if the Executive had not terminated employment); and (ii) the maximum dollar amount of compensation that may be taken into account under a tax-qualified retirement plan under Code Section 401(a)(17) for the year in which his or her Termination Date occurs. The lump sum payment to be made to the Executive pursuant to this Section 2.1(a) is a separate payment intended to be exempt from Code Section 409A under the exemption found in Regulation Section 1.409A-(b)(4) for short-term deferrals. The remaining portion of the Severance Benefits payable to the Executive pursuant to this Section 2.1(a) shall be paid in periodic installments (each installment to be treated as a separate payment) over the 24-month period commencing on the Termination Date (as defined herein) in accordance with the normal payroll practices of the Company. Notwithstanding the foregoing, in no event shall such remaining portion of the Severance Benefit be paid to the Executive later than December 31 of the second calendar year following the calendar year in which Executive’s Termination Date occurs. The payments to be made to the Executive pursuant to the immediately preceding sentence of this Section 2.1(a) are intended to be exempt from Code Section 409A under the exemption found in Regulation Section 1.409A-(b)(9)(iii) for separation pay plans (i.e., the so-called “two times” pay exemption).
(b)For 18 months following the Termination Date (the “COBRA Reimbursement Period”), monthly payments of an amount equal to the excess of (i) the COBRA cost of such coverage over (ii) the amount that the Executive would have had to pay for such coverage if he had remained employed during the COBRA Reimbursement Period and paid the active employee rate for such coverage, less withholding for taxes and other similar items; provided, however, that (A) if the Executive becomes eligible to receive group health benefits under a program of a subsequent employer or otherwise (including coverage available to the Executive’s spouse), the Company’s obligation to pay any portion of the cost of health coverage as described herein shall cease, except as otherwise provided by law; (B) the COBRA Reimbursement Period shall only run for the period during which the Executive is eligible to elect health coverage under COBRA and timely elects such coverage; (C) nothing herein shall prevent the Company from amending, changing, or canceling any group medical, dental, vision and/or prescription drug plans during the COBRA Reimbursement Period; (D) during the COBRA Reimbursement Period, the benefits provided in any one calendar year shall not affect the amount of benefits provided in any other calendar year (other than the effect of any overall coverage benefits under the applicable plans); (E) the reimbursement of an eligible
5
taxable expense shall be made as soon as practicable but not later than December 31 of the year following the year in which the expense was incurred; (F) the Executive’s rights pursuant to this Section 2.1(b) shall not be subject to liquidation or exchange for another benefit; and (G) the monthly payments described in this subparagraph (b) shall be taxable to the Executive and any applicable withholdings shall apply or such amounts shall be treated as imputed income to the Executive;
(c)Notwithstanding the foregoing, subject to Section 7 below, the Company shall be obligated to provide the Severance Benefits and the pro rata bonus described in Section 2.2(b) only if within 60 days after the Termination Date the Executive shall have executed a separation and release of claims and covenant not to sue agreement substantially similar to the form of waiver and release attached to this Agreement as Exhibit B (the “Release Agreement”) and such Release Agreement shall not have been revoked within the revocation period specified in the Release Agreement. For the avoidance of doubt, the Company shall have no obligation to provide the Severance Benefits, and the Executive shall not be entitled to any of the Severance Benefits, if the Executive has failed to comply with the obligations set forth in Section 4 and such failure is sufficient to constitute a material breach of this Agreement, the Company may suspend, terminate and/or recover from the Executive the Severance Benefits.
For the avoidance of doubt, inclusion of Target Bonus in the calculation of Severance Benefits does not affect and is not in lieu of the Executive’s annual bonus opportunity, if any, for the year in which the Termination Date occurs, which shall be determined in accordance with Section 2.2 herein.
2.2Other Compensation and Benefits. In addition, upon a Qualifying Termination, the Executive shall be entitled to the following benefits:
(a)Accrued Amounts. The Accrued Amounts, payable as described above;
(b)Pro Rata Bonus. Subject to execution of the Release Agreement in accordance with Section 2.1(c) and Section 7 herein, a pro rata portion of the Executive’s annual bonus for the year in which the Termination Date occurs, to the extent earned based on actual performance (such amount to be calculated by determining the amount of the annual bonus earned as of the end of the year in which the Termination Date occurs and pro-rating such amount by the portion of such year Executive was employed by the Company, said pro rata bonus amount to be paid on or before March 15 of the year following the performance year);
(c)Life Insurance. To the extent the Company provides the Executive’s life insurance coverage immediately prior to the Qualifying Termination and this coverage is eligible for post-termination continuation or conversion to an individual policy, a cash payment equal to the amount required to continue such coverage as an individual policy for a period of 12 months following the Termination Date (and, if the Company deems necessary or advisable, to convert such coverage to an
6
individual policy), payable in a single lump sum within 60 days following the Termination Date; and
(d)Equity Awards. The Executive’s rights, if any, with respect to any equity awards granted to him or her under the Stock Plan shall be as determined under the Stock Plan and applicable award agreement(s). For the avoidance of doubt, the Executive shall be entitled to accelerated vesting or other benefits upon a Qualifying Termination only if and to the extent provided under the terms of the Stock Plan and applicable award agreement(s).
(e)Other Employee Benefits. The Executive’s rights and obligations, if any, upon a Qualifying Termination under other compensation or employee benefit plans, policies, agreements or arrangements of the Company shall be as determined under such plans, policies, agreements or arrangements.
3.Non-Qualifying Termination. Except as provided below, if the Executive’s status as an employee is terminated for any reason other than due to a Qualifying Termination, the Executive shall not be entitled to receive the Severance Benefits, and the Company shall not have any obligation to the Executive under this Agreement. In the event that Executive’s employment with the Company is terminated for any reason, the Company shall pay Executive (or his or her estate or legal guardian, as applicable) the Accrued Amounts; provided, however, that if the Executive’s employment terminates due to Cause, the Executive shall forfeit the right to the annual bonus described in Section 1.1(d). Additionally, Executive shall remain entitled to his or her indemnification rights as provided in this Agreement and the Indemnification Agreement and/or pursuant to the Company’s certificate of incorporation, charter, by-laws, and/or other corporate documents and policies.
4.Covenants.
4.1Non-Competition; Non-Solicitation.
(a)The Executive acknowledges and recognizes the highly competitive nature of the Businesses of the Company and accordingly agrees as follows:
(i)During the Employment Term and subsequent Restricted Period, the Executive will not, whether on the Executive’s own behalf or on behalf of or in conjunction with any Person, directly or indirectly solicit or assist in soliciting away from the Company the business of any then current or prospective client or customer with whom the Executive (or his or her direct reports) had personal contact or dealings on behalf of the Company during the one-year period preceding the Termination Date.
(ii)During the Restricted Period, the Executive will not directly or indirectly anywhere in the United States:
(A)Engage in the Business directly or indirectly, or enter the employ of, or render any services to, a Competitor, provided that this restriction shall not prevent the Executive from working for or
7
performing services on behalf of a Competitor if such Competitor is also engaged in other lines of business and if the Executive’s employment or services are restricted to such other lines of business, and will not be providing support, advice, instruction, direction or other guidance to lines of business that constitute the Competitor;
(B)Acquire a financial interest in, or otherwise become actively involved with, a Competitor, directly or indirectly, as an individual, partner, shareholder, officer, director, principal, agent, trustee or consultant; or
(C)Intentionally and adversely interfere with, or attempt to adversely interfere with, business relationships between the Company and any of its clients, customers, suppliers, partners, members or investors.
(iii)Notwithstanding anything to the contrary in this Section 4, the Executive may, directly or indirectly, own, solely as an investment, securities of any Person engaged in a Business (including, without limitation, a Competitor) which are publicly traded on a national or regional stock exchange or on the over-the-counter market if the Executive (A) is not a controlling person of, or a member of a group which controls, such person and (B) does not, directly or indirectly, own 5% or more of any class of securities of such Person.
(iv)During the Restricted Period, the Executive will not, whether on the Executive’s own behalf or on behalf of or in conjunction with any Person or entity, directly or indirectly:
(A)Solicit or encourage any employee of the Company to leave the employment of the Company or encourage any independent contractor to cease providing services to the Company; or
(B)Hire or engage any employee or independent contractor who was employed or engaged by the Company as of the Termination Date or who left the employment of or engagement with the Company coincident with, or within one year prior to or after, the Termination Date, provided that this prohibition does not apply to (X) administrative personnel employed by the Company or (Y) any Company employee or independent contractor who is hired or engaged away from the Company as a result of responding to a generic job posting on a website or in a newspaper or periodical of general circulation, without any involvement or encouragement by the Executive.
8
(v)During the Restricted Period, the Executive will not, whether on the Executive’s own behalf or on behalf of or in conjunction with any Person, directly and intentionally encourage any material consultant of the Company to cease working with the Company.
(b)The period of time during which the provisions of this Section 4 shall be in effect shall be extended by the length of time during which the Executive is in breach of the terms hereof as determined by any court of competent jurisdiction on the Company’s application for injunctive relief.
(c)The Company reserves the right to waive the enforcement of or limit the scope of the non-competition or non-solicitation provisions of this Agreement as to the Executive if and as it deems appropriate in its sole discretion on a case-by-case basis.
4.2Confidentiality.
(a)The Executive will not at any time (whether during or after the Employment Term and whether during or after the Restricted Period) (i) retain or use for the benefit, purposes or account of the Executive or any other Person; or (ii) disclose, divulge, reveal, communicate, share, transfer or provide access to any Person outside the Company (other than its professional advisers who are bound by confidentiality obligations or otherwise, in performance of the Executive’s duties under the Executive’s employment and pursuant to customary industry practice, or as may be required by law or in response to a court order or a request by a regulatory or administrative body), any nonpublic, proprietary or confidential information, including without limitation trade secrets, know-how, research and development, software, databases, inventions, processes, formulae, technology, designs and other intellectual property, information concerning finances, investments, profits, pricing, costs, products, services, vendors, customers, clients, partners, investors, personnel, compensation, recruiting, training, advertising, sales, marketing, promotions, government and regulatory activities and approvals concerning the past, current or future business, activities and operations of the Company and/or any third party that has disclosed or provided any of same to the Company on a confidential basis (“Confidential Information”) without the prior written authorization of the Board or the Committee.
(b)“Confidential Information” shall not include any information that is (i) generally known to the industry or the public other than as a result of the Executive’s breach of this covenant; (ii) made legitimately available to the Executive by a third party without breach of any confidentiality obligation of which the Executive has knowledge; or (iii) required by law to be disclosed, provided that with respect to subsection (iii) the Executive shall, except as otherwise provided in Section 4.2(d) herein, give prompt written notice to the Company of such requirement, disclose no more information than is so required, and reasonably cooperate with any attempts by the Company to obtain a protective order or similar treatment.
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(c)Upon termination of the Executive’s employment with the Company for any reason, the Executive shall (i) cease and not thereafter commence use of any Confidential Information or intellectual property (including without limitation, any patent, invention, copyright, trade secret, trademark, trade name, logo, domain name or other source indicator) owned or used by the Company; and (ii) immediately destroy, delete, or return to the Company, at the Company’s option, all originals and copies in any form or medium (including memoranda, books, papers, plans, computer files, letters and other data) in the Executive’s possession or control (including any of the foregoing stored or located in the Executive’s office, home, laptop or other computer, whether or not Company property) that contain Confidential Information, except that the Executive may retain only those portions of any personal notes, notebooks and diaries that do not contain any Confidential Information. Notwithstanding the above, nothing herein shall require Executive to return to the Company any computers or telecommunication equipment or tangible property which he owns, including, but not limited to, personal computers, phones and tablet devices; provided, however, that he shall remove from all such devices any Confidential Information stored thereon.
(d)Notwithstanding the foregoing provisions of Section 4.2, (i) nothing in this Agreement or other agreement prohibits the Executive from reporting possible violations of law or regulation to any governmental agency or entity, including but not limited to the Department of Justice, the Securities and Exchange Commission, the Congress and any agency Inspector General (the “Government Agencies”), or communicating with Government Agencies or otherwise participating in any investigation or proceeding that may be conducted by Government Agencies, including providing documents or other information, (ii) the Executive does not need the prior authorization of the Company to take any action described in (i), and the Executive is not required to notify the Company that he has taken any action described in (i); and (iii) the Agreement does not limit the Executive’s right to receive an award for providing information relating to a possible securities law violation to the Securities and Exchange Commission. Further, notwithstanding the foregoing, the Executive will not be held criminally or civilly liable under any federal, state or local trade secret law for the disclosure of a trade secret that (i) is made (A) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney, and (B) solely for the purpose of reporting or investigating a suspected violation or law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Additionally, an individual suing an employer for retaliation based on the reporting of a suspected violation of law may disclose a trade secret to his or her attorney and use the trade secret information in the court proceeding, so long as any document containing the trade secret is filed under seal and the individual does not disclose the trade secret except pursuant to court order.
4.3Non-Disparagement. As a condition to the receipt of the Qualifying Termination Severance Benefits, the Executive agrees that he or she will not directly, or through any other Person, at any time (whether during or after his or her Employment Term and during or after the Restricted Period) make any public or private statements that are
10
disparaging of the Company, or its respective businesses or employees, officers, directors, or stockholders. The Company agrees that it will not, and it will exercise its reasonable best efforts to cause its Affiliates (and the officers and directors of the Company and/or its Affiliates) to not, directly, or through any other Person, at any time make any public or private statements that are disparaging of the Executive.
4.4Reasonableness of Restrictions. It is expressly understood and agreed that, although the Executive and the Company consider the restrictions contained in this Section 4 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Agreement is an unenforceable restriction against the Executive, the provisions of this Section 4 shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Section 4 is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein.
4.5Breach of Restrictive Covenants. The Executive acknowledges that this Agreement is designed and intended only to protect the legitimate business interests of the Company and that the restrictions imposed by this Agreement are necessary, fair and reasonably designed to protect those interests. The Executive further acknowledges that the Company has given him or her access to certain Confidential Information, and that the use of such Confidential Information by him or her on behalf of some other entity (including himself or herself) would cause irreparable harm to the Company. The Executive also acknowledges that the Company has invested considerable time and resources in developing its relationships with its customers and in training Company employees, the loss of which similarly would cause irreparable harm to the Company. Without limitation, the Executive agrees that if he or she should breach or threaten to breach any of the restrictive covenants contained in Section 4 of this Agreement, the Company may, in addition to seeking other available remedies (including but in no way limited to the Company’s rights under this Agreement), apply, consistent with Section 10.6 below, for the immediate entry of an injunction restraining any actual or threatened breaches or violations of said provisions or terms by the Executive. Further, if, for any reason, any of the restrictive covenants or related provisions contained in Section 4 of this Agreement should be held invalid or otherwise unenforceable, it is agreed the court shall construe the pertinent section(s) or provision(s) so as to allow its enforcement to the maximum extent permitted by Applicable Law. The Executive further agrees that any claimed Company breach of this Agreement shall not prevent, or otherwise be a defense against, the enforcement of any restrictive covenant or other Executive obligation herein.
4.6Executive Representations. The Executive represents that the restrictions on his or her business provided in this Agreement are fair to protect the legitimate business interests of the Company. The Executive represents further that the consideration for this Agreement is fair and adequate, and that even if the restrictions in this Agreement are applied to him or her, he or she shall still be able to earn a good and reasonable living from those activities, areas and opportunities not restricted by this Agreement. In addition, the
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Executive represents that he or she has had an opportunity to consult with independent counsel concerning this Agreement and is not relying on the Company or its counsel for any related legal, tax or other advice.
5.Termination Procedures. Any purported termination of the Executive’s employment shall be documented in a writing appropriate to the nature of the termination from the party terminating the employment relationship to the other party:
(a)In the case of termination by the Company with Cause, the Company shall provide Executive with a written notice identifying (i) in reasonable detail the facts and circumstances giving rise to the determination that Cause exists, and (ii) the effective date of the termination of employment;
(b)In the case of a termination by the Executive for Good Reason, the Executive shall provide the Company with a written notice (the “Notice of Good Reason”) stating (i) in reasonable detail the facts and circumstances giving rise to the determination that Good Reason exists, and (ii) the effective date of the termination of employment absent cure, as provided below, in compliance with the time period set forth in Section 1.16 herein;
(c)In the case of all other terminations of employment, a document establishing the effective date of the termination of employment, in each case, subject to any other contractual obligations that may exist between the Company and the Executive. Under circumstances where the Executive will be eligible for payment and benefits under the terms of the Agreement (i.e., a termination by the Company without Cause), the document will confirm the Executive’s eligibility for these payments and benefits and summarize the Executive’s entitlements post-termination.
Notwithstanding the foregoing, in the case of a termination by the Executive with Good Reason, the Company shall have an opportunity to cure the circumstances giving rise to Good Reason within 30 days after receipt of the Notice of Good Reason. If the Company fails to cure such circumstances, the effective date of termination shall be the date specified in the Notice of Good Reason, notwithstanding such 30-day cure period.
6.Code Section 280G.
6.1Notwithstanding anything in this Agreement to the contrary, in the event it shall be determined that any benefit, payment or distribution by the Company to or for the benefit of the Executive (whether payable or distributable pursuant to the terms of this Agreement or otherwise) (such benefits, payments or distributions are hereinafter referred to as “Payments”) would, if paid, be subject to the excise tax (the “Excise Tax”) imposed by Code Section 4999, then prior to the making of any of the Payments to the Executive, a calculation shall be made comparing (i) the net benefit to the Executive, of the Payments after payment of the Excise Tax, to (ii) the net benefit to the Executive, if the Payments had been limited to the extent necessary to avoid being subject to the Excise Tax. If the amount calculated under (i) above is less than the amount calculated under (ii) above, then
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the Payments shall be limited to the extent necessary to avoid being subject to the Excise Tax (the “Reduced Amount”). The reduction of the Payments due hereunder, if applicable, shall be made by first reducing cash Payments and then, to the extent necessary, reducing those Payments having the next highest ratio of Parachute Value to actual present value of such Payments as of the date of the change of control, as determined by the Determination Firm (as defined in subsection (b) below). For purposes of this Section 6, present value shall be determined in accordance with Code Section 280G(d)(4). For purposes of this Section 6, the “Parachute Value” of a Payment means the present value as of the date of the change of control of the portion of such Payment that constitutes a “parachute payment” under Code Section 280G(b)(2), as determined by the Determination Firm for purposes of determining whether and to what extent the Excise Tax will apply to such Payment.
6.2All determinations required to be made under this Section 6, including whether an Excise Tax would otherwise be imposed, whether the Payments shall be reduced, the amount of the Reduced Amount, and the assumptions to be utilized in arriving at such determinations, shall be made by an independent, nationally recognized accounting firm or compensation consulting firm mutually acceptable to the Company and the Executive (the “Determination Firm”) which shall provide detailed supporting calculations both to the Company and the Executive within 15 days of the receipt of notice from the Executive that a Payment is due to be made, or such earlier time as is requested by the Company. All fees and expenses of the Determination Firm shall be borne solely by the Company. Any determination by the Determination Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Code Section 4999 at the time of the initial determination by the Determination Firm hereunder, it is possible that Payments hereunder will have been unnecessarily limited by this Section 6 (“Underpayment”), consistent with the calculations required to be made hereunder. The Determination Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable Federal rate provided for in Code Section 7872(f)(2), but no later than March 15 of the year after the year in which the Underpayment is determined to exist, which is when the legally binding right to such Underpayment arises.
6.3In the event that the provisions of Code Section 280G and 4999 or any successor provisions are repealed without succession, this Section 6 shall be of no further force or effect.
7.Code Section 409A.
7.1General. The Company intends that the payments and benefits provided under the Agreement shall either be exempt from the application of, or comply with, the requirements of Code Section 409A. The Agreement shall be construed in a manner that affects the Company’s intent to be exempt from or comply with Code Section 409A. Notwithstanding anything in the Agreement to the contrary, the Committee may amend the Agreement, to take effect retroactively or otherwise, as deemed necessary or advisable for the purpose of remaining exempt from or complying with the requirements of Code Section 409A. Whenever payments under the Agreement are to be made in installments,
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each such installment shall be deemed to be a separate payment for purposes of Code Section 409A. Further, (a) in the event that Code Section 409A requires that any special terms, provisions or conditions be included in this Agreement, then such terms, provisions and conditions shall, to the extent practicable, be deemed to be made a part of this Agreement, and (b) terms used in this Agreement shall be construed in accordance with Code Section 409A if and to the extent required. Further, in the event that this Agreement or any benefit thereunder shall be deemed not to comply with Code Section 409A, then neither the Company, the Board, the Committee nor its or their designees or agents shall be liable to the Executive or other Person for actions, decisions or determinations made in good faith.
7.2Definitional Restrictions. Notwithstanding anything in the Agreement to the contrary, to the extent that any amount or benefit that would constitute non-exempt “deferred compensation” for purposes of Code Section 409A (“Non-Exempt Deferred Compensation”) would otherwise be payable or distributable under the Agreement by reason of the occurrence of the Executive’s separation from service, such Non-Exempt Deferred Compensation will not be payable or distributable to the Executive by reason of such circumstance unless the circumstances giving rise to such separation from service meet any description or definition of “separation from service” in Code Section 409A (without giving effect to any elective provisions that may be available under such definition). This provision does not prohibit the vesting of any amount upon a separation from service, however defined. If this provision prevents the payment or distribution of any Non-Exempt Deferred Compensation, such payment or distribution shall be made on the date, if any, on which an event occurs that constitutes a Code Section 409A-compliant “separation from service,” or such later date as may be required by subsection 7.3 below.
7.3Six-Month Delay in Certain Circumstances. In the event that, notwithstanding the clear language of the Agreement and the intent of the Company, any amount or benefit under this Agreement constitutes Non-Exempt Deferred Compensation and is payable or distributable by reason of the Executive’s separation from service during a period in which the Executive qualifies as a “Specified Employee” under Code Section 409A, then, subject to any permissible acceleration of payment under Code Section 409A:
(a)The amount of such Non-Exempt Deferred Compensation that would otherwise be payable during the six-month period immediately following the Executive’s separation from service under the terms of this Agreement will be accumulated through and paid or provided on the first day of the seventh month following the Executive’s separation from service (or, if the Executive dies during such period, within 30 days after the Executive’s death) (in either case, the “Required Delay Period”); and
(b)The normal payment or distribution schedule for any remaining payments or distributions will resume at the end of the Required Delay Period.
For purposes of this Agreement, the term “Specified Employee” has the meaning given such term in Code Section 409A.
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7.4Timing of Release. Whenever in this Agreement a payment or benefit is conditioned on the Executive’s execution of a release of claims and covenant not to sue, the Company shall provide such release to the Executive promptly following the Termination Date, and such release and covenant not to sue must be executed and all revocation periods shall have expired in accordance with terms set forth in the release, but in no case later than 60 days after the Termination Date; failing which such payment or benefit shall be forfeited. If such payment or benefit constitutes Non-Exempt Deferred Compensation, then, subject to subsection 7.3 above, such payment or benefit (including any installment payments) that would have otherwise been payable during such 60-day period shall be accumulated and paid on the 60th day after the Termination Date provided such release shall have been executed and such revocation periods shall have expired. If such payment or benefit is exempt from Code Section 409A, the Company may elect to make or commence payment at any time during such 60-day period.
7.5Expense Reimbursement. All expenses eligible for reimbursements in connection with the Executive’s employment with the Company must be incurred by the Executive during the term of employment or service to the Company and must be in accordance with the Company’s expense reimbursement policies. The amount of reimbursable expenses incurred in one taxable year shall not affect the expenses eligible for reimbursement in any other taxable year. Each category of reimbursement shall be paid as soon as administratively practicable, but in no event shall any such reimbursement be paid after the last day of the Executive’s taxable year following the taxable year in which the expense was incurred. No right to reimbursement is subject to liquidation or exchange for other benefits.
8.No Mitigation. The Executive shall not be required to seek other employment or to attempt in any way to reduce or mitigate any benefits payable under this Agreement, and the amount of any such benefits shall not (except as otherwise provided in Section 2.1(b) herein) be reduced by any other compensation paid or provided to the Executive following the Executive’s termination of service.
9.Successors.
9.1Company Successors. The Agreement shall inure to the benefit of and shall be binding upon the Company and its successors and assigns.
9.2Executive Successors. The Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, legatees or other beneficiaries. If the Executive shall die while any amount remains payable to the Executive hereunder, all such amounts shall be paid in accordance with the terms of the Agreement to the executors, personal representatives or administrators of the Executive’s estate.
10.Miscellaneous.
10.1Notices. All communications relating to matters arising under the Agreement shall be in writing and shall be deemed to have been duly given when hand
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delivered, faxed, emailed or mailed by reputable overnight carrier or United States certified mail, return receipt requested, addressed, to the Company or the Executive, as applicable, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt:
If to the Company:
Hilton Grand Vacations Inc.
6355 Metro West Boulevard, Suite 180
Orlando, Florida 32835
Attention: Chief Human Resources Officer
with a copy to:
Hilton Grand Vacations Inc.
6355 Metro West Boulevard, Suite 180
Orlando, Florida 32835
Attention: General Counsel
If to the Executive:
Matthew A. Sparks
8009 Kentbury Drive
Bethesda, MD 20814
10.2No Right to Continued Employment or Service. Nothing contained in the Agreement shall (a) confer upon the Executive any right to continue as an employee or service provider of the Company, (b) constitute any contract of employment or service or agreement to continue employment or service for any particular period or (c) interfere in any way with the right of the Company to terminate a service relationship with the Executive, for any reason or for no reason. The Executive understands that he or she is an employee at will.
10.3Amendment; Waiver of Agreement. Except as otherwise provided herein, the provisions of this Agreement may be amended or waived only by a written agreement executed and delivered by the Company and the Executive. Notwithstanding the foregoing, the Company shall have unilateral authority to amend this Agreement (without Executive consent) to the extent necessary to comply with Applicable Law (including but not limited to Code Section 409A) or changes to Applicable Law. No failure or delay by any party in exercising any right, power or privilege hereunder will operate as a waiver thereof nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided will be cumulative and not exclusive of any rights or remedies provided by Applicable Law.
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10.4Withholding. The Company shall have the authority and the right to deduct and withhold an amount sufficient to satisfy federal, state, local and foreign taxes required by law to be withheld with respect to any benefits payable under the Agreement.
10.5Benefits Not Assignable. Except as otherwise provided herein or by Applicable Law, no right or interest of the Executive under the Agreement shall be assignable or transferable, in whole or in part, either directly or by operation of law or otherwise, including without limitation by execution, levy, garnishment, attachment, pledge or in any manner; no attempted assignment or transfer thereof shall be effective; and no right or interest of any Executive shall be liable for, or subject to, any obligation or liability of the Executive. When a payment is due under the Agreement to the Executive and he or she is unable to care for his or her affairs, payment may be made directly to his or her legal guardian or personal representative.
10.6Governing Law; Forum Selection; Jury Waiver. The Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware, without regard to the conflict of laws provisions of any state, to the extent not preempted by federal law, which shall otherwise control. The parties knowingly and voluntarily agree that any controversy or dispute arising out of or otherwise related to this Agreement, including any statutory or other claim relating to the Executive’s employment with the Company, the termination thereof, or his or her work for the Company, shall be tried exclusively, without jury, and consent to personal jurisdiction, in the state courts of Orlando, Florida, or the United States District Court for the Middle District of Florida, Orlando division. [Notwithstanding the foregoing, as a condition to the effectiveness of this Agreement, the Executive will be required to sign a Mutual Agreement to Arbitrate Claims substantially similar to the form attached hereto as Exhibit C.]
10.7Headings. The headings contained in the Agreement are for convenience of reference only and will not control or affect the meaning, construction or interpretation of the Agreement’s provisions.
10.8No Trust Fund; Unfunded Obligations. The obligation of the Company to make payments hereunder shall constitute an unsecured liability of the Company to the Executive. The Company shall not be required to establish or maintain any special or separate fund, or otherwise to segregate assets to assure that such payments shall be made, and the Executive shall not have any interest in any particular assets of the Company by reason of its obligations hereunder. Nothing contained in this Agreement shall create or be construed as creating a trust of any kind or any other fiduciary relationship between or among the Company, the Executive, or any other person. To the extent that any person acquires a right to receive payment from the Company, such right shall be no greater than the right of an unsecured creditor of the Company.
10.9No Third Party Beneficiaries. Except as otherwise expressly provided for herein, this Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein expressed or implied will give or be construed to give to any Person, other than the parties hereto and such permitted assigns, any legal or equitable rights hereunder.
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10.10Controlling Document. Except with respect to the Stock Plan or annual bonus plan, if any provision of any agreement, plan, program, policy, arrangement or other written document between or relating to the Company and Executive conflicts with any provision of this Agreement, the provision of this Agreement shall control and prevail.
10.11No Limitation of Rights. Nothing in this Agreement shall limit or prejudice any rights of the Company under any other laws.
10.12Counterparts. This Agreement may be signed in any number of counterparts, including via facsimile transmission, each of which will be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
10.13Severability. If any provision of this Agreement or the application of any such provision to any Person or circumstance is held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision hereof. If any provision of this Agreement is finally judicially determined to be invalid, ineffective or unenforceable, the determination will apply only in the jurisdiction in which such final adjudication is made, and such provision will be deemed severed from this Agreement for purposes of such jurisdiction only, but every other provision of this Agreement will remain in full force and effect, and there will be substituted for any such provision held invalid, ineffective or unenforceable, a provision of similar import reflecting the original intent of the parties to the extent permitted under Applicable Law.
10.14Certain Interpretive Matters.
(a)Unless the context otherwise requires, (i) all references to sections are to sections of this Agreement, (ii) each term defined in this Agreement has the meaning assigned to it, (iii) words in the singular include the plural and vice versa and (iv) the terms “herein,” “hereof,” “hereby,” “hereunder” and words of similar import shall mean references to this Agreement as a whole and not to any individual section or portion hereof. All references to $ or dollar amounts will be to lawful currency of the United States.
(b)No provision of this Agreement will be interpreted in favor of, or against, any of the parties hereto by reason of the extent to which any such party or his, her or its counsel participated in the drafting thereof or by reason of the extent to which any such provision is inconsistent with any prior draft hereof or thereof.
10.15Entire Agreement; Superseding Effect; No Duplicative Benefits. This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both oral and written, including but not limited to any term sheet or other similar summary of proposed terms, between the parties with respect to the subject matter of this Agreement. The Executive acknowledges and agrees that his or her receipt of severance benefits under this Agreement is in lieu of any similar benefits under any other Company severance plan, policy or
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arrangement and that he or she shall not be entitled to duplicative benefits under both this Agreement and any other Company severance plan, policy or arrangement.
10.16Full Understanding. The Executive represents and agrees that he or she has carefully read and fully understands all of the provisions of this Agreement and that the Executive freely and voluntarily enters into the Agreement. The Executive also agrees and acknowledges that the obligations owed to the Executive under this Agreement are solely the obligations of the Company and that none of the Company’s stockholders, directors or lenders will have any obligation or liabilities in respect of this Agreement and the subject matter hereof.
10.17Compliance with Recoupment, Ownership and Other Policies or Agreements. As a condition to entering into this Agreement, the Executive agrees that he or she shall abide by all provisions of any equity retention policy, compensation recovery policy, stock ownership guidelines and/or other similar policies maintained by the Company, each as in effect from time to time and to the extent applicable to the Executive from time to time. In addition, the Executive shall be subject to such compensation recovery, recoupment, forfeiture or other similar provisions as may apply at any time to the Executive under Applicable Law.
10.18Tax Matters. The Company has made no warranties or representations to the Executive with respect to the tax consequences (including but not limited to income tax consequences) contemplated by this Agreement and/or any benefits to be provided pursuant thereto. The Executive acknowledges that there may be adverse tax consequences related to the transactions contemplated hereby and that the Executive should consult with his or her own attorney, accountant and/or tax advisor regarding the decision to enter into this Agreement and the consequences thereof. The Executive also acknowledges that the Company has no responsibility to take or refrain from taking any actions in order to achieve a certain tax result for the Executive.
10.19Entity. As used in this Agreement, the term the “Company” shall include, as applicable, Hilton Resorts Corporation, the Company’s employer entity that is wholly owned by the Company.
[Signature Page to Follow]
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IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date and year first above written.
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Hilton Grand Vacations Inc.
By: /s/ Charles R. Corbin Name: Charles R. Corbin
Title: Executive Vice President &
Date:_9/21/2020 _ ____________
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EXECUTIVE
By: /s/ Matthew A. Sparks Name: Matthew A. Sparks
Title: Executive Vice President &
Date: 9/21/2020 _____________
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FORM OF INDEMNIFICATION AGREEMENT
EXECUTION VERSION
This Indemnification Agreement (this “Agreement”) is effective as of the first date on which the undersigned was duly appointed to serve as an officer of Hilton Grand Vacations Inc., a Delaware corporation (the “Company”), and the undersigned officer of the Company (“Indemnitee”).
BACKGROUND
The Company believes that, in order to attract and retain highly competent persons to serve as directors or in other capacities, including as officers, it must provide such persons with adequate protection through indemnification against the risks of claims and actions against them arising out of their services to and activities on behalf of the Company.
The Company desires and has requested Indemnitee to serve as a director and/or officer of the Company and, in order to induce the Indemnitee to serve in such capacity, the Company is willing to grant the Indemnitee the indemnification provided for herein. Indemnitee is willing to so serve on the basis that such indemnification be provided.
The parties by this Agreement desire to set forth their agreement regarding indemnification and the advancement of expenses.
In consideration of Indemnitee’s service to the Company and the covenants and agreements set forth below, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows.
Section 1. Indemnification. To the fullest extent permitted by the General Corporation Law of the State of Delaware (the “DGCL”):
(a) The Company shall indemnify Indemnitee if Indemnitee was or is made or is threatened to be made a party to, or is otherwise involved in, as a witness or otherwise, any threatened, pending or completed action, suit or proceeding (brought in the right of the Company or otherwise), whether civil, criminal, administrative or investigative and whether formal or informal, including appeals, by reason of the fact that Indemnitee is or was or has agreed to serve as a director, officer, employee or agent of the Company, or while serving as a director or officer of the Company, is or was serving or has agreed to serve at the request of the Company as a director, officer, employee or agent (which, for purposes hereof, shall include a trustee, fiduciary, partner or manager or similar capacity) of another corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise, or by reason of any action alleged to have been taken or omitted in any such capacity.
(b) The indemnification provided by this Section 1 shall be from and against all loss and liability suffered and expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by or on behalf of Indemnitee in connection with such action, suit or proceeding, including any appeals.
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EXECUTION VERSION
Section 2. Advance Payment of Expenses. To the fullest extent permitted by the DGCL, expenses (including attorneys’ fees) incurred by Indemnitee in appearing at, participating in or defending any action, suit or proceeding or in connection with an enforcement action as contemplated by Section 3(e), shall be paid by the Company in advance of the final disposition of such action, suit or proceeding within 30 days after receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time. The Indemnitee hereby undertakes to repay any amounts advanced (without interest) to the extent that it is ultimately determined that Indemnitee is not entitled under this Agreement to be indemnified by the Company in respect thereof. No other form of undertaking shall be required of Indemnitee other than the execution of this Agreement. This Section 2 shall be subject to Section 3(b) and shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 6.
Section 3. Procedure for Indemnification, Notification and Defense of Claim.
(a) Promptly after receipt by Indemnitee of notice of the commencement of any action, suit or proceeding, Indemnitee shall, if a claim in respect thereof is to be made against the Company hereunder, notify the Company in writing of the commencement thereof. The failure to promptly notify the Company of the commencement of the action, suit or proceeding, or of Indemnitee’s request for indemnification, will not relieve the Company from any liability that it may have to Indemnitee hereunder, except to the extent the Company is actually and materially prejudiced in its defense of such action, suit or proceeding as a result of such failure. To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request therefor including such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to enable the Company to determine whether and to what extent Indemnitee is entitled to indemnification.
(b) With respect to any action, suit or proceeding of which the Company is so notified as provided in this Agreement, the Company shall, subject to the last two sentences of this paragraph, be entitled to assume the defense of such action, suit or proceeding, with counsel reasonably acceptable to Indemnitee, upon the delivery to Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any subsequently-incurred fees of separate counsel engaged by Indemnitee with respect to the same action, suit or proceeding unless the employment of separate counsel by Indemnitee has been previously authorized in writing by the Company. Notwithstanding the foregoing, if Indemnitee, based on the advice of his or her counsel, shall have reasonably concluded (with written notice being given to the Company setting forth the basis for such conclusion) that, in the conduct of any such defense, there is or is reasonably likely to be a conflict of interest or position between the Company and Indemnitee with respect to a significant issue, then the Company will not be entitled, without the written consent of Indemnitee, to assume such defense. In addition, the Company will not be entitled, without the written consent of Indemnitee, to assume the defense of any claim brought by or in the right of the Company.
(c) To the fullest extent permitted by the DGCL, the Company’s assumption of the defense of an action, suit or proceeding in accordance with paragraph (b) above will constitute an irrevocable acknowledgement by the Company that any loss and liability suffered by Indemnitee and expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement by or
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EXECUTION VERSION
for the account of Indemnitee incurred in connection therewith are indemnifiable by the Company under Section 1 of this Agreement.
(d) The determination whether to grant Indemnitee’s indemnification request shall be made promptly and in any event within 30 days following the Company’s receipt of a request for indemnification in accordance with Section 3(a). If the Company determines that Indemnitee is entitled to such indemnification or, as contemplated by paragraph (c) above, the Company has acknowledged such entitlement, the Company will make payment to Indemnitee of the indemnifiable amount within such 30 day period. If the Company is not deemed to have so acknowledged such entitlement or the Company’s determination of whether to grant Indemnitee’s indemnification request shall not have been made within such 30 day period, the requisite determination of entitlement to indemnification shall, subject to Section 6, nonetheless be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under the DGCL.
(e) In the event that (i) the Company determines in accordance with this Section 3 that Indemnitee is not entitled to indemnification under this Agreement, (ii) the Company denies a request for indemnification, in whole or in part, or fails to respond or make a determination of entitlement to indemnification within 30 days following receipt of a request for indemnification as described above, (iii) payment of indemnification is not made within such 30 day period, (iv) advancement of expenses is not timely made in accordance with Section 2, or (v) the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, the Indemnitee the benefits provided or intended to be provided to Indemnitee hereunder, Indemnitee shall be entitled to an adjudication in any court of competent jurisdiction of his or her entitlement to such indemnification or advancement of expenses. Indemnitee’s expenses (including attorneys’ fees) incurred in connection with successfully establishing Indemnitee’s right to indemnification or advancement of expenses, in whole or in part, in any such proceeding or otherwise shall also be indemnified by the Company to the fullest extent permitted by the DGCL.
(f) Indemnitee shall be presumed to be entitled to indemnification and advancement of expenses under this Agreement upon submission of a request therefor in accordance with Section 2 or Section 3 of this Agreement, as the case may be. The Company shall have the burden of proof in overcoming such presumption, and such presumption shall be used as a basis for a determination of entitlement to indemnification and advancement of expenses unless the Company overcomes such presumption by clear and convincing evidence.
Section 4. Insurance and Subrogation.
(a) The Company shall use its reasonable best efforts to purchase and maintain a policy or policies of insurance with reputable insurance companies with A.M. Best ratings of “A” or better, Fitch ratings of “BBBq” or better, Moody’s ratings of “Baa2” or better or Standard & Poor’s ratings of “BBBpi” or better, providing Indemnitee with coverage for any liability asserted against, and incurred by, Indemnitee or on Indemnitee’s behalf by reason of the fact that Indemnitee is or
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EXECUTION VERSION
was or has agreed to serve as a director, officer, employee or agent of the Company, or while serving as a director or officer of the Company, is or was serving or has agreed to serve at the request of the Company as a director, officer, employee or agent (which, for purposes hereof, shall include a trustee, fiduciary, partner or manager or similar capacity) of another corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise, or arising out of Indemnitee’s status as such, whether or not the Company would have the power to indemnify Indemnitee against such liability under the provisions of this Agreement. Such insurance policies shall have coverage terms and policy limits at least as favorable to Indemnitee as the insurance coverage provided to any other director or officer of the Company. If the Company has such insurance in effect at the time the Company receives from Indemnitee any notice of the commencement of an action, suit or proceeding, the Company shall give prompt notice of the commencement of such action, suit or proceeding to the insurers in accordance with the procedures set forth in the policy. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policy.
(b) Subject to Section 9(b), in the event of any payment by the Company under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee with respect to any insurance policy. Indemnitee shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights in accordance with the terms of such insurance policy. The Company shall pay or reimburse all expenses actually and reasonably incurred by Indemnitee in connection with such subrogation.
(c) Subject to Section 9(b), the Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder (including, but not limited to, judgments, fines and amounts paid in settlement, and ERISA excise taxes or penalties) if and to the extent that Indemnitee has otherwise actually received such payment under this Agreement or any insurance policy, contract, agreement or otherwise.
Section 5. Certain Definitions. For purposes of this Agreement, the following definitions shall apply:
(a) The term “action, suit or proceeding” shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed claim, action, suit, arbitration, alternative dispute mechanism or proceeding, whether civil, criminal, administrative or investigative.
(b) The term “by reason of the fact that Indemnitee is or was or has agreed to serve as a director, officer, employee or agent of the Company, or while serving as a director or officer of the Company, is or was serving or has agreed to serve at the request of the Company as a director, officer, employee or agent (which, for purposes hereof, shall include a trustee, partner or manager or similar capacity) of another corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise” shall be broadly construed and shall include, without limitation, any actual or alleged act or omission to act.
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EXECUTION VERSION
(c) The term “expenses” shall be broadly construed and shall include, without limitation, all direct and indirect costs of any type or nature whatsoever (including, without limitation, all attorneys’ fees and related disbursements, appeal bonds, other out-of-pocket costs and reasonable compensation for time spent by Indemnitee for which Indemnitee is not otherwise compensated by the Company or any third party), actually and reasonably incurred by Indemnitee in connection with either the investigation, defense or appeal of an action, suit or proceeding or establishing or enforcing a right to indemnification under this Agreement or otherwise incurred in connection with a claim that is indemnifiable hereunder.
(d) The term “judgments, fines and amounts paid in settlement” shall be broadly construed and shall include, without limitation, all direct and indirect payments of any type or nature whatsoever, as well as any penalties or excise taxes assessed on a person with respect to an employee benefit plan).
Section 6. Limitation on Indemnification. Notwithstanding any other provision herein to the contrary, the Company shall not be obligated pursuant to this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to an action, suit or proceeding (or part thereof), however denominated, initiated by Indemnitee, other than (i) an action, suit or proceeding brought to establish or enforce a right to indemnification or advancement of expenses under this Agreement (which shall be governed by the provisions of Section 6(b) of this Agreement) and (ii) an action, suit or proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Company, it being understood and agreed that such authorization or consent shall not be unreasonably withheld in connection with any compulsory counterclaim brought by Indemnitee in response to an action, suit or proceeding otherwise indemnifiable under this agreement.
(b) Action for Indemnification. To indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any action, suit or proceeding instituted by Indemnitee to enforce or interpret this Agreement, unless Indemnitee is successful in such action, suit or proceeding in establishing Indemnitee’s right, in whole or in part, to indemnification or advancement of expenses hereunder (in which case such indemnification or advancement shall be to the fullest extent permitted by the DGCL), or unless and to the extent that the court in such action, suit or proceeding shall determine that, despite Indemnitee’s failure to establish their right to indemnification, Indemnitee is entitled to indemnity for such expenses; provided, however, that nothing in this Section 6(b) is intended to limit the Company’s obligations with respect to the advancement of expenses to Indemnitee in connection with any such action, suit or proceeding instituted by Indemnitee to enforce or interpret this Agreement, as provided in Section 2 hereof.
(c) Section 16(b) Matters. To indemnify Indemnitee on account of any suit in which judgment is rendered against Indemnitee for disgorgement of profits made from the purchase or sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended.
(d) Fraud or Willful Misconduct. To indemnify Indemnitee on account of conduct by Indemnitee where such conduct has been determined by a final (not interlocutory) judgment or other adjudication of a court or arbitration or administrative body of competent jurisdiction as to
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which there is no further right or option of appeal or the time within which an appeal must be filed has expired without such filing to have been knowingly fraudulent or constitute willful misconduct.
(e) Prohibited by Law. To indemnify Indemnitee in any circumstance where such indemnification has been determined by a final (not interlocutory) judgment or other adjudication of a court or arbitration or administrative body of competent jurisdiction as to which there is no further right or option of appeal or the time within which an appeal must be filed has expired without such filing to be prohibited by law.
Section 7. Certain Settlement Provisions. The Company shall have no obligation to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any action, suit or proceeding without the Company’s prior written consent. The Company shall not settle any action, suit or proceeding in any manner that would impose any fine or other obligation on Indemnitee without Indemnitee’s prior written consent. Neither the Company nor Indemnitee will unreasonably withhold his, her, its or their consent to any proposed settlement.
Section 8. Savings Clause. If any provision or provisions (or portion thereof) of this Agreement shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee if Indemnitee was or is made or is threatened to be made a party or is otherwise involved in any threatened, pending or completed action, suit or proceeding (brought in the right of the Company or otherwise), whether civil, criminal, administrative or investigative and whether formal or informal, including appeals, by reason of the fact that Indemnitee is or was or has agreed to serve as a director, officer, employee or agent of the Company, or while serving as a director or officer of the Company, is or was serving or has agreed to serve at the request of the Company as a director, officer, employee or agent (which, for purposes hereof, shall include a trustee, partner or manager or similar capacity) of another corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, from and against all loss and liability suffered and expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement reasonably incurred by or on behalf of Indemnitee in connection with such action, suit or proceeding, including any appeals, to the fullest extent permitted by any applicable portion of this Agreement that shall not have been invalidated.
Section 9. Contribution/Jointly Indemnifiable Claims.
(a) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for herein is held by a court of competent jurisdiction to be unavailable to Indemnitee in whole or in part, it is agreed that, in such event, the Company shall, to the fullest extent permitted by the DGCL, contribute to the payment of all of Indemnitee’s loss and liability suffered and expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement reasonably incurred by or on behalf of Indemnitee in connection with any action, suit or proceeding, including any appeals, in an amount that is just and equitable in the circumstances; provided, that, without limiting the generality of the foregoing, such contribution shall not be required where such holding by the court is due to any limitation on indemnification set forth in Section 4(c), 6 (other than clause (e)) or 7 hereof.
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(b) Given that certain jointly indemnifiable claims may arise due to the service of the Indemnitee as a director and/or officer of the Company at the request of the Indemnitee-related entities, the Company acknowledges and agrees that the Company shall be fully and primarily responsible for the payment to the Indemnitee in respect of indemnification or advancement of expenses in connection with any such jointly indemnifiable claim, pursuant to and in accordance with the terms of this Agreement, irrespective of any right of recovery the Indemnitee may have from the Indemnitee-related entities. Under no circumstance shall the Company be entitled to any right of subrogation against or contribution by the Indemnitee-related entities and no right of advancement, indemnification or recovery the Indemnitee may have from the Indemnitee-related entities shall reduce or otherwise alter the rights of the Indemnitee or the obligations of the Company hereunder. In the event that any of the Indemnitee-related entities shall make any payment to the Indemnitee in respect of indemnification or advancement of expenses with respect to any jointly indemnifiable claim, the Indemnitee-related entity making such payment shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee against the Company, and Indemnitee shall execute all papers reasonably required and shall do all things that may be reasonably necessary to secure such rights, including the execution of such documents as may be necessary to enable the Indemnitee-related entities effectively to bring suit to enforce such rights. The Company and Indemnitee agree that each of the Indemnitee-related entities shall be third-party beneficiaries with respect to this Section 9(b), entitled to enforce this Section 9(b) as though each such Indemnitee-related entity were a party to this Agreement. For purposes of this Section 9(b), the following terms shall have the following meanings:
(i) The term “Indemnitee-related entities” means any corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise (other than the Company or any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise Indemnitee has agreed, on behalf of the Company or at the Company’s request, to serve as a director, officer, employee or agent and which service is covered by the indemnity described in this Agreement) from whom an Indemnitee may be entitled to indemnification or advancement of expenses with respect to which, in whole or in part, the Company may also have an indemnification or advancement obligation (other than as a result of obligations under an insurance policy).
(ii) The term “jointly indemnifiable claims” shall be broadly construed and shall include, without limitation, any action, suit or proceeding for which the Indemnitee shall be entitled to indemnification or advancement of expenses from both the Indemnitee-related entities and the Company pursuant to the DGCL, any agreement or the certificate of incorporation, bylaws, partnership agreement, operating agreement, certificate of formation, certificate of limited partnership or comparable organizational documents of the Company or the Indemnitee-related entities, as applicable.
Section 10. Form and Delivery of Communications. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if (a) delivered by hand, upon receipt by the party to whom said notice or other communication shall have been directed, (b) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed, (c) mailed by reputable overnight courier, one day after deposit with such courier and with written verification of receipt or (d) sent by email or facsimile transmission, with receipt of oral confirmation that such transmission has been received. Notice to the Company shall be directed to Charles R. Corbin,
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General Counsel, by email at charles.corbin@hgv.com or by telephone at (407) 613-8410. Notice to Indemnitee shall be directed to Indemnitee’s contact information on file with the Company’s Corporate Secretary or its Human Resources Department.
Section 11. Nonexclusivity. The provisions for indemnification and advancement of expenses set forth in this Agreement shall not be deemed exclusive of any other rights which Indemnitee may have under any provision of law, in any court in which a proceeding is brought, other agreements or otherwise, and Indemnitee’s rights hereunder shall inure to the benefit of the heirs, executors and administrators of Indemnitee. No amendment or alteration of the Company’s Certificate of Incorporation or Bylaws or any other agreement shall adversely affect the rights provided to Indemnitee under this Agreement.
Section 12. No Construction as Employment Agreement. Nothing contained herein shall be construed as giving Indemnitee any right to be retained as a director of the Company or in the employ of the Company. For the avoidance of doubt, the indemnification and advancement of expenses provided under this Agreement shall continue as to the Indemnitee even though he may have ceased to be a director, officer, employee or agent of the Company.
Section 13. Interpretation of Agreement. It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification to Indemnitee to the fullest extent now or hereafter permitted by the DGCL.
Section 14. Entire Agreement. This Agreement and the documents expressly referred to herein constitute the entire agreement between the parties hereto with respect to the matters covered hereby, and any other prior or contemporaneous oral or written understandings or agreements with respect to the matters covered hereby are expressly superseded by this Agreement.
Section 15. Modification and Waiver. No supplement, modification, waiver or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. For the avoidance of doubt, this Agreement may not be terminated by the Company without Indemnitee’s prior written consent.
Section 16. Successor and Assigns. All of the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the parties hereto and their respective successors, assigns, heirs, executors, administrators and legal representatives. The Company shall require and cause any direct or indirect successor (whether by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of such Indemnitor, by written agreement in form and substance reasonably satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.
Section 17. Service of Process and Venue. The Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the “Delaware Court”), and not in any other state or federal court in the United States of America or any court in
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any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, irrevocably Corporation Service Company, 251 Little Falls Drive, Wilmington, Delaware 19808 as its agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.
Section 18. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. If a court of competent jurisdiction shall make a final determination that the provisions of the law of any state other than Delaware govern indemnification by the Company of Indemnitee, then the indemnification provided under this Agreement shall in all instances be enforceable to the fullest extent permitted under such law, notwithstanding any provision of this Agreement to the contrary.
Section 19. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument, notwithstanding that both parties are not signatories to the original or same counterpart.
Section 20. Headings. The section and subsection headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
[Signature Page Follows]
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This Indemnification Agreement has been duly executed and delivered to be effective as of the date stated above.
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HILTON GRAND VACATIONS INC. |
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INDEMNITEE |
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By: |
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FORM OF WAIVER AND RELEASE
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FORM OF WAIVER AND RELEASE AGREEMENT
This Waiver and Release Agreement (the “Release Agreement”) is entered into by between _________ (“You” or “Your”) and Hilton Grand Vacations Inc. (“HGV” or the “Company”).
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You acknowledge and agree that the termination of Your employment with the Company will terminate effective _________ (the “Separation Date”). |
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practice, constructive discharge, wrongful discharge, negligence, emotional distress, pain and suffering and all torts, including any intentional torts, such as defamation; (iv) claims and potential claims subject to federal, state and local occupational safety and health laws and regulations; (v) claims or potential claims under any other federal, state or local constitution, statute, regulation, agreement, order or duty; (vi) claims or potential claims concerning or based on the adequacy of Your compensation or remuneration, including incentive payments, commissions, bonuses, expense reimbursements, or claims for benefits, to the extent any and all such claims are legally capable of being waived; and (vii) any claims or potential claims for relief of any kind, including but not limited to claims for back pay, front pay, compensatory or punitive damages, reinstatement or other equitable relief, injunctive or declaratory relief, attorneys’ fees, costs, disbursements and/or the like. |
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Notwithstanding the above, the foregoing waiver and release of legal claims shall not release any claims or rights arising from or related to the following: (i) the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), workers’ compensation benefits, or unemployment insurance benefits; (ii) reimbursement for business expenses incurred prior to the date of termination, in accordance with any HGV business expense policies (as applicable); (iii) any employee benefit or compensation plan or program in which You participate (or participated), subject to the terms and conditions of such plans or programs, Your right to receive the Severance Benefits, or any other rights to which You are entitled pursuant to the Severance Agreement or the Letter (but only to the extent that such rights do not otherwise terminate as of the Separation Date in accordance with the terms of the Severance Agreement or the Letter); (iv) Your rights to be indemnified pursuant to the terms of that certain indemnification agreement entered into by between You and the Company (the “Indemnification Agreement”) for claims or proceedings, or threatened claims or proceedings, that arise out of or relate to Your service as an officer or employee of HGV and/or any affiliate, including attorneys’ fees of attorneys of Your choosing, subject to and as provided in the Indemnification Agreement; (v) Your vested equity or other similar interest in HGV or any affiliate, subject to the terms and conditions of any applicable plan and award agreement; and (vi) any rights or claims that arise after the signing of this Release Agreement or which otherwise cannot be waived as a matter of law. |
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You are not required to notify the Company that You have taken any action described in clause (a); and (c) this Release Agreement does not limit Your right to receive an award for providing information relating to a possible securities law violation to the SEC. |
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Except as provided above, the foregoing waiver and release of legal claims includes all claims existing as of the date You sign this Release Agreement, even though You did not know or suspect those claims to exist at the time You signed the Release Agreement, regardless of whether knowledge of such claims or the underlying facts would have materially affected Your decision to sign this Release Agreement. Your subsequent discovery of different or additional facts shall not affect the enforceability of this Release Agreement. You further represent and warrant that You have not assigned or transferred, or purported to assign or transfer to any third party, any claim released by this Release Agreement, and that You will indemnify the Company and the other Released Parties and hold them harmless against any claims, costs or expenses (including attorneys’ fees) paid or incurred, arising out of or related to any such transfer or assignment. |
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You shall return all Company property and Confidential Information (as defined in Severance Agreement). By signing below, You represent and agree that You have returned all Company property and complied with all of Your obligations under Section 4.2(c) of the Severance Agreement. The Company is not required to provide any Severance Benefits until You fully comply with this provision. |
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You agree to cooperate fully and provide assistance to the Company in any legal or other proceedings which may be required, including any litigation or potential litigation or administrative, regulatory or investigatory matter in which You are, or may be, a witness, or as to which You possess, or may possess, relevant information. The Company shall pay all reasonable expenses incurred in connection with a request made by a Released Party pursuant to this Section unless such payment is prohibited by applicable law or rule regarding legal ethics or professional conduct. |
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You agree that all controversies, claims, disputes, and matters arising out of or relating to this Release Agreement or the breach thereof, shall be subject to binding arbitration in accordance with the terms of that certain Mutual Agreement to Arbitrate entered into by and between You and the Company (the “Arbitration Agreement”). |
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You acknowledge and agree that the Arbitration Agreement and any post-employment restrictive covenants (including, but not limited to, any confidentiality, non-competition and non-solicitation obligations contained in the Severance Agreement and/or any other employment agreement between You and the Company) shall remain in full force and effect and are incorporated by reference herein, and You shall remain subject to the obligations contained therein regardless of whether You sign or revoke this Release Agreement. Copies of any such agreements are available upon Your request. |
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By signing this Release Agreement, the Company does not admit to any wrongdoing or legal violation by the Company or the Released Parties. |
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If any part of this Release Agreement is held invalid, that part shall be severed and the remaining parts shall be given full force and effect. Notwithstanding the foregoing, in the event the release and waiver of claims in this Release Agreement is declared invalid, this Release Agreement shall be null and void, and the Company shall be entitled to the return of the Severance Benefits paid to You through the date any portion of the Release Agreement is held invalid. |
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This Release Agreement constitutes the complete understanding and entire agreement of the parties with respect to the subject matter hereof. The Release Agreement cannot be amended, terminated, discharged or waived, except by a mutually agreed upon writing signed by You and an authorized representative of the Company. |
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This Release Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware, without regard to the conflict of laws provisions of any state, to the extent not preempted by federal law, which shall otherwise control. The parties knowingly and voluntarily agree that any controversy or dispute arising out of or otherwise related to this Release Agreement shall be tried exclusively, without jury, and consent to personal jurisdiction, in the state courts of Orlando, Florida, or the United States District Court for the Middle District of Florida, Orlando division. |
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You have twenty-one (21) days [IF SEPARATION IS DUE TO A GROUP REDUCTION IN FORCE, THEN 45 DAYS] from Your receipt of this Release Agreement to consider it before signing, although You may choose to sign it earlier. For a period of seven (7) days following Your signing of this Release Agreement, You may revoke this Release Agreement. This Release Agreement shall not become effective or enforceable until seven (7) days after You sign and do not revoke this Release Agreement. You may revoke this Release Agreement only by giving written notice of revocation to Barbara Hollkamp, Executive Vice President and Chief Human Resources Officer (delivered to the Company’s headquarters at 5323 Millenia Lakes Blvd., Orlando, FL 32839) within this seven (7) day period. Any revocation must state “I hereby revoke my acceptance the Release Agreement.” |
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This Release Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. |
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You represent and agree that: |
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You have suffered no specific injuries while employed by the Company that You did not report to the Company. |
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Except for the Severance Benefits, You have been provided all wages, compensation and benefits due and owing to You. |
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You have fully read and understand all terms of this Release Agreement, and are signing this Release Agreement voluntarily and with full knowledge of their significance. |
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You understand that You have up to twenty-one (21) calendar days to consider this Release Agreement [IF SEPARATION IS DUE TO A GROUP REDUCTION IN FORCE, THEN 45 DAYS]. You agree that you have been advised to consult with an attorney prior to Your signing of this Release Agreement. |
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You understand that You are waiving any claims under the Age Discrimination in Employment Act and The Older Workers’ Benefit Protection Act. |
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You agree that any modifications, material or otherwise, made to this Release Agreement, do not restart or affect in any manner the original up to twenty-one (21) day consideration period [IF SEPARATION IS DUE TO A GROUP REDUCTION IN FORCE, THEN 45 DAYS]. |
IN WITNESS WHEREOF, the parties voluntarily and freely enter into and execute this Waiver and Release Agreement on the dates set forth below.
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FORM OF MUTUAL AGREEMENT TO ARBITRATE CLAIMS
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MUTUAL AGREEMENT TO ARBITRATE CLAIMS
This Mutual Agreement to Arbitrate Claims (the “Arbitration Agreement”) is entered into by and between Hilton Grand Vacations Inc. and any of its affiliates, subsidiaries or related entities (“HGV”) and Matthew A. Sparks (“Employee” or “You” or “Your”) (HGV and You are each referred to as a “Party” in this Arbitration Agreement, and collectively referred to as the “Parties). This Arbitration Agreement shall be effective on the date You execute this Arbitration Agreement below (the “Effective Date”).
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Intent of Agreement |
HGV and You agree that this Arbitration Agreement will govern the resolution of all disputes, claims or any other matters arising out of or relating to Your employment relationship with HGV. This Arbitration Agreement includes any claims or disputes that You may have against HGV or against any of its officers, directors, employees, agents, or parents, subsidiaries or affiliated companies, or any claims or disputes HGV may have against You. The Parties shall resolve all disputes arising out of the employment relationship in accordance with this Arbitration Agreement. Both You and HGV waive all rights to a civil court action regarding any covered dispute. Only the arbitrator, and not a judge or a jury, will decide the dispute.
This Arbitration Agreement is a condition of employment. If You accept employment with HGV, both You and HGV will be bound by its terms. Your acceptance of employment or continued employment with HGV and HGV’s reciprocal agreement to arbitrate covered claims constitute consideration for the obligations imposed by this Arbitration Agreement. However, the Arbitration Agreement is not a promise that Your employment will continue for any specified period of time or end only under certain conditions. This Arbitration Agreement does not change Your at-will employment relationship.
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Mutual Agreement to Arbitrate |
Except for the claims set forth in the paragraph below, HGV and You mutually agree to arbitrate any and all disputes, claims, or controversies (“Covered Claims”) against the other that could be brought in a court including, but not limited to, all claims arising out of Your employment, the terms and conditions of Your employment, any work You have done for the Company in any capacity, the cessation of employment, any agreement between You and HGV, and any claim that could have been brought before any court by You or HGV. This Arbitration Agreement includes, but is not limited to, claims under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Older Worker Benefit Protection Act of 1990, the Americans With Disabilities Act, the Equal Pay Act, the Genetic Information Non-Discrimination Act, the National Labor Relations Act, the Pregnancy Discrimination Act, the Immigration Reform and Control Act, the Employee Retirement Income Security Act of 1974 (“ERISA”), the Family and Medical Leave Act, and the Worker Adjustment Retraining and Notification Act, all as amended; state anti-discrimination laws; any federal, state or local anti-discrimination laws; any federal, state or local wage and hour laws; or any other federal, state, or local law, order, ordinance or regulation; or any claims based on any public policy, contract, tort, or common law; and any claims or potential claims for relief of any kind, including, but not limited to, claims for back pay, front pay, compensatory or punitive damages, reinstatement or other equitable relief, injunctive or declaratory relief, attorneys’ fees,
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costs, disbursements and/or other relief. This Arbitration Agreement specifically requires that the Company arbitrate any claims it may have against You.
Claims not covered by this Arbitration Agreement are: (i) claims for workers’ compensation benefits; (ii) claims for unemployment compensation benefits; (iii) claims based upon the Company’s current (successor or future) stock option plans, employee pension and/or welfare benefit plans if those plans contain some form of a grievance, arbitration, or other alternative dispute procedure for the resolution of disputes under the plan; and (iv) claims by federal law which are not subject to mandatory binding pre-dispute arbitration pursuant to the Federal Arbitration Act, such as claims under the Dodd-Frank Wall Street Reform Act. Further, this Arbitration Agreement does not prohibit the filing of an administrative charge with a federal, state, or local administrative agency such as the National Labor Relations Board (“NLRB”) or the Equal Employment Opportunity Commission (“EEOC”) and/or their state equivalents. However, employees shall not be entitled to seek or receive any monetary compensation as a result of any proceeding arising from the filing of any such charge and/or participating in an investigation resulting from the filing of a charge with the EEOC and/or state or local human rights agency.
Except where prohibited by federal law, covered claims must be brought on an individual basis only, and arbitration on an individual basis is the exclusive remedy. Neither You nor HGV may submit a multi-plaintiff, class, collective or representative action for resolution under this Arbitration Agreement, and no arbitrator has authority to proceed with arbitration on such a basis. You may not participate as a member or representative in any multi-plaintiff, class, collective or representative action against HGV, and are not entitled to any recovery in such an action in any forum. Any disputes concerning the validity of this multi-plaintiff, class, collective and representative action waiver will be decided by a court of competent jurisdiction, not by the arbitrator. In the event this waiver is found to be unenforceable, then any claim brought on a multi-plaintiff, class, collective or representative basis must be filed in a court of competent jurisdiction, and such court shall be the exclusive forum for all such claims.
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Amendment |
This Arbitration Agreement may be revised, amended, or modified only if such revision, amendment, or modification is in writing and signed by both parties.
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Applicable Law and Arbitrator’s Authority |
This Arbitration Agreement is governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq., to the maximum extent permitted by applicable law. Except as otherwise expressly agreed upon or otherwise provided by this Arbitration Agreement, any dispute as to the arbitrability of a particular claim made pursuant to this Arbitration Agreement shall be resolved in arbitration. Further, except as otherwise provided in Section 3, the arbitrator, and not any federal, state or local court or agency, has exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Arbitration Agreement, including but not limited to any claim that all or any part of this Arbitration Agreement is void or voidable.
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If an arbitrator finds any provision of this Arbitration Agreement unenforceable, a court or arbitrator shall interpret or modify this Arbitration Agreement, to the extent necessary, for it to be enforceable, subject to the provisions of Section 3. If a provision of this Arbitration Agreement is deemed unlawful or unenforceable, that provision and the Arbitration Agreement automatically, immediately and retroactively shall be modified or amended to be enforceable. The arbitrator shall, however, have no power under this Arbitration Agreement to consolidate claims and/or to hear a multi-party, class, collective or representative action.
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Initiating Arbitration |
To initiate arbitration You must file a written demand for arbitration with JAMS (www.jamsadr.com) and simultaneously deliver a copy to HGV at the Office of the General Counsel (delivered to HGV’s headquarters at 5323 Millenia Lakes Blvd., Orlando, FL 32839). For HGV to initiate arbitration, it must file a written demand for arbitration with JAMS and simultaneously deliver a copy to You at Your last known address recorded in Your personnel records. JAMS can be contacted at 800-352-5267 or online at www.jamsadr.com. Any claim for arbitration by an aggrieved Party will be timely only if brought within the time in which an administrative charge or complaint would need to have been filed if the claim is one which could be filed with an administrative agency. If the arbitration claim raises an issue which could not have been filed with an administrative agency, then the claim must be filed within the time set by the appropriate statute of limitation.
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The Arbitration Process |
The arbitration shall be administered by JAMS or such other arbitration service provider to which You and HGV mutually agree. A single neutral arbitrator shall preside over the arbitration in accordance with JAMS’s Employment Arbitration Rules & Procedures (the “JAMS Rules”), or as otherwise agreed by the parties. Unless the parties agree otherwise, the arbitrator shall be appointed in the manner provided by the JAMS Rules and shall be a retired state or federal judge. The arbitration proceeding shall take place in or near the city where You worked.
Unless otherwise agreed by the parties, the JAMS Rules shall govern all arbitration procedures not specifically addressed in this Arbitration Agreement. To the extent any of the provisions in this Arbitration Agreement conflict with any of the JAMS rules, the provisions of this Arbitration Agreement shall prevail. You may obtain a copy of the JAMS Rules from the JAMS’s website (www.jamsadr.com) or by contacting JAMS directly (toll-free 800-352-5267). You may also request a copy from HGV’s Human Resources Department. The arbitration shall be venued at the JAMS office nearest to Your last work location. If for whatever reason JAMS declines to act as the neutral, the parties shall utilize the American Arbitration Association (“AAA”) (www.adr.org) as the neutral for the arbitration/appeal and shall utilize its employment arbitration rules.
Each Party may be represented by an attorney at its own expense. Both parties to the arbitration shall be entitled to conduct reasonable discovery pursuant to the JAMS Rules, except as may be modified by mutual agreement of the parties. The arbitrator shall apply the Federal Rules of Evidence as interpreted in the jurisdiction where the arbitration is held. If either Party files a
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EXECUTION VERSION
motion for summary judgment, the arbitrator must render a written and detailed opinion on that motion within sixty (60) calendar days of submission of all supporting and opposition papers. If the motion is in any part denied, the case shall proceed to hearing before another arbitrator who did not consider the summary judgment motion. That arbitrator shall be selected from a new panel to be provided by JAMS (or other third-party administrator then handling the proceeding). If no summary judgment is filed, then the original arbitrator will retain jurisdiction.
All orders of the arbitrator (except evidentiary rulings at the arbitration) shall be in writing and subject to review pursuant to the Federal Arbitration Act. Any authorized decision or award of the arbitrator shall be final and binding on the parties. The arbitrator may award relief only on an individual basis. The arbitrator shall have the authority to award any relief authorized by law in connection with the claims or disputes asserted. The arbitrator shall not have the authority to award any remedy that is not specifically authorized by statute or judicial opinion. The arbitrator shall apply the substantive law of the state in which You are employed and/or federal law when applicable.
Either Party may bring an action in a court of competent jurisdiction to compel arbitration or to enforce or vacate an arbitration award. Any relief or recovery to which a Party may be entitled on any claim shall be limited to that awarded by the arbitrator.
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9. |
The Consideration for the Arbitration Agreement |
In addition to the consideration being a mutual agreement to arbitrate, HGV agrees to reimburse You for any administrative filing fees JAMS may impose on You to initiate arbitration. As further consideration, HGV also will pay all fees charged by the arbitrator for his/her services, as well as all travel, lodging, and meal costs of the arbitrator. Further, HGV agrees that if it prevails at the arbitration it shall not seek or pursue costs from You, even if at law it would otherwise be entitled to pursue such costs; provided, however, distinct from costs, HGV retains any and all rights it may have to recover its attorneys’ fees (e.g., for frivolous claims or as allowed by law), any compensatory or other forms of recoverable damages, and any equitable or injunctive relief allowed by law. Your accepting initial employment or a different position with HGV also shall constitute consideration and acceptance by You of the terms and conditions set forth in this Arbitration Agreement.
THE PARTIES KNOWINGLY AND FREELY AGREE TO THIS MUTUAL AGREEMENT TO ARBITRATE CLAIMS, WHICH OTHERWISE COULD HAVE BEEN BROUGHT IN COURT.
YOU AFFIRM THAT YOU HAVE HAD SUFFICIENT TIME TO READ AND UNDERSTAND THE TERMS OF THIS ARBITRATION AGREEMENT AND THAT YOU HAVE BEEN ADVISED OF YOUR RIGHT TO SEEK LEGAL COUNSEL REGARDING THE MEANING AND EFFECT OF THIS AGREEMENT PRIOR TO SIGNING.
21
EXECUTION VERSION
IN WITNESS WHEREOF, the Parties voluntarily and freely enter into and execute this Mutual Agreement to Arbitrate on the dates set forth below.
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Hilton Grand Vacations Inc. |
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Employee |
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By: |
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By: |
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22
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Mark D. Wang, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 of Hilton Grand Vacations Inc.; |
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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; |
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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; |
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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: |
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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; |
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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; |
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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 |
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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 |
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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): |
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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 |
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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. |
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By: |
/s/ Mark D. Wang |
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Mark D. Wang |
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President and Chief Executive Officer (Principal Executive Officer) |
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October 29, 2020 |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Daniel J. Mathewes, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 of Hilton Grand Vacations Inc.; |
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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; |
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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; |
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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: |
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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; |
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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; |
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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 |
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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 |
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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): |
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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 |
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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. |
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By: |
/s/ Daniel J. Mathewes |
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Daniel J. Mathewes |
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Executive Vice President and Chief Financial Officer |
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(principal financial officer) |
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October 29, 2020 |
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, 2020 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:
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1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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/s/ Mark D. Wang |
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Mark D. Wang |
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President and Chief Executive Officer (Principal Executive Officer) |
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October 29, 2020 |
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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, 2020, 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:
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1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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By: |
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/s/ Daniel J. Mathewes |
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Daniel J. Mathewes |
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Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
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October 29, 2020 |
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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.