Hilton Grand Vacations

2018
ANNUAL
REPORT

Letter to Stockholders

Traditional Hawaiian Blessing Ceremony at the new Ocean Tower by Hilton Grand Vacations Club, hosted by a Hawaiian kahu (guardian or 
minister) to honor those of the past, present  and future.

tt

ii

Dear Stockholders:

At  the  core  of  our  company  is  a  promise  to  deliver  a  lifetime  of  great  vacations  to  our  owners  and  guests. 
A great vacation really transcends time and creates everlasting memories of adventure, exploration, and shared 
experiences with loved ones. Our more than 8,500 Team Members deliver incredible vacations to our owners 
and guests every day.

To support our vision of inspiring people to go further 
and share more, our strategic priorities are focused
on  introducing  Hilton  Grand  Vacations  to  more 
people  who  love  to  travel  and  make  vacationing
a  priority.  We  are  committed  to  reaching  and 
engaging  new  customers  while  also  ensuring  our 
existing owners experience consistent, high-quality, 
and personalized vacation experiences.

This year, we executed against our strategic priorities,
and our operating results were strong. Additionally,
in  our  second  year  as  a  public  company, we  
accelerated deployment of capital to drive growth. 
Consistent  execution  of  our  business  strategy  will
continue  to  produce  industry-leading  performance
and ultimately long-term shareholder value. We are
proud of our achievements in 2018, including many 
“firsts” for our company:

y,

•  Drove  strong  Net  Ownership  Growth  of  7%  and
ended the year with more than 300,000 Members

•  Executed  one  of  the  most  successful  product
launches in our history with the opening of Ocean
Tower by Hilton Grand Vacations Club in Hawaii

•  Expanded  our  resort  footprint  by  announcing
our first timeshare in Mexico within the Hilton Los
Cabos  Beach  &  Golf  Resort,  and  our  first  in  the
Caribbean within The Crane Resort in Barbados

•  Increased our offerings in urban destinations with
the acquisition of the Quin hotel in New York City
and  the  announcement  of  our  first  property  in

Featured on the cover: Hilton Grand Vacations at The Crane 
The Crane Resort, St. Philip, Barbados

Chicago at The
e
t
– Magnificent Mile

 DoubleTree

 bye

n
Hilton  Hotel

 Chicago

• Enhanced  owner  experiences  for  our  Members

  in
both the U.S. and Japan with the opening of our
first  property  in  Japan  at  the  Hilton  Odawara
Resort & Spa

r

• Leveraged our brand in a joint venture to develop
Liberty  Place  Charleston  by  Hilton  Club,  our  first
offering in Charleston

•  Bolstered  our  leadership  position  in  Hawaii  by

securing a new development deal in Waikiki

Thank you for sharing in our success in 2018. We could
not  be  more  excited  about  the  opportunities  that 
lie  ahead in 2019  and  beyond ad s we  continue 
our
o
meaningful val ue for for   ur Team
 journey toy   create
Members, our owners, and our shareholders.

o

e

Mark Wang, RRP
President & Chief Executive Officer

Leonard Potter
Chairman of the Board

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the fiscal year ended December 31, 2018
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
(State or Other Jurisdiction of Incorporation or Organization)
6355 MetroWest Boulevard, Suite 180,
Orlando, Florida
(Address of Principal Executive Offices)

32835
(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:

81-2545345
(I.R.S. Employer Identification No.)

(Title of Class)
Common Stock, $0.01 par value per share

(Name of each exchange on which registered)
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes È No ‘
the
Indicate by check mark if

to Section 13 or Section 15(d) of

required to file reports pursuant

the registrant

is not

Act. Yes ‘ No È

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 È 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 È No ‘

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ‘

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.
È

Large Accelerated Filer

‘
Accelerated Filer
Smaller Reporting Company ‘

Non-Accelerated Filer
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 È No
As of June 30, 2018, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was

$3,336 million (based on the closing sale price of the common stock on that date on the New York Stock Exchange).

There were 94,620,208 shares of the registrant’s Common Stock outstanding as of February 22, 2019.
DOCUMENTS INCORPORATED BY REFERENCE

The registrant has incorporated by reference into Part III of this report certain portions of its proxy statement for its 2019 annual meeting
of stockholders, which is expected to be filed pursuant to Regulation 14A within 120 days after the end of the registrant’s fiscal year ended
December 31, 2018.

HILTON GRAND VACATIONS INC.

FORM 10-K TABLE OF CONTENTS
YEAR ENDED DECEMBER 31, 2018

PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1 – Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A – Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B – Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2 – Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3 – Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4 – Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 5 – Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6 – Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of

Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A – Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . .
Item 8 – Financial Statements And Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial

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70
72

Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A – Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B – Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

129
129
129

PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

130

Item 10 – Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11 – Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13 – Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . .
Item 14 – Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

130
130

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130
130

PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Item 15 – Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16 – Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

130
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EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

138

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Cautionary Note Regarding Forward-Looking Statements

PART I

This Annual Report on Form 10-K 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 the future of HGV,
and are based on management’s beliefs, expectations, assumptions and such plans, estimates, projections and
other information available to management at the time HGV makes such statements. Forward-looking statements
include all statements that are not historical facts and may be identified by terminology such as the words
“outlook,” “believe,” “expect,” “potential,” “goal,” “continues,” “may,” “will,” “should,” “could,” “seeks,”
“approximately,” “projects,” predicts,” “intends,” “plans,” “estimates,” “anticipates” “future,” “guidance,”
“target,” or the negative version of these words or other comparable words. The forward-looking statements
contained in this Annual Report on Form 10-K include statements related to HGV’s revenues, earnings, taxes,
cash flow and related financial and operating measures, and expectations with respect to future operating,
financial and business performance, and other anticipated future events and expectations that are not historical
facts.

HGV cautions you that its forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause the actual results, performance or achievements of HGV to be materially different
from the future results, business performance or achievements expressed or implied by its forward-looking
statements. HGV’s forward-looking statements are not guarantees of future performance, and you should not
place undue reliance on such statements in this Annual Report on Form 10-K. Factors that could cause HGV’s
actual results to differ materially from those contemplated by its forward-looking statements include risks
associated with: the inherent business, financial and operating risks of the timeshare industry, including limited
underwriting standards due to the real-time nature of industry sales practices, and the intense competition
associated with the industry; HGV’s ability successfully market and sell VOIs; HGV’s development and other
activities to source inventory for VOI sales; significant increases in defaults on HGV’s vacation ownership
mortgage receivables; the ability of managed homeowner associations to collect sufficient maintenance fees;
general volatility in the economy and/or the financial and credit markets; adverse economic or market conditions
and trends in the tourism and hospitality industry, which may impact the purchasing and vacationing decisions of
consumers; actions of HGV or the occurrence of other events that could cause a breach under or termination of
the HGV’s license agreement with Hilton that could affect or terminate our access to the Hilton brands and
programs, or actions of Hilton that affect the reputation of the licensed marks or Hilton’s programs; economic
and operational uncertainties related to HGV’s expanding global operations, including our ability to manage
the outcome and timing of such operations and compliance with anti-corruption, data privacy and other
applicable laws and regulations affecting our international operations; the effects of foreign currency exchange;
changes in tax rates and exposure to additional tax liabilities; the impact of future changes in legislation,
regulations or accounting pronouncements; HGV’s acquisitions, joint ventures, and strategic alliances that that
may not result in expected benefits, including the termination of material fee-for-service agreements; our
dependence on third-party development activities to secure just-in-time inventory; HGV’s use of social media
platforms; cyber-attacks, security vulnerabilities, and information technology system failures resulting in
disclosure of personal data, company data loss, system outages or disruptions of online services, which could
lead to reduced revenue, increased costs, liability claims, harm to user engagement, and harm to HGV’s
reputation or competitive position; the impact of claims against HGV that may result in adverse outcomes,
including regulatory proceedings or litigation; HGV’s credit facilities, indenture and other debt agreements and
instruments, including variable interest rates, operating and financial restrictions, our ability to make scheduled
payments, and our ability to refinance our debt on acceptable terms; the continued service and availability of
key executives and employees; and catastrophic events or geo-political conditions including war, terrorist
activity, political strife or natural disasters that may disrupt HGV’s operations in key vacation destinations. Any
one or more of the foregoing factors could adversely impact HGV’s operations, revenue, operating margins,
financial condition and/or credit rating.

1

For additional information regarding factors that could cause HGV’s actual results to differ materially from
those expressed or implied in the forward-looking statements in this Annual Report on Form 10-K, please see
the risk factors discussed in “Part I—Item 1A. Risk Factors” of this Annual Report on Form 10-K and those
described from time to time other periodic reports that we file with the SEC. There may be other risks and
uncertainties that we are unable to predict at this time or that we currently do not expect to have a material
adverse effect on our business. Except for HGV’s ongoing obligations to disclose material information under
the federal securities laws, we undertake no obligation to publicly update or review any forward-looking
statement, whether as a result of new information, future developments, changes in management’s expectations,
or otherwise.

Terms Used in this Annual Report on Form 10-K

Except where the context requires otherwise, references in this Annual Report on Form 10-K to “Hilton
Grand Vacations,” “HGV,” “the Company,” “we,” “us” and “our” refer to Hilton Grand Vacations Inc., together
with its consolidated subsidiaries. Except where the context requires otherwise, references to our “properties”
and “units” refer to the timeshare properties managed and owned. Of these resorts and units, a portion is directly
owned by us or joint ventures in which we have an interest and the remaining resorts and units are owned by our
third-party owners.

Reference to “Adjusted EBITDA” means earnings before interest expense (excluding interest expense on
non-recourse debt), taxes and depreciation and amortization or “EBITDA,” further adjusted to exclude certain
items. Refer to “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Key Business and Financial Metrics Used by Management” for further discussion of these financial
metrics.

Non-GAAP Financial Measures

This Annual Report on Form 10-K includes discussion of terms that are not recognized terms under U.S.
Generally Accepted Accounting Principles (“U.S. GAAP”), and financial measures that are not calculated in
accordance with U.S. GAAP, including contract sales, sales revenue, real estate margin, earnings before interest
expense (excluding interest expense relating to our non-recourse debt), taxes and depreciation and amortization
(“EBITDA”), Adjusted EBITDA and segment Adjusted EBITDA.

Operational Metrics

This Annual Report on Form 10-K includes discussion of key business operational metrics including tour

flow, volume per guest and transient rate.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-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 as well
as further discussion on the key business operational metrics.

ITEM 1. Business

Our History

Our history dates to 1992 with the joint venture between Hilton Worldwide Holdings Inc. (“Hilton”) and
Grand Vacations, Limited. In 1996, Hilton Grand Vacations became a wholly owned subsidiary of Hilton.
During the ensuing years, we expanded our operations and established a track record of innovation in our
industry. Unlike the broader timeshare industry, which experienced a contraction in 2008 and 2009 as a result of

2

the overall economic recession, we were able to grow contract sales during the industry downturn and have
continued to deliver contract sales growth in each period since, driven by our continued focus on marketing and
sales activities, our strong development margins,
large-market distribution model, synergies with Hilton,
commitment to new owner transactions and lean organizational structure.

On January 3, 2017, Hilton completed a tax-free spin-off of HGV and Park Hotels & Resorts Inc. (“Park”).
As a result of the spin-off, HGV became an independent publicly-traded company and our common stock is
listed on the New York Stock Exchange under the symbol “HGV.” Following the spin-off, Hilton did not retain
any ownership in our company. In connection with the spin-off, we entered into agreements with Hilton and
other third parties, including licenses to use the Hilton Grand Vacations brand. For more information regarding
these agreements, see “—Key Agreements Related to the Spin-Off.”

Our Business

We are a rapidly growing timeshare company that markets and sells vacation ownership intervals (“VOIs”),
manages resorts in top leisure and urban destinations, and operates a points-based vacation club. As of
December 31, 2018, we have 54 properties, representing 8,888 units, that are located in iconic vacation
destinations such as the Hawaiian Islands, New York City, Orlando, Washington D.C. and Las Vegas and feature
spacious, condominium-style accommodations with superior amenities and quality service. As of December 31,
2018, we have approximately 309,000 Hilton Grand Vacations Club (the “Club”) members. Club members have
the flexibility to exchange their VOIs for stays at any Hilton Grand Vacations resort or any property in the Hilton
system of 14 industry-leading brands across more than 5,000 properties, as well as numerous experiential
vacation options, such as cruises and guided tours.

Our compelling VOI product allows customers to advance purchase a lifetime of vacations. Because our
VOI owners generally purchase only the vacation time they intend to use each year, they are able to efficiently
split the full cost of owning and maintaining a vacation residence with other owners. Our customers also benefit
from the high-quality amenities and service at our Hilton-branded resorts. Furthermore, our points-based
platform offers members tremendous flexibility, enabling us to more effectively adapt to their changing vacation
needs over time. Building on the strength of that platform, we continuously seek new ways to add value to our
Club membership, including enhanced product offerings, greater geographic distribution, broader exchange
networks and further technological innovation, all of which drive better, more personalized vacation experiences
and guest satisfaction.

As innovators in the timeshare business, we continually seek to enhance our inventory strategy by
developing an optimal inventory mix focused on developed properties as well as fee-for-service and just-in-time
agreements to sell VOIs on behalf of or acquired from third-party developers.

Our Reportable Segments

We operate our business across two segments: (1) real estate sales and financing and (2) resort operations
and club management. For more information regarding our segments, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and Note 21: Business Segments in our audited
consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

Our real estate sales and financing segment primarily generates revenue from:

• VOI Sales—We sell our owned inventory and, through our fee-for-service agreements, we sell VOIs on
behalf of third-party developers using the Hilton Grand Vacations brand in exchange for sales,
marketing and brand fees. Under these fee-for-service agreements, we earn commission fees based on a
percentage of total interval sales. See “—Inventory and Development Activities” and “—Marketing and
Sales Activities” below for further information.

3

• Financing—We provide consumer financing, which includes interest income generated from the
origination of consumer loans to members to finance their purchase of VOIs owned by us. We also
generate fee revenue from servicing the loans provided by third-party developers to purchasers of their
VOIs. See “—Financing Activities” below for information regarding our consumer financing activities.

Our resort operations and club management segment primarily generates revenue from:

• Resort Management—Our resort management services primarily consist of operating properties under
management agreements for the benefit of homeowners’ association (“HOA”s) of VOI owners at both
our resorts and those developed by third parties. Our management agreements with HOAs 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. See “—Resort and Club Management Activities” below for
information regarding our resort management activities.

• Club Management—We manage the Hilton Grand Vacations Club and the Hilton Club and receive
activation fees, annual dues and transaction fees from member exchanges for other vacation products.

• Rental of Available Inventory—We generate rental revenue from unit rentals of unsold inventory and
inventory made available due to ownership exchanges through our Club programs. This allows us to
utilize otherwise unoccupied inventory to generate additional revenues. We also earn fee revenue from
the rental of inventory owned by third parties as well as revenue from retail and spa outlets at our
timeshare properties. See “—Resort and Club Management Activities” below for further information.

Other than the United States, there were no countries that individually represented more than 10 percent of

total revenues for the year ended December 31, 2018.

Our Products

Our primary products are fee-simple VOIs deeded in perpetuity, developed or acquired by us or by third
parties. This ownership interest is an interest in real estate equivalent to annual usage rights, generally for one
week annually, at the timeshare property where the VOI was purchased. Each Club property provides a
distinctive setting, while signature elements remain consistent, such as high-quality guest service, spacious units
and extensive on-property amenities. Most
resorts feature studio to three-bedroom condominium-style
accommodations and amenities such as full kitchens, in-unit washers and dryers, spas and kids’ clubs. Our
timeshare properties are relatively concentrated in significant tourist markets, including Florida, Hawaii, Nevada,
New York, Washington D.C. and South Carolina.

In addition, VOI purchasers are enrolled in our flexible, points-based Hilton Grand Vacations Club
exchange program. This gives a member an annual allotment of Club points based on the value of the owned
interest. Club points can be used for a priority reservation period at the home resort where a member’s VOI is
deeded, and exchanged for a variety of vacation options, including stays at any Hilton Grand Vacations resort,
conversion to Hilton Honors points for stays at
the more than 5,000 Hilton-branded hotels and resorts,
reservations for experiential travel such as cruises and guided tours, and stays at more than 4,300 resorts included
in the RCI vacation exchange network. Our members also have the flexibility to choose when they will take
advantage of their annual usage rights and have the option to split their time over the year. All members pay
activation fees, annual dues and certain transaction fees depending on their exchange of Club points.

Inventory and Development Activities

We secure VOI inventory by developing or acquiring resorts in strategic markets, building additional phases
at our existing resorts, re-acquiring inventory in the open market and sourcing inventory from third-party
developers through fee-for-service and just-in-time transactions.

Our development activities involving the acquisition of real estate are followed by construction or
renovation to create individual vacation ownership units. The development and construction of the units require a

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large upfront investment of capital and can take several years to complete in the case of a ground-up project. This
investment cannot be recovered until the individual VOIs are sold to purchasers which can take several years.
Traditionally, timeshare operators have funded 100 percent of the investment necessary to acquire land and
construct timeshare properties.

We also source VOIs through fee-for-service agreements with third-party developers. These agreements
enable us to generate fees from the marketing and sale of Hilton-branded VOIs and Club memberships and from
the management of the timeshare properties without requiring us to fund up-front acquisition and construction
costs or incur unsold inventory maintenance costs. The capital investment we make in connection with these
projects is typically limited to the cost of constructing our on-site sales centers. In just-in-time transactions, we
acquire and sell inventory in transactions that are designed to closely correlate the timing of our acquisition of
inventory with our sale of that inventory to purchasers. We refer to fee-for-service transactions and just-in-time
transactions have evolved from
sales as “capital-efficient
sourcing inventory from distressed properties to sourcing from new construction projects. For the year ended
December 31, 2018, sales from fee-for-service, just-in-time and developed inventory sources were 55 percent,
22 percent and 23 percent, respectively, of contract sales. Based on our 2018 sales pace, we have access to
approximately seven years of future inventory, with capital efficient arrangements representing approximately
56 percent of that supply. Our fee-for-service sales generally improve returns on invested capital and liquidity,
while sales of owned inventory typically result in a greater contribution to the profitability of our real estate sales
and financing segment. To maximize both returns on invested capital and earnings growth, we plan to sell a
balanced mix of fee-for-service and owned inventory.

transactions.” Over time,

these capital-efficient

Owners can generally offer their VOIs for resale on the secondary market, which can create pricing pressure
on the sale of developer inventory. Given the structure of our products, owners who purchase VOIs on the
secondary market will generally become Club members and will be responsible for paying annual Club fees,
annual maintenance fees, property taxes and any assessments that are levied by the relevant HOA. While we do
not have an obligation to repurchase intervals previously sold, most of our VOIs provide us with a right of first
refusal on secondary market sales. We monitor sales that occur in the secondary market and exercise our right of
first refusal in certain cases.

Marketing and Sales Activities

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.

We sell our vacation ownership products under the Hilton Grand Vacations brand primarily through our
distribution network of both in-market and off-site sales centers. Our products are currently marketed for sale
throughout the United States and the Asia-Pacific region. We operate sales distribution centers in major markets
and popular leisure destinations with year-round demand and a history of being a friendly environment for
vacation ownership. We have sales distribution centers in Las Vegas, Myrtle Beach, Hilton Head, New York,
Washington, D.C., Orlando, Park City, Oahu, Waikoloa, Korea and Japan.

Our Hilton Grand Vacations sales tours are designed to provide potential members with an overview of our
company and our products, as well as a customized presentation to explain how our products can meet their
vacationing needs. Our sales centers use proprietary sales technology to deliver a highly transparent and
customized sales approach. Consumers place a great deal of trust in the Hilton brand and we believe that
preserving that trust is essential. We hire our sales associates using an assessment-based, candidate screening
system, which is a proprietary tool we use to uphold our selection criteria. Once hired, we emphasize training,
professionalism and product knowledge, and our sales associates receive significant product and sales training
before interacting with potential members. Most U.S.-based sales associates are licensed real estate agents and a
real estate broker is involved with each sales center. We manage our sales associates’ consistency of presentation

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and professionalism using a variety of sales tools and technology and through a post-presentation survey of our
tour guests that measures many aspects of each guest’s interaction with us. We do not tolerate sales activities that
are not consistent with our focus on treating members and guests with the highest degree of respect.

Financing Activities

We originate loans for members purchasing our owned inventory who qualify according to our underwriting
criteria. We generate interest income from the spread between the revenue generated on loans originated less our
costs to fund and service those loans. We also earn fee revenue from servicing our own portfolio and the loans
provided by third-party developers of our fee-for-service projects to purchasers of their VOIs.

We offer a wide array of financing options to members purchasing our VOIs. Our loans 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 nine percent to 18 percent per annum. In 2018, 66 percent of our sales were to customers
who financed part of their purchase. 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. Prepayment is permitted without
penalty. As of December 31, 2018, the average loan outstanding was approximately $22 thousand with a
weighted average interest rate of 12.28 percent.

As loan payments are made, the nature of these fully amortizing loans establishes an increasing level of
owner financial commitment in their purchase which reduces the likelihood of default. When a member defaults,
we ultimately return their VOI to inventory for resale, and that member no longer participates in our network.

We have a timeshare warehouse facility and periodically securitize timeshare financing receivables we
originate in connection with the sale of VOIs to monetize receivables and achieve an efficient return on capital
and manage our working capital needs.

Timeshare Financing Receivables Origination

In underwriting each loan, we obtain a credit application and review the application for completeness. We
require a minimum down payment of 10 percent of the purchase price on all sales of VOIs. For U.S. and
Canadian purchasers seeking financing, which represented 86 percent of the individuals we provided financing to
over the last three years, we apply the credit evaluation score methodology developed by the Fair Isaac
Corporation (“FICO”) to credit files compiled and maintained by Experian and Equifax. Higher credit scores
equate to lower credit risk and lower credit scores equate to higher credit risk. Over the last three years, the
weighted average FICO score for new loans to U.S. and Canadian borrowers at the time of origination was 744
(out of a maximum potential score of 850). For non-North American purchasers seeking financing, consisting
principally of purchasers in Japan, we generally observe that these borrowers have experienced default rates
comparable to U.S. and Canadian borrowers within the 725 to 774 FICO score band.

Our underwriting standards are influenced by the changing economic and financial market conditions. We
have the ability to modify our down payment requirements and credit thresholds in the face of stronger or weaker
market conditions. Our underwriting standards have resulted in a strong, well-seasoned consumer loan portfolio.
As of December 31, 2018, our portfolio had a balance of approximately $1.3 billion with over 58,000 loans and
exhibited the following characteristics:

Weighted Average Original Length of Loan: 9.9 years
Weighted Average Remaining Length of Loan: 7.8 years

Liquidity

We finance our working capital needs in part by borrowing against timeshare financing receivables. In
general, we seek to use the majority of our financed VOI sales as collateral to borrow against the revolving

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timeshare receivable credit facility (“Timeshare Facility”) and subsequently transfer those loans into a term
securitization after the loans have seasoned and an appropriately sized portfolio has been assembled. We target
securitizations that range in size from $200 million to $400 million and we expect the timing of future
securitizations will depend on our anticipated sales volume and capital needs. The strong performance of our
outstanding loan securitizations demonstrates that loans originated by us are well regarded for their performance
in the securitization market. In the future, we expect to regularly access the term securitization market,
replenishing capacity on our Timeshare Facility in the process.

Loan Portfolio Servicing

We have a skilled, integrated consumer finance team. This team is responsible for payment processing and
loan servicing, collections and default recovery and portfolio reporting and analytics. Accounts more than
30 days past due are deemed delinquent. We reserve for all loans based on our static pool method. A loan that is
more than 120 days past due is reserved at 100 percent the following month and is delivered to the loss
mitigation team that will make arrangements for any remaining outstanding payments or recommend recovery
through a deed-in-lieu of foreclosure or foreclosure. In the deed-in-lieu of foreclosure process, the member deeds
the VOI back to us. For domestic owners, this process varies from state to state and typically takes approximately
60 to 120 days, after which time we are able to resell the foreclosed VOI.

We monitor numerous metrics including collection rates, defaults and bankruptcies. Our consumer finance
team also is responsible for selecting and processing loans pledged or to be pledged in our securitizations and
preparing monthly servicing reports.

Resort and Club Management Activities

Resort Management

Prior to the initiation of VOI sales at a timeshare resort developed by us or by a third party with whom we
have entered into a fee-for-service agreement, we enter into a management agreement with the relevant HOA.
Each of the HOAs is governed by a board of directors comprising owner or developer representatives that are
charged with ensuring that the resorts are well-maintained and financially stable. Our 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. As a result, the fees we earn are highly predictable, unlike traditional revenue-based hotel management
fees, and our management fees generally are unaffected by changes in rental rate or occupancy. Further, because
maintenance fees are paid annually by owners, our management fees are recurring and less volatile than hotel
management fees. We also are reimbursed for the costs incurred to perform our services, principally related to
personnel providing on-site services. The original term of our management agreements is typically governed by
state timeshare laws and ranges from three to five years. The agreements generally are subject to automatic
renewal for one- to three-year periods unless either party provides advance notice of termination before the
expiration of the term. Since our inception in 1992, none of the management agreements relating to our
developed or fee-for-service properties have been terminated or lapsed.

To fund resort operations, owners are assessed an annual maintenance fee, which includes our management
fee. In 2018, HOAs collected approximately $380 million in maintenance fees,
including our applicable
management fees. Because these funds are collected early in the year, we have substantial visibility and
reliability of collection. These fees represent each owner’s allocable share of the management fee and the costs of
operating and maintaining the resorts, which generally includes personnel, property taxes, insurance, a capital
asset reserve to fund refurbishment and other related costs. If a VOI owner defaults on payment of its
maintenance fees and there is no lien against the mortgage note, the HOA has the right to recover the defaulting
owner’s VOI. As a service to HOAs at our owned resorts, subject to our inventory needs, we have the ability to
reduce the bad debt expense at the HOAs by assuming the defaulted owner’s obligations in exchange for an
agreed purchase price. We are then able to resell those VOIs through our normal distribution channels.

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A portion of the annual maintenance fees collected from owners each year is set aside as a capital asset
reserve for property renovations. The renovations funded by these fees enable HOAs to keep properties modern,
which helps the properties consistently receive the highest quality assurance scores across the Hilton brands.
HOAs engage an independent consulting firm to compile a reserve study. Typically, HOAs budget the reserve
study to target property renovations on a six- and 12-year cycle. HOAs generally replace soft goods every six
years and hard goods every 12 years. These reserves also benefit our members by limiting the risk of special
assessments and steep increases in maintenance fees due to deferred capital expenditures.

Club Management

We also manage and operate the points-based Hilton Grand Vacations Club and Hilton Club exchange
programs, which provided exclusive exchange, leisure travel and reservation services to approximately 309,000
members as of December 31, 2018. When an owner purchases a VOI, he or she is enrolled in the Club and
allotted a number of points that represent his or her ownership interest and allow the member to exchange his or
her annual usage rights for a number of vacation and travel options available through the club. The Hilton Club
operates certain locations for its VOI owners, who also enjoy exchange benefits with the Hilton Grand Vacations
Club. In addition to an annual membership fee, club members pay incremental fees depending on the type of
exchange they choose within the club system.

Rental of Available Inventory

We rent unsold owned and fee-for-service VOI inventory and inventory made available due to ownership
exchanges through our Club programs. By using our website, Hilton’s websites and other direct booking
channels to rent available inventory, we are able to reach potential new members that may already have an
affinity for and loyalty to the Hilton brands and introduce them to our products. Inventory rentals allow us to
utilize otherwise unoccupied inventory to generate additional revenues and provision of ancillary services. We
earn a fee from rentals of third-party inventory.

Competition

The timeshare industry has historically been highly competitive and comprised a number of national and

regional companies that develop, finance and operate timeshare properties.

Our timeshare business competes with other timeshare developers for sales of VOIs based principally on
location, quality of accommodations, price, service levels and amenities, financing terms, quality of service,
terms of property use, reservation systems, flexibility for members to exchange into time at other timeshare
properties or other travel rewards, including access to hotel loyalty programs, as well as brand name recognition
and reputation. We also compete for property acquisitions and partnerships with entities that have similar
investment objectives as we do. There is also significant competition for talent at all levels within the industry, in
particular for sales and management. Our primary competitors in the timeshare space include Marriott Vacations
Worldwide, Wyndham Destinations, Vistana Signature Experiences, Disney Vacation Club, Hyatt Residence
Club, Holiday Inn Club Vacations, Bluegreen Vacations and Diamond Resorts International.

In addition, our timeshare business competes with other entities engaged in the leisure and vacation
industry, including resorts, hotels, cruises and other accommodation alternatives, such as condominium and
single-family home rentals. We also compete with home and apartment sharing services that operate websites
that market available privately-owned residential properties that can be rented on a nightly, weekly or monthly
basis. In certain markets, we compete with established independent timeshare operators, and it is possible that
other potential competitors may develop properties near our current resort locations. In addition, we face
competition from other timeshare management companies in the management of resorts on behalf of owners on
the basis of quality, cost, types of services offered and relationship.

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timeshare purposes), known as Vistana Signature Experiences,

Recent and potential future consolidation in the highly fragmented timeshare industry may increase
competition. For example, Interval Leisure Group, Inc. (“ILG”), which operates the Interval International
exchange program, acquired Hyatt Residence Club in October 2014 and in May 2016 acquired the timeshare
operations of Starwood Hotels & Resorts Worldwide, Inc. (which includes the use of Westin and Sheraton brands
for
Inc. Marriott Vacations Worldwide
Corporation completed the acquisition of the timeshare business of ILG in April 2018. Diamond Resorts
International, Inc. completed the acquisition of the timeshare business of Gold Key Resorts in October 2015 and
completed the acquisition of the timeshare business of Intrawest Resort Club Group in January 2016.
Consolidation may create competitors that enjoy significant advantages resulting from, among other things, a
lower cost of, and greater access to, capital and enhanced operating efficiencies.

We generally do not face competition in our consumer financing business to finance sales of our VOIs. We
do face competition from financial institutions providing other forms of consumer credit, which may lead to full
or partial prepayment of our timeshare financing receivables.

Seasonality and Cyclicality

We experience modest seasonality in timeshare sales at certain resorts, with stronger revenue generation
during traditional vacation periods for those locations. Our business is moderately cyclical as the demand for
VOIs is affected by the availability and cost of financing for purchases of VOIs, as well as general economic
conditions and the relative health of the travel industry and housing market.

Intellectual Property

In connection with the spin-off, we entered into a license agreement with Hilton which grants us the right to
use certain Hilton-branded trademarks, trade names and related intellectual property in our business for the term
of the agreement. The license agreement provides us with, among other things, the exclusive license to design,
build, manage and maintain existing and future timeshare resorts under the Hilton Grand Vacations brand
throughout the world, subject to Hilton’s consent in certain circumstances. See “Key Agreements Related to the
Spin-Off—License Agreement” for more information. In the competitive industry in which we operate,
trademarks, service marks, trade names and logos are very important to the marketing and sales of our products.
We believe that the licensed marks and related intellectual property have come to represent the highest standards
of quality, service and value to our members, guests, employees and those with whom we have business
relationships. We have applied and will continue to apply to register our trademarks in markets in which we
conduct business. We will enforce our rights against the unauthorized use of our intellectual property by third
parties and otherwise protect our intellectual property through strategies and in jurisdictions we deem
appropriate.

Government Regulation

Our business is subject to various international, national, federal, state and local laws, regulations and
policies in jurisdictions in which we operate. Some laws, regulations and policies impact multiple areas of our
business, such as securities, anti-discrimination, anti-fraud, data protection and security and anti-corruption and
bribery laws and regulations or government economic sanctions, including applicable regulations under the U.S.
Treasury’s Office of Foreign Asset Control and the U.S. Foreign Corrupt Practices Act (“FCPA”). The FCPA
and similar anti-corruption and bribery laws in other jurisdictions generally prohibit companies and their
intermediaries from making improper payments to government officials for the purpose of obtaining or
generating business. Other laws, regulations and policies primarily affect one of our areas of business: real estate
development activities; marketing and sales activities; financial services activities; and resort management
activities.

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Real Estate Development Regulation

Our real estate development activities are regulated under a number of different timeshare, condominium
and land sales disclosure statutes in many jurisdictions. We are generally subject to laws and regulations
typically applicable to real estate development, subdivision and construction activities, such as laws relating to
zoning, land use restrictions, environmental regulation, accessibility, title transfers, title insurance and taxation.
In the United States, these include the Fair Housing Act and the Americans with Disabilities Act of 1990 and the
Accessibility Guidelines promulgated thereunder, which we refer to collectively as (the “ADA”). In addition, we
are subject to laws in some jurisdictions that impose liability on property developers for construction defects
discovered or repairs made by future owners of property developed by the developer.

Marketing and Sales Regulation

Our marketing and sales activities are highly regulated. In addition to regulations implementing laws
enacted specifically for the timeshare industry, a wide variety of laws and regulations govern our marketing and
sales activities,
including regulations implementing the USA PATRIOT Act, Foreign Investment In Real
Property Tax Act, the Federal Interstate Land Sales Full Disclosure Act and fair housing statutes, U.S. Federal
Trade Commission (“FTC”) and state “Little FTC Act” and other regulations governing unfair, deceptive or
abusive acts or practices including unfair or deceptive trade practices and unfair competition, state attorney
general regulations, anti-fraud laws, prize, gift and sweepstakes laws, real estate, title agency or insurance and
other licensing or registration laws and regulations, anti-money laundering, consumer information privacy and
security, breach notification, information sharing and telemarketing laws, home solicitation sales laws, tour
operator laws, lodging certificate and seller of travel laws and other consumer protection laws.

We must obtain the approval of numerous governmental authorities for our marketing and sales activities.
Changes in circumstances or applicable law may necessitate the application for or modification of existing
approvals. In addition, many jurisdictions, including many jurisdictions in the United States, require that we file
detailed registration or offering statements with regulatory authorities disclosing information regarding our VOIs,
such as information concerning the intervals being offered, the project, resort or program to which the intervals
relate, applicable timeshare plans, evidence of title, details regarding our business, the purchaser’s rights and
obligations with respect to such intervals, and a description of the manner in which we intend to offer and
advertise such intervals.

When we sell VOIs, local law grants the purchaser of a VOI the right to cancel a purchase contract during a
specified rescission period following the later of the date the contract was signed or the date the purchaser
received the last of the documents required to be provided by us.

In recent years, regulators in many jurisdictions have increased regulations and enforcement actions related
to telemarketing operations, including requiring adherence to the federal Telephone Consumer Protection Act
and “do not call” legislation. These measures have significantly increased the costs associated with
telemarketing, in particular with respect to telemarketing to mobile numbers. While we continue to be subject to
telemarketing risks and potential liability, we believe that our exposure to adverse effects from telemarketing
legislation and enforcement is mitigated in some instances by the use of permission-based marketing in which we
obtain permission to contact prospective purchasers in the future. We have also implemented procedures to
comply with federal and state “do not call” regulations including subscribing to the federal do not call registry
and certain state “do not call” registries as well as maintaining an internal “do not call” list.

Lending Regulation

Our lending activities are subject to a number of laws and regulations including those of applicable
supervisory agencies such as, in the United States, the Consumer Financial Protection Bureau, the FTC, and the
Financial Crimes Enforcement Network. These laws and regulations, some of which contain exceptions

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applicable to the timeshare industry, may include, among others, the Real Estate Settlement Procedures Act and
Regulation X, the Truth In Lending Act and Regulation Z, the Federal Trade Commission Act, the Equal Credit
Opportunity Act and Regulation B, the Fair Credit Reporting Act, the Fair Housing Act and implementing
regulations, the Fair Debt Collection Practices Act, the Electronic Funds Transfer Act and Regulation E, unfair,
deceptive or abusive acts or practices regulations and the Credit Practices rules, the USA PATRIOT Act, the
Right to Financial Privacy Act, the Gramm-Leach-Bliley Act, the Servicemember’s Civil Relief Act and the
Bank Secrecy Act. Our lending activities are also subject to the laws and regulations of other jurisdictions,
including, among others, laws and regulations related to consumer loans, retail installment contracts, mortgage
lending, fair debt collection and credit reporting practices, consumer debt collection practices, mortgage
disclosure, lender or mortgage loan originator licensing and registration and anti-money laundering.

Resort Management Regulation

Our resort management activities are subject to laws and regulations regarding community association
management, public lodging, food and beverage services, liquor licensing, labor, employment, health care, health
and safety, accessibility, discrimination, immigration, gaming and the environment (including climate change).
In addition, many jurisdictions in which we manage our resorts have statutory provisions that limit the duration
of the initial and renewal terms of our management agreements for HOAs.

Environmental Matters

We are subject to certain requirements and potential liabilities under various U.S. federal, state and local
and foreign environmental, health and safety laws and regulations and incur costs in complying with such
requirements. The costs of complying with these requirements are generally covered by the HOAs that operate
the affected resort property and are our responsibility for assets owned by us. These laws and regulations govern
actions including air emissions, the use, storage and disposal of hazardous and toxic substances, and wastewater
disposal. In addition to investigation and remediation liabilities that could arise under such laws, we may also
face personal
injury, property damage, fines or other claims by third parties concerning environmental
compliance or contamination. We use and store hazardous and toxic substances, such as cleaning materials, pool
chemicals, heating oil and fuel for back-up generators at some of our facilities, and we generate certain wastes in
connection with our operations. Some of our properties include, and some of our future properties may include,
older buildings, and some may have, or may historically have had, dry-cleaning facilities and underground
storage tanks for heating oil and back-up generators. We have, from time to time, been responsible for
investigating and remediating contamination at some of our facilities, such as contamination that has been
discovered when we have removed underground storage tanks, and we could be held responsible for any
contamination resulting from the disposal of wastes that we generate, including at locations where such wastes
have been sent for disposal. In some cases, we may be entitled to indemnification from the party that caused the
contamination pursuant to our management, construction or renovation agreements, but there can be no assurance
that we would be able to recover all or any costs we incur in addressing such problems. From time to time, we
may also be required to manage, abate, remove or contain mold, lead, asbestos-containing materials, radon gas or
other hazardous conditions found in or on our properties. We have implemented an on-going operations and
maintenance plan at each of our properties that seeks to identify and remediate these conditions as appropriate.
Although we have incurred, and expect that we will continue to incur, costs relating to the investigation,
identification and remediation of hazardous materials known or discovered to exist at our properties, those costs
have not had, and are not expected to have, a material adverse effect on our financial condition, results of
operations or cash flows.

Employees

For more than 25 years, we have created and delivered vacation experiences for guests from around the
world. Our people first talent strategy is inclusive of programs and services which are designed to ensure that our
employees feel engaged, appreciated and rewarded for their contributions. We accomplish this through an

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employee-centered approach using their insights to create their programs: A recognition solution designed to
encourage effort, reward results, honor the best and celebrate careers delivered in a variety of categories through
WOW cards, Spotlight Awards, Pillar & Vision Awards and seasonal campaigns such as Summer of
Appreciation, International Housekeeping Week, and 25th Anniversary Celebration. Cultivating an inclusive
work environment, we offer opportunities to become involved with 6 Team Member Resource Groups and HGV
Serves volunteer network. We offer training and development opportunities giving all team members access to
more than 1000 course offerings delivered in a variety of media to fit unique learning styles, job types and
schedules within the nonstop nature of our business. As of December 31, 2018, more than 8,600 people were
employed at our timeshare resorts, call centers and corporate locations around the world.

We are proud to be recognized as an employer of choice though numerous awards:

• ARDA ACE Community Service Award, 2016

• Best Place to Work, Perspective Magazine, 2016

• Orlando Sentinel’s Top 100 Companies—Best Workplaces in Central Florida, 2018

As of December 31, 2018, less than 10 percent of our employees were covered by various collective
bargaining agreements generally addressing pay rates, working hours, other terms and conditions of employment,
certain employee benefits and orderly settlement of labor disputes.

Key Agreements Related to the Spin-Off

In connection with the spin-off, we entered into various agreements with Hilton and Park. Certain provisions
of the spin-off agreements survive the performance of the principal transactions to which they related. The
following is a summary of the terms of certain agreements we entered in connection with the spin-off from
Hilton, which continue to govern our ongoing relationships with Hilton and Park after the spin-off.

License Agreement

In connection with the spin-off, we entered into a license agreement with Hilton granting us the exclusive
right to use, for an initial term of 100 years, to use certain Hilton marks and intellectual property in our timeshare
business. For the years ended December 31, 2018 and 2017, we incurred license fee expense of $98 million and
$87 million, respectively.

Subject to the terms and conditions of the license agreement, Hilton has granted us the right to use the
trademarks “Hilton Grand Vacations,” “HGV” and “Hilton Club” (collectively,
the “Hilton Marks”) in
connection with the current and future operation of a Hilton branded vacation ownership business (the “Licensed
Business”). We have also received a license or right to use certain other Hilton-owned intellectual property,
including promotional content and access to Hilton’s reservation system and property management software
(collectively with the Hilton Marks, the “Hilton IP”). We also have the right to use Hilton’s loyalty program data
and other customer information (“Hilton Data”) to promote the Licensed Business and for other internal business
purposes, but may not disclose or sell such information to third parties without Hilton’s consent.

Subject to the following two sentences, Hilton will not compete or use the Hilton IP or Hilton Data in the
vacation ownership business (or license others to do so) for the first 30 years of the term of the license
agreement, and we may extend this exclusivity for additional 10-year terms if we achieve certain revenue targets
in the last year of the initial 30-year term or any subsequent renewal term, or make a payment to cover any
revenue shortfall, for a maximum of five such payments during any 10-year renewal term. If Hilton merges with
or acquires a company that owns a vacation ownership business and a hotel business, Hilton shall use
commercially reasonable efforts to allow us to acquire or manage the acquired vacation ownership business. If
we do not do so, then after such acquisition by Hilton, notwithstanding the foregoing exclusivity, Hilton may use

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the Hilton IP, Hilton Data and Hilton’s loyalty program (but not the Hilton Marks) to allow such acquired
vacation ownership business to compete with the Licensed Business for the remainder of the term of the license
agreement.

The initial term of the license agreement will expire on December 31, 2116. After the initial term ends, we
may continue to use the Hilton IP and Hilton Data on a non-exclusive basis for a “tail period” of 30 years in
connection with products and projects that were using the foregoing rights, or were approved by Hilton for
development, when the term ended, provided that we continue to comply with the terms of the license agreement,
including payment of royalty and other fees.

We pay a royalty fee of five percent of gross revenues to Hilton quarterly in arrears, as well as specified
additional fees. Gross revenues include our gross sales for the initial sale or re-sale of interests in the Licensed
Business (subject to certain HGV Club exceptions), property operations revenue, transient rental revenue and
other certain revenues earned. We also owe Hilton an annual transition fee of $5 million for each of the first five
years of the term and certain other fees and reimbursements. The license agreement contains customary
requirements with respect to our record-keeping and Hilton’s audit rights.

We are required to comply with the Hilton brand standards applicable to the Licensed Business. Hilton has
inspection and approval rights to monitor our compliance with these standards. Hilton brand standards include:
construction and design brand standards; graphic standards for use of the Hilton IP; sales, service and operating
standards; and quality assurance and customer satisfaction requirements.

During the term of the license agreement, we will participate in Hilton’s loyalty program, currently known
as the Hilton Honors program. We can purchase Hilton Honors points at cost for the first 20 years of the term of
the license agreement, and thereafter at the market rate (with a most favored nation provision, pursuant to which
such market rate is no higher than the price paid by strategic partners that purchase a comparable volume of
points annually on comparable business terms). All members of Hilton’s loyalty program have the right to
redeem loyalty program points at our properties in the Licensed Business, consistent with the tiers and rules of
Hilton’s current loyalty program. We can convert points associated with our own point-based reservations and
exchange system into Hilton loyalty program points through an exchange program at a conversion rate to be
determined by us. We may not participate in a loyalty program of a Hilton competitor in connection with the
Licensed Business. Under our Honors program arrangement with Hilton prior to the spin-off, we purchase Hilton
Honors points from Hilton based on an estimated cost per point for the costs of future club exchanges. For the
years ended December 31, 2018 and 2017, we paid Hilton $56 million and $59 million, respectively, for Hilton
Honors points.

We are required to operate the Licensed Business in strict compliance with all of Hilton’s standards and
guidelines and all applicable laws. We are responsible for obtaining and maintaining all necessary approvals,
permits and licenses required and paying all taxes related to the Licensed Business. We may subcontract or
delegate property-level, non-management functions, including housekeeping, security and maintenance, as long
as we comply with Hilton’s standards and guidelines. Hilton has the right to enter our vacation ownership
properties at any time without notice and additional permission from us in order to verify that we are complying
with the license agreement and Hilton’s standards and guidelines.

We are required to comply with Hilton’s customer data privacy and security standards and protocols. We are
required to notify Hilton immediately after discovering any actual or attempted circumstances that could
compromise the security of our information technology systems. We are required to remedy any such breach at
our own expense.

We are able to operate vacation ownership properties under other brands (with no royalty due to Hilton) if
we do so without using any Hilton IP or Hilton Data and they are otherwise separate operations from the
Licensed Business.

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We are required to obtain Hilton’s consent to develop or operate any additional vacation ownership
properties under the Hilton Marks (including on our own undeveloped parcels). Hilton may not unreasonably
withhold its approval for these projects as long as they comply with existing law, do not involve a co-investor
that is a competitor of Hilton or is of bad moral character, and are not reasonably likely to harm Hilton, the
Licensed IP or the Hilton Data. Hilton has a right of first refusal if we want to sell an undeveloped parcel to a
Hilton competitor.

We have entered into an agreement with Hilton that governs the transfer of calls from Hilton to us. Under
this agreement, Hilton is required to use its reasonable best efforts to transfer calls to us at a level consistent with
past practice prior to the spin-off for the first ten years. Hilton is required to provide the call transfer services at
cost for the first 30 years and at market rates thereafter. We have entered into other agreements that govern other
services that Hilton is required to provide us.

Under the license agreement, our right to use the Hilton Marks as a trade, corporate, d/b/a or similar name
will automatically terminate if (i) the aggregate number of units of accommodation in our Licensed Business falls
below two-thirds of the total number of units of accommodation in our entire vacation ownership business;
(ii) we merge with or acquire control of the assets of Marriott International, Inc., Marriott Vacations Worldwide
Corporation, Hyatt Hotels Corporation, Wyndham Destinations and Interval Leisure Group, Inc. or their
respective affiliates and we or they use their brands in any business after such acquisition; or (iii) we become an
affiliate of another Hilton competitor.

Hilton has the right to terminate the license agreement as a whole if, among other things: (i) we file for
bankruptcy or cease business operations; (ii) 25 percent or more of our Hilton-branded vacation ownership
properties fail certain performance thresholds or the overall customer satisfaction score for all our Hilton-branded
vacation ownership properties falls below a certain threshold level, and we do not promptly cure such failures;
(iii) we operate the Licensed Business in a way that has a material adverse effect on Hilton; (iv) we fail to pay
certain amounts due to Hilton (and in certain cases, do not promptly cure such failures); (v) we contest Hilton’s
ownership of the Hilton IP or the Hilton Data; (vi) we merge with, consolidate with or are acquired by a
competitor of Hilton; or (vii) we assign the agreement to a non-affiliate without Hilton’s consent.

Hilton also has the right to “deflag” (prevent use of any Hilton IP or Hilton Data at) any property in our
Licensed Business in certain circumstances, including if (i) a $10 million or more final judgment is assessed
against such property or a foreclosure suit is initiated against such property and not vacated; (ii) an ongoing
threat or danger to public health or safety occurs at such property; (iii) such property fails to meet certain quality
assurance system performance thresholds; or (iv) such property is not operated in compliance with the license
agreement or Hilton’s other standards and agreements, and such breaches are not cured in accordance with the
license agreement.

If we breach our obligations under the license agreement, Hilton may, in addition to terminating the license
agreement, be entitled to (depending on the nature of the breach): seek injunctive relief and/or monetary
damages; suspend our access to and terminate our rights to use Licensed IP and/or Hilton Data (other than the
Hilton Marks and certain other content); or terminate our rights to use the Licensed IP (including the Hilton
Marks) and Hilton Data at specific locations that are not in compliance with performance standards.

If the license agreement terminates due to our fault before the end of the term, we are required to cease use
of the Hilton IP and Hilton Data according to a specified schedule. Hilton has the right to demand liquidated
damages based upon its uncollected royalties and fees for the remainder of the term.

Hilton has registered certain of the Hilton Marks for vacation ownership services in jurisdictions in which
we currently operate vacation ownership resorts and residential projects under the Hilton Marks. However,
Hilton does not have affirmative trademark rights in the Hilton Marks in relation to every aspect of our business
in every country around the world, and we, therefore, may not be able to use one or more of the Hilton Marks to

14

expand various aspects of our business into one or more new countries. If we want to use a Hilton Mark in a
country where it is not registered, we will have to seek Hilton’s consent, which may not be withheld if the new
trademark would not reasonably be expected to harm or jeopardize the value, validity, reputation or goodwill of
the Hilton Marks or subject Hilton to any risk of legal liability.

Unless we obtain Hilton’s prior written consent, we may not be able to: (i) merge with or acquire a Hilton
competitor or a vacation ownership business that has entered into an operating agreement with a Hilton
competitor; (ii) merge with or acquire a vacation ownership business together with a lodging business; or (iii) be
acquired or combined with any entity other than an affiliate. We may acquire control of a business that is not a
vacation ownership business or a lodging business without Hilton’s consent, but we are required to operate such
business as a separate operation that does not use the Hilton IP or Hilton Data unless Hilton consents to such use.
Without Hilton’s prior consent, we may not assign our rights under the license agreement, except to one our
affiliates as part of an internal reorganization for tax or administrative purposes.

We are required to indemnify, defend and hold harmless Hilton from and against any claim or liability
resulting from (i) third-party claims based on (ii) our breach of the license agreement; (iii) the operation of our
vacation ownership properties; (iv) any use of the Hilton IP or Hilton Data in violation of the license agreement;
or (v) claims based on any security breach of our systems and/or unauthorized use or disclosure of Hilton Data.

This summary does not purport to be complete and is qualified in its entirety by reference to the full text of
the License Agreement, which was filed as Exhibit 10.4 to HGV’s Current Report on Form 8-K filed with
the SEC on January 4, 2017.

Distribution Agreement

We entered into a Distribution Agreement with Hilton and Park regarding the principal actions taken or to
be taken in connection with the spin-off. The Distribution Agreement provided for certain transfers of assets and
assumptions of liabilities by each of Hilton, HGV and Park and the settlement or extinguishment of certain
liabilities and other obligations among Hilton, HGV and Park. In addition, notwithstanding the allocation
described above, HGV, Hilton and Park agreed that losses related to certain contingent liabilities (and related
costs and expenses) that generally are not specifically attributable to any of the separated real estate business,
the timeshare business or the retained business of Hilton (“Shared Contingent Liabilities”) will be apportioned
among the parties according to fixed percentages of 65 percent, 26 percent and nine percent for Hilton, Park and
HGV, respectively. Examples of Shared Contingent Liabilities may include uninsured losses arising from actions
(including derivative actions) against current or former directors or officers of Hilton or its subsidiaries in respect
of acts or omissions occurring prior to the completion of the spin-off, or against current or former directors or
officers of any of Hilton, HGV or Park, or any of their respective subsidiaries, arising out of, in connection with,
or otherwise relating to, the spin-off, subject to certain exceptions described in the Distribution Agreement. In
addition, costs and expenses of, and indemnification obligations to, third party professional advisors arising out
of the foregoing actions also may be subject to these provisions. Subject to certain limitations and exceptions,
Hilton will generally be vested with the exclusive management and control of all matters pertaining to any such
Shared Contingent Liabilities,
including the prosecution of any claim and the conduct of any defense.
The Distribution Agreement also provides for cross-indemnities that, except as otherwise provided in the
Distribution Agreement, are principally designed to place financial responsibility for the obligations and
liabilities of each business with the appropriate company.

The foregoing summary does not purport to be complete and is qualified in its entirety by reference to the
full text of the License Agreement, which was filed as Exhibit 10.4 to HGV’s Current Report on Form 8-K filed
with the SEC on January 4, 2017.

Tax Matters Agreement

We have entered into a Tax Matters Agreement with Hilton and Park that govern the respective rights,
responsibilities and obligations of Hilton, Park and us after the spin-off with respect to tax liabilities and benefits,

15

tax attributes, tax contests and other tax sharing regarding U.S. federal, state, local and foreign income taxes,
other tax matters and related tax returns. Although binding between the parties, the Tax Matters Agreement is not
binding on the Internal Revenue Service (“IRS”). We and Park each will continue to have several liabilities with
Hilton to the IRS for the consolidated U.S. federal income taxes of the Hilton consolidated group relating to the
taxable periods in which we and Park were part of that group. The Tax Matters Agreement specifies the portion,
if any, of this tax liability for which we and Park will bear responsibility, and each party has agreed to indemnify
the other two parties against any amounts for which they are not responsible. The Tax Matters Agreement also
provides special rules for allocating tax liabilities in the event that the spin-off is not tax-free. In general, under
the Tax Matters Agreement, each party is responsible for any taxes imposed on Hilton that arise from the failure
of the spin-off and certain related transactions to qualify as a tax-free transaction for U.S. federal income tax
purposes under Sections 355 and 368(a)(1)(D) of the Code, as applicable, and certain other relevant provisions of
the Code, to the extent that the failure to qualify is attributable to actions taken by such party (or with respect to
such party’s stock). The parties share responsibility, in accordance with sharing percentages of 65 percent for
Hilton, 26 percent for Park, and nine percent for us, for any such taxes imposed on Hilton that are not attributable
to actions taken by a party.

The foregoing summary does not purport to be complete and is qualified in its entirety by reference to the
full text of the Tax Matters Agreement, which was filed as Exhibit 10.2 to HGV’s Current Report on Form 8-K
filed with the SEC on January 4, 2017.

Transition Services Agreement

We entered into a Transition Services Agreement with Hilton and Park under which Hilton or one of its
affiliates provided us and Park with certain services for a limited time to help ensure an orderly transition
following the spin-off (the “Transition Services Agreement” or “TSA”).

The services that Hilton agreed to provide to us and Park under the Transition Services Agreement included
certain finance, information technology, human resources and compensation, facilities, legal and compliance and
other services. We and Park agreed to pay Hilton for any such services utilized at agreed amounts as set forth in
the Transition Services Agreement. The Transition Services Agreement expired as of December 31, 2018.

This summary does not purport to be complete and is qualified in its entirety by reference to the full text of
the Transition Services Agreement, which was filed as Exhibit 10.3 to HGV’s Current Report on Form 8-K filed
with the SEC on January 4, 2017.

Agreements with HNA

Prior to the spin-off, The Blackstone Group L.P (“Blackstone”) held 39,758,689 or 40 percent of the shares
of our outstanding common stock and subsequently agreed to sell 24,750,000 or 25 percent of the shares of our
outstanding common stock to HNA Tourism Group Co., Ltd. (“HNA”). In March 2017, the sale was completed,
and we entered into a stockholders agreement with HNA. The HNA stockholders agreement provided HNA with
certain rights, including the right to designate two directors to our Board, and a registration rights agreement
which provided that Blackstone with customary “demand” and “piggyback” registration rights.

On March 13, 2018, we and certain affiliates of HNA entered into a Master Amendment and Option
Agreement (the “Master Amendment and Option Agreement”) to make certain amendments to the Stockholders
Agreement and the Registration Rights Agreement, including, among other things, (i) to permit the sale of up to
all 24,750,000 shares of our common stock owned by HNA prior to the expiration of the two-year restricted
period originally contained in the Stockholders Agreement, (ii) grant us a right to repurchase up to 4,340,000
shares of our common stock held by HNA, (iii) provide that HNA has customary “demand” registration rights
effective March 13, 2018, (iv) require HNA to pay all expenses incurred under the Registration Rights
Agreement for registrations or offerings occurring prior to a certain date and (v) eliminate HNA’s right to

16

designate a certain number of directors to our board of directors. In March 2018, HGV and HNA entered into an
underwriting agreement with several underwriters, pursuant to which the underwriters agreed to purchase from
HNA 22,250,000 shares of common stock, $0.01 par value per share, of the Company at a price of approximately
$44.75 per share. The sale was completed on March 19, 2018. In connection with the underwritten offering, we
exercised the repurchase option with respect to 2,500,000 shares at a price of approximately $44.75 per share. As
a result, HNA no longer owns shares of our common stock, and both the Stockholders Agreement and the
Registration Rights Agreement were terminated.

This summary does not purport to be complete and is qualified in its entirety by reference to the full text of
the Master Amendment and Option Agreement, which was filed as Exhibit 10.1 to HGV’s Current Report
onForm 8-K filed with the SEC on March 13, 2018.

Where You Can Find More Information

Our website address is www.hgv.com. Information on our website is not incorporated by reference herein.
We file reports with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K, and certain amendments to these reports. Copies of these reports are available free
of charge on our website as soon as reasonably practicable after we file the reports with the SEC. The SEC also
maintains a website at www.sec.gov that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC.

ITEM 1A. Risk Factors

We are subject to various risks that could materially and adversely affect our business, financial condition,
results of operations, liquidity and stock price. You should carefully consider the risk factors discussed below, in
addition to the other information in this Annual Report on Form 10-K. Further, other risks and uncertainties not
presently known to management or that management currently deems less significant also may result in material
and adverse effects on our business, financial condition, results of operations, liquidity and stock price. The risks
below also include forward-looking statements; and actual results and events may differ substantially from those
discussed or highlighted in these forward-looking statements. See “Cautionary Note Regarding Forward-
Looking Statements.”

Risks Related to Our Business and Industry

We are subject to business, financial and operating risks inherent to the timeshare and hospitality industry,
any of which could reduce our revenues and limit opportunities for growth.

Our business is subject to a number of business, financial and operating risks inherent to the timeshare

industry, including:

•

•

•

•

•

•

•

•

changes in the supply and demand for our products and services;

our ability to securitize the receivables that we originate in connection with VOI sales;

delays in or cancellations of planned or future development or refurbishment projects;

the financial condition of third-party developers with whom we do business;

relationships with third-party developers, our Club members and HOAs;

changes in desirability of geographic regions of our resorts and affiliated resorts, geographic
concentration of our operations and shortages of desirable locations for development;

changes in operating costs, including energy, food, employee compensation and benefits and insurance;

increases in costs due to inflation or otherwise, including increases in our operating costs, that may not
be fully offset by price and fee increases in our business;

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•

•

•

•

•

changes in taxes and/or governmental regulations that influence or set wages, prices, interest rates or
construction and maintenance procedures and costs;

significant
regulation with respect to health care coverage;

increases in cost of health care coverage for employees, and potential government

shortages of labor or labor disruptions;

the availability and cost of capital necessary for us, and third-party developers with whom we do
business, to fund investments, capital expenditures and service debt obligations;

significant competition from other timeshare businesses and hospitality providers in the markets in
which we operate;

• market and/or consumer perception of timeshare companies and the industry in general;

•

•

•

•

•

•

•

the economic environment for and trends in the tourism and hospitality industry, which may impact the
vacationing and purchasing decisions of consumers;

the influence of social media on consumers’ lodging decisions;

increases in the use of third-party and competitor internet services to book hotel reservations, secure
short-term lodging accommodations and market vacation rental properties;

legal, business or regulatory issues unique to the geographic locations of our resorts and affiliated
resorts, which could increase the cost of or result in delays in entering into or expanding in those
locations;

limited underwriting standards due to the real-time nature of industry sales practices;

private resales of VOIs and the sale of VOIs in the secondary market; and

the impact on the industry of unlawful or deceptive third-party VOI resale or vacation package sales
schemes.

Any of these factors could increase our costs or limit or reduce the prices we are able to charge for our
products and services or otherwise affect our ability to maintain existing properties, develop new properties or
source VOI supply from third parties. As a result, any of these factors can reduce our revenues and limit
opportunities for growth.

Macroeconomic and other factors beyond our control can adversely affect and reduce demand for our
products and services.

Macroeconomic and other factors beyond our control can reduce demand for our products and services,

including demand for timeshare properties. These factors include, but are not limited to:

•

changes in general economic conditions, including low consumer confidence, unemployment levels
and depressed real estate prices resulting from the severity and duration of any downturn in the U.S. or
global economy;

• war, political conditions or civil unrest, violence or terrorist activities or threats and heightened travel

•

•

•

security measures instituted in response to these events;

the financial and general business condition of the travel industry;

statements, actions or interventions by governmental officials related to travel and the resulting
negative public perception of such travel;

conditions that negatively shape public perception of travel, including travel-related accidents and
outbreaks of pandemic or contagious diseases, such as Ebola, avian flu, severe acute respiratory
syndrome (SARS), H1N1 (swine flu) and the Zika virus;

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•

•

•

•

cyber-attacks;

climate change or availability of natural resources;

natural or manmade disasters, such as earthquakes, windstorms, tornadoes, hurricanes, typhoons,
tsunamis, volcanic eruptions, floods, drought, fires, oil spills and nuclear incidents; and

organized labor activities, which could cause a diversion of business from resorts involved in labor
negotiations and loss of business generally for the resorts we manage as a result of certain labor tactics.

Any one or more of these factors can adversely affect, and from time to time have adversely affected,

individual resorts, particular regions and our business, financial condition and results of operations.

Contraction in the global economy or low levels of economic growth could adversely affect our revenues and
profitability as well as limit or slow our future growth.

Consumer demand for products and services provided by the timeshare industry is closely linked to
the performance of the general economy and is sensitive to business and personal discretionary spending levels.
Decreased global or regional demand for products and services provided by the timeshare industry can be
especially pronounced during periods of economic contraction or low levels of economic growth, and
the recovery period in our industry may lag overall economic improvement. Declines in demand for our products
and services due to general economic conditions could negatively affect our business by decreasing the revenues
we are able to generate from our VOI sales, financing activities and Club and resort operations. In addition, many
of the expenses associated with our business, including personnel costs, interest, rent, property taxes, insurance
and utilities, are relatively fixed. During a period of overall economic weakness, if we are unable to meaningfully
decrease these costs as demand for our products and services decreases, our business operations and financial
performance may be adversely affected.

We do not own the Hilton brands and our business will be materially harmed if we breach our license
agreement with Hilton or it is terminated.

Following the spin-off, Hilton retained ownership of the Hilton-branded trademarks, tradenames and certain
related intellectual property used in the operation of our business. We entered into a license agreement with
Hilton granting us the right to use the Hilton-branded trademarks, trade names and related intellectual property in
our business for the term of the agreement. If we breach our obligations under the license agreement, Hilton may
be entitled to terminate the license agreement or terminate our rights to use the Hilton brands and other Hilton
intellectual property at properties that do not meet applicable standards and policies, or to exercise other
remedies.

The termination of the license agreement or exercise of other remedies would materially harm our business
and results of operations and impair our ability to market and sell our products and maintain our competitive
position. For example, if we are not able to rely on the strength of the Hilton brands to attract prospective
members and guests in the marketplace, our revenue and profits would decline and our marketing and sales
expenses would increase. If we are not able to use Hilton’s marketing databases and corporate-level advertising
channels to reach potential members and guests, including Hilton’s internet address as a channel through which
to market available inventory, our member growth would be adversely affected and our revenue would materially
decline, and it is uncertain whether we would be able to replace the revenue associated with those channels.

Even if the license agreement remains in effect, the termination of our rights to use the Hilton-branded
trademarks, trade names and related intellectual property at properties that fail to meet applicable standards and
policies, or any deterioration of quality or reputation of the Hilton brands (even deterioration not leading to
termination of our rights under the license agreement or not caused by us), could also harm our reputation and
impair our ability to market and sell our products at the subject properties, which could materially harm our
business.

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In addition, if license agreement terms relating to the Hilton Honors loyalty program terminate, we would
not be able to offer Hilton Honors points to our members and guests. This would adversely affect our ability to
sell our products, offer the flexibility associated with our Club membership and sustain our collection
performance on our timeshare financing receivables portfolio. See “Item 1. Business—Key Agreements Related to
the Spin-Off—License Agreement.”

We will rely on Hilton to consent to our use of its trademarks at new properties we manage in the future.

Under the terms of our license agreement with Hilton, we are required to obtain Hilton’s consent to use its
trademarks in circumstances specified in the license agreement. Hilton may reject a proposed project in certain
circumstances. Any requirements to obtain Hilton’s consent to our expansion plans, or the need to identify and
secure alternative expansion opportunities because Hilton does not allow us to use its trademarks with proposed
new projects, may delay implementation of our expansion plans, cause us to incur additional expense or reduce
the financial viability of our projects. Further, if Hilton does not permit us to use its trademarks in connection
with our expansion plans, our ability to expand our Hilton-branded timeshare business would cease and our
ability to remain competitive may be materially adversely affected.

Our business depends on the quality and reputation of the Hilton brands and affiliation with the Hilton
Honors loyalty program.

Currently, all of our products and services are offered under the Hilton brand names and affiliated with
the Hilton Honors loyalty program, and we intend to continue to develop and offer products and services under
the Hilton brands and affiliated with the Hilton Honors loyalty program in the future. In addition, the license
agreement contains significant prohibitions on our ability to own or operate properties that are not Hilton brand
names. The concentration of our products and services under these brands and program may expose us to risks of
brand or program deterioration, or reputational decline, that are greater than if our portfolio were more diverse.
Furthermore, as we are not the owner of the Hilton brands or the Hilton Honors loyalty program, changes to these
brands and program or our access to them, including our ability to buy points to offer to our members and
potential members, could negatively affect our business. Any failure by Hilton to protect the trademarks,
tradenames and intellectual property that we license from it could reduce the value of the Hilton brands and also
harm our business. If these brands or program deteriorate or materially change in an adverse manner, or
the reputation of these brands or program declines, our market share, reputation, business, financial condition or
results of operations could be materially adversely affected.

Our dependence on development activities exposes us to project cost and completion risks.

We secure VOI inventory in part by developing new timeshare properties and new phases of existing
timeshare properties. Our ongoing involvement in the development of inventory presents a number of risks,
including:

•

•

•

•

future weakness in the capital markets limiting our ability to raise capital for completion of projects or
for development of future properties;

construction costs, to the extent they escalate faster than the pace at which we can increase the price of
VOIs, adversely affecting our margins;

construction delays, zoning and other local, state or federal governmental approvals, particularly in
new geographic areas with which we are unfamiliar, cost overruns, lender financial defaults, or natural
or man-made disasters, such as earthquakes, tsunamis, hurricanes, floods, fires, volcanic eruptions and
oil spills, increasing overall project costs, affecting timing of project completion or resulting in project
cancellations;

any liability or alleged liability or resultant delays associated with latent defects in design or
construction of projects we have developed or that we construct in the future adversely affecting our
business, financial condition and reputation;

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•

•

failure by third-party contractors to perform for any reason, exposing us to operational, reputational
and financial harm; and

the existence of any title defects in properties we acquire.

We also source inventory from third-party developers that are exposed to such risks, and the occurrence of
any of these risks with respect to those third parties could have a material adverse effect on our access to
the inventory sourced from these developers.

A decline in developed or acquired VOI inventory or our failure to enter into and maintain fee-for-service
agreements may have an adverse effect on our business or results of operations.

In addition to VOI supply that we develop or acquire, we source VOIs through fee-for-service agreements
with third-party developers. If we fail to develop timeshare properties, acquire inventory or are unsuccessful in
entering into new agreements with third-party developers, we may experience a decline in VOI supply, which
could result in a decrease in our revenues. Approximately 77 percent of our contract sales were from capital-
efficient sources for the year ended December 31, 2018. As part of our strategy to optimize our sales mix of
capital-efficient
inventory, we will continue to acquire inventory and enter into additional fee-for-service
agreements to source inventory. These arrangements may expose us to additional risk as we will not control
development activities or timing of development completion. If third parties with whom we enter into agreements
are not able to fulfill their obligations to us, the inventory we expect to acquire or market and sell on their behalf
may not be available on time or at all, or may not otherwise be within agreed-upon specifications, including the
specifications that we must meet in order to use Hilton’s trademarks at such properties. If our counterparties do
not perform as expected and we do not have access to the expected inventory or obtain access to inventory from
alternative sources on a timely basis, our ability to achieve sales goals may be adversely affected.

In addition, a decline in VOI supply could result in a decrease of financing revenues that are generated by

VOI purchases and fee and rental revenues that are generated by our resort and Club management services.

We operate in a highly competitive industry.

The timeshare industry is highly competitive. The Hilton brands we use compete with the timeshare brands
affiliated with major hotel chains in national and international venues, and we compete generally with other
vacation options such as cruises and the vacation rental options generally offered by the lodging and travel
industry (e.g., hotels, resorts and condominium rentals).

We also compete with other timeshare developers for sales of VOIs based principally on location, quality of
accommodations, price, service levels and amenities, financing terms, quality of service, terms of property use,
reservation systems, flexibility for VOI owners to exchange into time at other timeshare properties, or other
travel rewards, including access to hotel loyalty programs, as well as brand name recognition and reputation. A
number of our competitors are significantly larger than we are, and have potentially greater access to capital
resources and broader marketing, sales and distribution capabilities. We also compete with numerous other
smaller owners and operators of timeshare resorts, as well as home and apartment sharing services that market
available privately owned residential properties that can be rented on a nightly, weekly or monthly basis. In
addition, we are in competition with national and independent timeshare resale companies and members reselling
existing VOIs, which could reduce demand or prices for sales of new VOIs. We also compete with other
timeshare management companies in the management of resorts on behalf of owners on the basis of quality, cost,
types of services offered and relationship.

We also compete for property acquisitions and partnerships with entities that have similar investment
objectives as we do. This competition could limit the number of, or negatively affect the cost of, suitable
investment opportunities available to us.

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Recent and potential future consolidation in the highly fragmented timeshare industry may increase
competition. Consolidation may create competitors that enjoy significant advantages resulting from, among other
things, a lower cost of, and greater access to, capital and enhanced operating efficiencies. There is also
significant competition for talent at all levels within the industry, in particular for sales and management.

Our ability to remain competitive and to attract and retain members depends on our success in
distinguishing the quality and value of our products and services from those offered by others. If we cannot
compete successfully in these areas or if our marketing and sales efforts are not successful and we are unable to
convert customers to a sufficient number of sales, this could negatively affect our operating margins and our
ability to recover the expense of our marketing programs and grow our business, diminish our market share and
reduce our earnings.

The sale of VOIs in the secondary market by existing members could cause our sales revenues and profits to
decline.

Existing members have offered, and are expected to continue to offer, their VOIs for sale on the secondary
market. The sale of VOIs has been made easier by recent development of virtual marketplaces assisting members
with the sale of their VOIs. The prices at which these intervals are sold are typically less than the prices at which
we would sell the intervals. As a result, these sales create additional pricing pressure on our sale of VOIs, which
could cause our sales revenues and profits to decline. In addition, if the secondary market for VOIs becomes
more organized or financing for such resales becomes more available, our ability to sell VOIs could be adversely
affected and/or the resulting availability of VOIs (particularly where the VOIs are available for sale at lower
prices than the prices at which we would sell them) could adversely affect our sales revenues. Further, unlawful
or deceptive third-party VOI resale or vacation package sales schemes could damage the reputation of
the industry, our reputation and brand value, or affect our ability to collect management fees, which may
adversely affect our sales revenues and results of operations.

Development of a strong secondary market may also cause a decline in the volume of VOI inventory that we
are able to repurchase, which could adversely affect our development margin, as we utilize this low-cost
inventory source to supplement our inventory needs and help manage our cost of vacation ownership products.

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

We have co-invested with third parties and we may in the future co-invest with other third parties through
partnerships, joint ventures or other entities, acquiring non-controlling interests in, or sharing responsibility for
managing the affairs, of a timeshare property, partnership, joint venture or other entity. Consequently, with
respect to any such third-party arrangements, we would not be in a position to exercise sole decision-making
authority regarding the property, partnership, joint venture or other entity, and may, under certain circumstances,
be exposed to risks not present if a third party were not involved, including the possibility that partners or
co-venturers might become bankrupt or fail to fund their share of required capital contributions. In addition, we
may be forced to make contributions to maintain the value of the property. Such investments may also have
the potential risk of impasses on decisions, such as a sale, because neither we nor the partner or co-venturer may
have full control over the partnership or joint venture. We and our respective partners or co-venturers may each
have the right to trigger a buy-sell right or forced sale arrangement, which could cause us to sell our interest, or
acquire our partners’ or co-venturers’ interest, or to sell the underlying asset, either on unfavorable terms or at a
time when we otherwise would not have initiated such a transaction. In addition, a sale or transfer by us to a third
party of our interests in the partnership or joint venture may be subject to consent rights or rights of first refusal
in favor of our partners or co-venturers, which would in each case restrict our ability to dispose of our interest in
the partnership or joint venture. Any or all of these factors could adversely affect the value of our investment, our
ability to exit, sell or dispose of our investment at times that are beneficial to us, or our financial commitment to
maintaining our interest in the joint ventures.

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

Our business is regulated under a wide variety of laws, regulations and policies, and failure to comply with
these regulations could adversely affect our business.

Our business is subject to extensive regulation, and any failure to comply with applicable laws and
regulations could have a material adverse effect on our business. Our real estate development activities, for
example, are subject to laws and regulations typically applicable to real estate development, subdivision and
land use restrictions,
construction activities, such as laws relating to zoning, entitlement, permitting,
environmental regulation, title transfers, title insurance, taxation and eminent domain. Laws in some jurisdictions
also impose liability on property developers for construction defects discovered or repairs made by future owners
of property developed by the developer. In addition, the sales of VOIs must be registered with governmental
authorities in most jurisdictions in which we do business. The preparation of VOI registrations requires time and
cost, and in many jurisdictions the exact date of registration approval cannot be accurately predicted. Various
laws also govern our lending activities and our resort management activities, including the laws described in
“Business—Government Regulation.”

A number of laws govern our marketing and sales activities, such as timeshare and land sales acts, fair
housing statutes, anti-fraud laws, sweepstakes laws, real estate licensing laws,
telemarketing laws, home
solicitation sales laws, tour operator laws, seller of travel laws, securities laws, consumer privacy laws and
consumer protection laws. In addition, laws in many jurisdictions in which we sell VOIs grant the purchaser of a
VOI the right to cancel a purchase contract during a specified rescission period.

In recent years, telemarketing legislation has significantly increased the costs associated with telemarketing.
We have implemented procedures that we believe will help reduce the possibility of violating such laws,
however, such procedures may not be effective in ensuring regulatory compliance. In addition, because our
relationship with Hilton has changed, it may be more difficult for us to utilize customer information we obtain
from Hilton in the future for marketing purposes.

Under the Americans with Disabilities Act of 1990 and the Accessibility Guidelines promulgated
thereunder, which we refer to collectively as the ADA, all public accommodations must meet various federal
requirements related to access and use by disabled persons. Compliance with ADA’s requirements could require
removal of access barriers, and non-compliance could result in the U.S. government imposing fines or in private
litigants winning damages. Our properties also are subject
to various federal, state and local regulatory
requirements, such as state and local fire and life safety requirements. Furthermore, various laws govern our
resort management activities, including laws and regulations regarding community association management,
public lodging, food and beverage services, liquor licensing, labor, employment, health care, health and safety,
accessibility, discrimination, immigration, gaming and the environment (including climate change).

Our lending activities are also subject to a number of laws and regulations, including laws and regulations
related to consumer loans, retail installment contracts, mortgage lending, fair debt collection and credit reporting

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practices, consumer collection practices, contacting debtors by telephone, mortgage disclosure, lender licenses
and money laundering.

We may not be successful in maintaining compliance with all laws, regulations and policies to which we are
currently subject, and such compliance is expensive and time consuming. We do not know whether existing
requirements will change or whether compliance with future requirements, including regulatory requirements in
new geographic areas into which we expand would require significant unanticipated expenditures that would
affect our cash flow and results of operations. Failure to comply with current or future applicable laws,
regulations and policies could have a material adverse effect on our business. For example, if we do not comply
with applicable laws, regulations and policies, governmental authorities in the jurisdictions where the violations
occurred may revoke or refuse to renew licenses or registrations necessary to operate our business. Failure to
comply with applicable laws, regulations and policies could also render sales contracts for our products void or
voidable, subject us to fines or other sanctions, and increase our exposure to litigation.

We may experience financial and operational risks in connection with acquisitions and other opportunistic
business ventures.

We will consider strategic acquisitions to expand our inventory options and distribution capabilities;
however, we may be unable to identify attractive acquisition candidates or complete transactions on favorable
terms. Future acquisitions could result in potentially dilutive issuances of equity securities and/or the assumption
of contingent liabilities. These acquisitions may also be structured in such a way that we will be assuming
unknown or undisclosed liabilities or obligations. Moreover, we may be unable to efficiently integrate
acquisitions, management attention and other resources may be diverted away from other potentially more
profitable areas of our business and in some cases these acquisitions may turn out to be less compatible with our
growth and operational strategy than originally anticipated. The occurrence of any of these events could
adversely affect our business, financial condition and results of operations.

As part of our business strategy, we also intend to continue collaborating with Hilton on timeshare
development opportunities at new and existing hotel properties and explore growth opportunities along the Hilton
brand spectrum, as well as expand our marketing partnerships and travel exchange partners. However, we may be
unable to successfully enter into these arrangements on favorable terms or launch related products and services,
or such products and services may not gain acceptance among our members or be profitable. The failure to
develop and execute any such initiatives on a cost-effective basis could have an adverse effect on our business,
financial condition and results of operations.

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

We enter into management agreements with the HOAs for the timeshare resorts developed by us or by third
parties with whom we have entered into fee-for-service agreements. Our management agreements generally
provide for a cost-plus management fee equal to 10 percent to 15 percent of the costs to operate the applicable
resort. We also receive revenues that represent reimbursement for the costs incurred to perform our services,
principally related to personnel providing on-site services. The original term of our management agreements is
typically governed by state timeshare laws, and ranges from three to five years, and many of these agreements
renew automatically for one- to three-year periods, unless either party provides advance notice of termination
before the expiration of the term. Although none of the management agreements relating to our developed or
fee-for-service properties have been terminated or lapsed since our inception, any of these agreements may
expire at the end of its then-current term (following notice by a party of non-renewal) or be terminated, or
the contract terms may be renegotiated in a manner adverse to us. If a management agreement is terminated or
not renewed on favorable terms, our cash flows, revenues and profits could be adversely affected.

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Disagreements with VOI owners, HOAs and other third parties may result in litigation and/or loss of
management contracts.

The nature of our responsibilities in managing timeshare properties may from time to time give rise to
disagreements with VOI owners and HOAs. To develop and maintain positive relations with current and
potential VOI owners and HOAs, we seek to resolve any disagreements, but may not always be able to do so.
Failure to resolve such disagreements may result in litigation. Further, disagreements with HOAs could also
result in the loss of management contracts, a significant loss of which could negatively affect our profits or limit
our ability to operate our business, and our ongoing ability to generate sales from our existing member base may
be adversely affected.

In the normal course of our business, we are involved in various legal proceedings and in the future we
could become the subject of claims by current or former members, persons to whom we market our products,
third-party developers, guests who use our properties, our employees or contractors, our investors or regulators.
The outcome of these proceedings cannot be predicted. If any such litigation results in a significant adverse
judgment, settlement or court order, we could suffer significant losses, our profits could be reduced, our
reputation could be harmed and our future ability to operate our business could be constrained.

We manage a concentration of properties in particular geographic areas, which exposes our business to
the effects of regional events and occurrences.

A significant number, approximately 80 percent, of the resorts we manage are concentrated in significant
tourist markets including Florida, Hawaii, Nevada, New York, Washington D.C. and South Carolina and are,
therefore, particularly susceptible to adverse economic developments in those areas. These economic
developments include regional economic downturns, significant increases in the number of our competitors’
products in these markets, and potentially higher labor, real estate, tax or other costs in the geographic markets in
which we are concentrated. In addition, the properties we manage are subject to the effects of adverse acts of
natural or manmade disasters, including earthquakes, windstorms, tornadoes, hurricanes, typhoons, tsunamis,
volcanic eruptions, floods, drought, fires, oil spills and nuclear incidents. Depending on the severity of these
disasters, the damage could require closure of all or substantially all of these properties in one or more markets
for a period of time while the necessary repairs and renovations, as applicable, are undertaken. In addition, we
cannot guarantee that the amount of insurance maintained for these properties from time to time would entirely
cover damages caused by any such event.

Fear of exposure to pandemic or contagious diseases, such as Ebola, avian flu, SARs, swine flu and the Zika
virus, or natural or manmade disasters, may also deter travelers from scheduling vacations or cause them to
cancel vacation plans to the markets in which the properties we manage are concentrated. Actual or threatened
war, political conditions or civil unrest, violence or terrorist activities or threats and heightened travel security
measures instituted in response to these events, could also interrupt or deter vacation plans to our key markets.

As a result of this geographic concentration of properties, we face a greater risk of a negative effect on our
revenues in the event these areas are more severely and more frequently affected by adverse economic and
competitive conditions, extreme weather, manmade disasters or pandemic or contagious diseases.

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

We currently offer timeshare properties located in the United States, the United Kingdom and Italy. We also
market both our international properties and our U.S. properties in Europe and the Asia Pacific region, primarily
in Japan and South Korea. In addition, as part of our business strategy, we intend to continue the expansion of
our operations in Japan, as well as explore further expansion opportunities in other countries located in the Asia

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Pacific region, Mexico and the Caribbean. Such activities may not be limited only to marketing efforts for
existing international and U.S. properties in other countries, but also include acquiring, developing, managing,
marketing, offering and/or financing timeshare properties in such countries. Current and future international
operations expose us to a number of additional challenges and risks that may not be inherent in operating solely
in the U.S., including, for example, the following:

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rapid changes in governmental, economic or political policy;

political or civil unrest, acts of terrorism or the threat of international boycotts or U.S. anti-boycott
legislation;

negative impact on governmental relationships between those countries in which we currently operate
or have future expansion plans, on one hand, and the U.S., on the other hand, which may result in
undesirable trade, travel or similar regulations, thereby negatively affecting the tourism industry
generally, and the timeshare and leisure industry specifically;

increases in anti-American sentiment and the identification of the Hilton brands as American brands;

recessionary trends or economic instability in international markets;

changes in foreign currency exchange rates or currency restructurings and hyperinflation or deflation in
the countries in which we operate;

the effect of disruptions caused by severe weather, natural disasters, outbreaks of disease or other
events that make travel to a particular region less attractive or more difficult;

the presence and acceptance of varying levels of business corruption in international markets and
the effect of various anti-corruption and other laws;

the imposition of restrictions on currency conversion or the transfer of funds;

the ability to comply with or effect of complying with complex and changing laws, regulations and
policies of foreign governments that may affect investments or operations, including foreign ownership
restrictions, import and export controls, tariffs, embargoes, increases in taxes paid and other changes in
applicable tax laws;

uncertain, unfamiliar and/or unpredictable regulatory environment
that may adversely affect
the acquisition, development, management, marketing, sales, financings, and related activities that
affect the lodging, real estate, and travel industries, and, more specifically, to the timeshare industry,
such as zoning laws, real estate development regulations, and consumer privacy;

uncertainties as to local laws regarding, and enforcement of, contract and intellectual property rights;

forced nationalization of resort properties by local, state or national governments;

different social or cultural norms and practices that are not customary in the U.S.; and

the difficulties involved in managing an organization doing business in different countries.

These and other factors may materially adversely affect our business generally, future expansion plans,
revenues from international operations, and costs and profits, as well as our financial condition, Moreover, our
experience operating internationally is limited to certain markets. Expansion of our international operations into
in greater inefficiencies in navigating the risks of operating
other countries and territories may result
internationally and could result in greater effects on our business than would be experienced by a company with
greater international experience.

Further, because we market our U.S. properties and our international properties in Europe, instability of
the Eurozone, has resulted in concerns regarding the suitability of a shared currency for the region, which could
lead to the reintroduction of individual currencies for member states. If this were to occur, certain of our Euro-

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denominated assets and liabilities would be re-denominated to such individual currencies, which could result in a
mismatch in the values of assets and liabilities and expose us and certain of our investments to additional
currency risks. Even if the Euro is maintained, continued concerns regarding the stability of the Eurozone,
including potential consequences following Brexit, and the potential effects of government intervention intended
to address it could materially adversely affect our business.

Similarly, we market our U.S. and international properties in Japan and we intend to continue the expansion
of our operations in Japan. The Japanese economy has recently experienced periods of fiscal and economic
volatility, and we may be unable to properly predict the effect of such volatility, including the actions that may
be taken by the Japanese government, in a way that fully mitigates the impact of such volatility on our marketing
activities and businesses in Japan.

We rely on highly skilled personnel and, if we are unable to retain or motivate key personnel, hire qualified
personnel, or maintain our corporate culture, we may not be able to grow effectively.

Our performance largely depends on the talents and efforts of highly skilled individuals. Our future success
depends on our continuing ability to identify, hire, develop, motivate, and retain highly skilled personnel for all
areas of our organization. Competition in our industry for qualified employees is intense, and certain of our
competitors have directly targeted our employees. In addition, our compensation arrangements may not always
be successful in attracting new employees and retaining and motivating our existing employees. Our continued
ability to compete effectively depends on our ability to attract new employees and to retain and motivate our
existing employees.

In addition, we believe that our corporate culture fosters innovation, creativity, and teamwork. As our
organization grows, and we are required to implement more complex organizational management structures, we
may find it increasingly difficult to maintain the beneficial aspects of our corporate culture. This could negatively
affect our future success.

Our insurance policies may not cover all potential losses.

We maintain insurance coverage for liability, property, business interruption, cyber liability and other risks
with respect to business operations. While we have comprehensive property and liability insurance policies with
coverage features and insured limits that we believe are customary, market forces beyond our control may limit
the scope of the insurance coverage we can obtain or our ability to obtain coverage at reasonable rates. The cost
of our insurance may increase, and our coverage levels may decrease, which may affect our ability to maintain
customary insurance coverage and deductibles at acceptable costs. There is a limit as well as various sub-limits
on the amount of insurance proceeds we will receive in excess of applicable deductibles. If an insurable event
occurs that affects more than one of our properties, the claims from each affected property may be considered
together to determine whether the per occurrence limit, annual aggregate limit or sub-limits, depending on
the type of claim, have been reached. If the limits or sub-limits are exceeded, each affected property may only
receive a proportional share of the amount of insurance proceeds provided for under the policy. Further, certain
types of losses, generally of a catastrophic nature, such as earthquakes, hurricanes and floods, war, terrorist acts,
such as biological or chemical terrorism, political risks, some environmental hazards and/or natural or manmade
disasters, may be outside the general coverage limits of our policy, subject to large deductibles, deemed
uninsurable or too cost-prohibitive to justify insuring against. In addition, in the event of a substantial loss,
the insurance coverage we carry may not be sufficient to pay the full market value or replacement cost of
the affected resort or in some cases may not provide a recovery for any part of a loss. As a result, we could lose
some or all the capital we have invested in a property, as well as the anticipated future marketing, sales or
revenue opportunities from the property. Further, we could remain obligated under guarantees or other financial
obligations related to the property despite the loss of product inventory, and our members could be required to
contribute toward deductibles to help cover losses.

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Failure of HOA boards to levy sufficient fees, or the failure of members to pay those fees, could lead to
inadequate funds to maintain or improve the properties we manage.

Owners of our VOIs and those we sell on behalf of third-party developers must pay maintenance fees levied
by HOA boards, which include reserve amounts for capital replacements and refurbishments. These maintenance
fees are used to maintain and refurbish the timeshare properties and to keep the properties in compliance with
applicable Hilton standards and policies. If HOA boards do not levy sufficient maintenance fees, including
capital reserves required by applicable law, or fail to manage their reserves appropriately, or if members do not
pay their maintenance fees, the timeshare properties could fall into disrepair and fail to comply with applicable
standards and policies, and/or state regulators could impose requirements, obligations and penalties. A decline in
the quality or standards of the resorts we manage would negatively affect our ability to attract new members and
maintain member satisfaction. In addition, if a resort fails to comply with applicable standards and policies
because maintenance fees are not paid or otherwise, Hilton could terminate our rights under the license
agreement to use its trademarks at the non-compliant resort, which could result in the loss of management fees,
and could decrease member satisfaction and impair our ability to market and sell our products at
the non-compliant locations.

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

The maintenance fees that are levied by HOA boards on VOI owners may increase as the costs to maintain
and refurbish the timeshare properties and to keep the properties in compliance with Hilton brand standards
increase. Increased maintenance fees could make our products less desirable, which could have a negative effect
on VOI sales. Further, if our maintenance fees increase substantially year over year or are not competitive with
other VOI providers, we may not be able to attract new members or retain existing members.

We have limited underwriting standards due to the real-time nature of industry sales practices, and do not
include traditional ability-to-pay factors such as income verification which may affect loan default rates. If
purchasers default on the loans that we provide to finance their VOI purchases, our revenues, cash flows and
profits could be reduced.

We originate loans for purchasers of our VOIs who qualify according to our credit criteria. Our underwriting
standards generally employ FICO® score-based standards, down payment ratios, and borrowing history, but due
to the real-time nature of industry sales practices, do not include certain traditional ability-to-pay factors, such as
income verification.

Providing secured financing to some purchasers of VOIs subjects us to the risk of purchaser default. As of
December 31, 2018, our consumer loan portfolio had a balance of approximately $1.3 billion and experienced
default rates of 4.71 percent, 4.12 percent and 3.67 percent for the fiscal years ended December 31, 2018, 2017
and 2016, respectively. If a purchaser defaults under the financing that we provide, we could be forced to write
off the loan and reclaim ownership of the VOI. We may be unable to resell the property in a timely manner or at
a price sufficient to allow us to recover written-off loan balances, or at all. Also, if a purchaser of a VOI defaults
on the related loan during the early part of the amortization period, we may not have recovered the marketing,
selling and general and administrative costs associated with the sale of that VOI. If we are unable to recover any
of the principal amount of the loan from a defaulting purchaser, or if the allowances for losses from such defaults
are inadequate, our revenues and profits could be reduced.

If default rates increase beyond current projections and result in higher than expected foreclosure activity,
our results of operations could be adversely affected. In addition, the transactions in which we have securitized
timeshare financing receivables in the capital markets contain certain portfolio performance requirements related
to default, delinquency and recovery rates, which, if not met, would result in loss or disruption of cash flow until
portfolio performance sufficiently improves to satisfy the requirements.

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If the default rates or other credit metrics underlying our timeshare financing receivables deteriorate, our
timeshare financing receivable securitization program could be adversely affected.

Our timeshare financing receivable securitization program could be adversely affected if any pool of
timeshare financing receivables fails to meet certain performance ratios, which could occur if the default rate or
other credit metrics of the underlying timeshare financing receivables deteriorate. In addition, if we offer
timeshare financings to our customers with terms longer than those generally offered in the industry, we may not
be able to securitize those timeshare financing receivables. Our ability to sell securities backed by our timeshare
financing receivables depends on the continued ability and willingness of capital market participants to invest in
such securities. Asset-backed securities issued in our timeshare financing receivable securitization program could
be downgraded by credit agencies in the future. If a downgrade occurs, our ability to complete other
securitization transactions on acceptable terms or at all could be jeopardized, and we could be forced to rely on
other potentially more expensive and less attractive funding sources, to the extent available. Similarly, if other
operators of vacation ownership products were to experience significant financial difficulties, or if the timeshare
industry as a whole were to contract, we could experience difficulty in securing funding on acceptable terms.
The occurrence of any of the foregoing would decrease our profitability and might require us to adjust our
business operations, including by reducing or suspending our provision of financing to purchasers of VOIs. Sales
of VOIs may decline if we reduce or suspend the provision of financing to purchasers, which may adversely
affect our cash flows, revenues and profits.

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

Our business model and competitive conditions in the timeshare industry demand the use of sophisticated
technology and systems, including those used for our marketing, sales, reservation, inventory management and
property management systems, and technologies we make available to our members and more generally to
support our business. In particular, an increasing number of potential customers select products based on the
providers’ technology and ease of interfacing with the provider. We must refine, update and/or replace these
technologies and systems with more advanced systems on a regular basis. If we cannot do so as quickly as our
competitors or within budgeted costs and time frames, our business could suffer. We also may not achieve
the benefits that we anticipate from any new technology or system, and a failure to do so could result in higher
than anticipated costs or could harm our operating results.

Social media influences how consumers search for vacation information and make decisions to purchase
vacation-related products and services. Lack of awareness or understanding of and the failure to effectively
manage, and the costs associated with our management of social media content regarding our products and
services could have a material adverse effect on VOI sales, revenues and our operating results.

Social media has become an increasingly influential aspect of tourism, changing the way consumers search,
evaluate, rank and purchase vacation products and services. In particular, social media plays a role in the
pre-vacation phase, when consumers employ social media in the planning, information search, and the decision-
making stages. Providers are no longer the primary spokesperson regarding the quality of their brands and
products. Online reviews about vacation resorts play an increasing role in helping today’s consumers evaluate
and make vacation decisions by providing positive and negative reviews and indirect customer-to-customer
communication. Consumers may find traveler-generated content more trustworthy than information on provider
websites and advertising. Vacation decisions are influenced by both negative customer reviews, and by the lack
of positive reviews.

The proliferation and global reach of social media continue to expand rapidly and could cause us to suffer
reputational harm. The continuing evolution of social media presents new challenges and requires us to keep pace
with new developments,
technology and trends. Negative posts or comments about us, sales practices,
the properties we manage, the Hilton brands, or the timeshare industry generally, on any social networking or

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user-generated review website,
including travel and/or vacation property websites, could affect consumer
opinions of us and our products; and we cannot guarantee that we will timely or adequately redress such
instances. The failure to appreciate the importance of content on social media or failing to take action that
generates positive content, minimizes negative content, and addresses areas of nonexistent content, could have a
material adverse effect on VOI sales, revenues and our operating results. In addition, we may be required to
devote significant resources to social media management programs, which could result in increased costs to us.

Our increasing reliance on information technology and other systems subjects us to risks associated with
cyber-security. Cyber-attacks or our failure to maintain the integrity of internal or customer data could have a
disruptive effect on our business and adversely affect our financial performance.

We rely heavily on computer, Internet-based and mobile information and communications systems operated
by us or our service providers to collect, process, transmit and retain large volumes of customer data, including
credit card numbers and other personally identifiable information, reservation information and mailing lists, as
well as personally identifiable information of our employees. There has been an increase in the number and
sophistication of criminal cyber-security attacks against companies where customer and other sensitive
information has been compromised. Our information systems and records, including those we maintain with our
service providers, may be subject to such cyber-attacks, which include efforts to hack or breach security
measures in order to obtain or misuse information, viruses, “ransomware” or other malware. In addition,
increasingly complex systems and software are subject to failure, operator error or malfeasance, or inadvertent
releases of data that may materially impact our information systems and records. For instance, security breaches
could result in the dissemination of member and guest credit card information, which could lead to affected
members and guests experiencing fraudulent charges.

The integrity and protection of customer and employee data is critical to us. We could make faulty decisions
if that data is inaccurate or incomplete. Customers and employees also have a high expectation that we and our
service providers will adequately protect their personal information. A significant theft, loss, loss of access to, or
fraudulent use of customer, employee, or company data could adversely impact our reputation, and could result
in significant remedial and other expenses, fines, or litigation. Breaches in the security of our information
systems or those of our service providers or other disruptions in data services could lead to an interruption in the
operation of our systems or require us to consider changes to our customer data or payment systems, resulting in
operational inefficiencies, additional expense and a loss of profits.

Our collection and use of customer information are governed by extensive and evolving privacy laws and
regulations that are constantly evolving and may differ significantly depending on jurisdiction. Compliance with
these laws and regulations involves significant costs, which may increase in the future and which may negatively
impact our ability to provide services to our customers, and a failure by us or our service providers to comply
with privacy regulations may subject us to significant remedial and other expenses, fines, or litigation, as well as
restrictions on our use or transfer of data. Our systems and the systems operated by our service providers may be
unable to satisfy changing regulatory requirements and customer and employee expectations or may require
significant additional investments or time to do so.

The steps we take to deter and mitigate risks related to cyber-security may not provide the intended level of
protection. In particular, it may be difficult to anticipate or immediately detect such incidents and the damage
caused thereby. We may be required to expend significant additional resources in the future to modify and
enhance our protective measures. Although we carry cyber/privacy liability insurance that is designed to protect
us against certain losses related to cyber-security risks, such insurance coverage may be insufficient to cover all
losses or all types of claims that may arise in connection with cyber-attacks, security breaches, and other related
breaches. In addition, the third party service providers on which we rely face cyber-security risks, some of which
may be different than the risks we face, and we do not directly control any of such service providers’ information
security operations, including the efforts that they may take to mitigate risks or the level of cyber/privacy liability
insurance that they may carry.

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

We rely on a variety of direct marketing techniques, including telemarketing, email and social media
marketing and postal mailings, and we are subject to various laws and regulations in the United States and
internationally that govern marketing and advertising practices. Adoption of new state or federal laws regulating
marketing and solicitation, or international data protection laws that govern these activities, or changes to
existing laws, such as the Telemarketing Sales Rule,
the Telephone Consumer Protection Act, and
the CAN-SPAM Act of 2003, could adversely affect current or planned marketing activities and cause us to
change our marketing strategy. If this occurs, we may not be able to develop adequate alternative marketing
strategies, which could affect the amount and timing of our VOI sales. We also obtain access to potential
members and guests from travel service providers or other companies, including Hilton; and we market to some
individuals on these lists directly or through other companies’ marketing materials. If access to these lists were
prohibited or otherwise restricted, including access to Hilton Honors loyalty program member information, our
ability to access potential members and guests and introduce them to our products could be significantly
impaired. Additionally, because our relationship with Hilton has changed, it may be more difficult for us to
utilize customer information we obtain from Hilton in the future.

The growth of our business and the execution of our business strategies depend on the services of our
management team and our employees.

We believe that our future growth depends, in part, on the continued services of our management team, and
on our ability to attract and retain key officers and other highly qualified personnel. Competition for such
personnel is intense. There can be no assurance that we will be successful in retaining and attracting management
and other highly qualified personnel. The loss of any members of our management team could adversely affect
our strategic, member and guest relationships and impede our ability to execute our business strategies.

In addition, insufficient numbers of talented employees at our properties could constrain our ability to
maintain our current levels of business or expand our business. We compete with other companies both within
and outside of our industry for talented personnel across a diverse array of operating disciplines. If we cannot
recruit, train, develop or retain sufficient numbers of talented employees, we could experience increased
employee turnover, decreased member and guest satisfaction, low morale, inefficiency or internal control
failures, which could materially reduce our profits.

Third-party reservation channels may negatively affect our bookings for room rental revenues.

indicators of quality (such as “three-star property”) at

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

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Our real estate investments subject us to numerous risks.

We are subject to the risks that generally relate to investments in and the development of real property. A
variety of factors affect income from properties and real estate values, including laws and regulations, insurance,
interest rate levels and the availability of financing. Our license agreement or other agreements with Hilton may
require us to incur unexpected costs required to cause our properties to comply with applicable standards and
policies. In recent years, our financial results have been positively impacted by a lower interest rate environment.
However, when interest rates increase the cost of acquiring, developing, expanding or renovating real property
increases, and real property values may decrease as the number of potential buyers decrease. Similarly, as
financing becomes less available, it becomes more difficult both to acquire and develop real property. Many
costs of real estate investments, such as real estate taxes, insurance premiums, maintenance costs and certain
operating costs, are generally more fixed than variable, and as a result are not reduced even when a property is
not fully sold or occupied. If any of these risks were realized, they could have a material adverse effect on our
results of operations or financial condition.

United States or foreign environmental laws and regulations may cause us to incur substantial costs or subject
us to potential liabilities.

We are subject to certain compliance costs and potential liabilities under various U.S. federal, state and local
and foreign environmental, health and safety laws and regulations. These laws and regulations govern actions
including air emissions, the use, storage and disposal of hazardous and toxic substances, and wastewater disposal.
Our failure to comply with such laws, including any required permits or licenses, could result in substantial fines
or possible revocation of our authority to conduct some of our operations. We could also be liable under such
laws for the costs of investigation, removal or remediation of hazardous or toxic substances at our currently or
formerly owned real property or at third-party locations in connection with our waste disposal operations,
regardless of whether or not we knew of, or caused, the presence or release of such substances. From time to
time, we may be required to remediate such substances or remove, abate or manage asbestos, mold, radon gas,
lead or other hazardous conditions at our properties. The presence or release of such toxic or hazardous
substances could result in third-party claims for personal injury, property or natural resource damages, business
interruption or other losses. Such claims and the need to investigate, remediate or otherwise address hazardous,
toxic or unsafe conditions could adversely affect our operations, the value of any affected real property, or our
ability to sell, lease or assign our rights in any such property, or could otherwise harm our business or reputation.
Environmental, health and safety requirements have also become increasingly stringent, and our costs may
increase as a result.

Some U.S. states and various countries are considering or have undertaken actions to regulate and reduce
greenhouse gas emissions. New or revised laws and regulations, or new interpretations of existing laws and
regulations, such as those related to climate change, could affect the operation of the properties we manage or
result in significant additional expense and operating restrictions on us. The cost of such legislation, regulation or
new interpretations would depend upon the specific requirements enacted and cannot be determined at this time.

Our ability to source VOI inventory and finance VOI sales may be impaired if we or the third-party developers
with whom we do business are unable to access capital when necessary.

The availability of funds for new investments, primarily developing, acquiring or repurchasing VOI
inventory, depends in part on liquidity factors and capital markets over which we can exert little, if any, control.
Instability in the financial markets and any resulting contraction of available liquidity and leverage could
constrain the capital markets for investments in timeshare products. In addition, we intend to access
the securitization markets to securitize our timeshare financing receivables. Any future deterioration in
the financial markets could preclude, limit, delay or increase the cost to us of future securitizations. We also
require the issuance of surety bonds in connection with our real estate development and VOI sales activity.
The availability, terms and conditions and pricing of our bonding capacity is dependent on, among other things,

32

continued financial strength and stability of the insurance company affiliates providing the bonding capacity,
general availability of such capacity, and our corporate credit rating. If bonding capacity is unavailable, or
alternatively, if the terms and conditions and pricing of such bonding capacity are unacceptable to us, our
business could be negatively affected. Instability in the financial markets could also affect the timing and volume
of any securitizations we undertake, as well as the financial terms of such securitizations. Any indebtedness we
incur, including indebtedness under these facilities, may adversely affect our ability to obtain any additional
financing necessary to develop or acquire additional VOI inventory, to make other investments in our business,
or to repurchase VOIs on the secondary market. Furthermore, volatility in the financial markets, due to tightening
of underwriting standards by lenders and credit rating agencies, among other things, could result in less
availability of credit and increased costs for what is available. As a result, we may not be able to obtain financing
on attractive terms or at all. If our overall cost of borrowing increases, the increased costs would likely reduce
future cash flow available for distribution, affecting our growth and development plans.

We have and will continue to enter into fee-for-service agreements with third-party developers to source
inventory. These agreements enable us to generate fees from the marketing and sales services we provide, Club
memberships and from the management of the timeshare properties without requiring us to fund acquisition and
construction costs. If these developers are not able to obtain or maintain financing necessary for their operations,
we may not be able to enter into these arrangements, which would limit opportunities for growth and reduce our
revenues.

Changes to accounting rules or regulations may adversely affect our reported financial condition and results
of operations.

New accounting rules or regulations and varying interpretations of existing accounting rules or regulations
have occurred and may occur in the future. A change in accounting rules or regulations may require retrospective
application and affect our reporting of transactions completed before the change is effective, and future changes
to accounting rules or regulations may adversely affect our reported financial condition and results of operations.
See Note 2: Basis of Presentation and Summary of Significant Accounting Policies in our audited consolidated
financial statements included in Item 8 of this Annual Report on Form 10-K for a summary of accounting
standards issued but not yet adopted.

Changes to estimates or projections used to assess the fair value of our assets, or operating results that are
lower than our current estimates at certain locations, may cause us to incur impairment losses that could
adversely affect our results of operations.

Our total assets include intangible assets with finite useful lives and long-lived assets, principally property
and equipment and VOI inventory. We evaluate our intangible assets with finite useful lives and long-lived assets
for impairment when circumstances indicate that the carrying amount may not be recoverable. Our evaluation of
impairment requires us to make certain estimates and assumptions including projections of future results. After
performing our evaluation for impairment, including an analysis to determine the recoverability of long-lived
assets, we will record an impairment loss when the carrying value of the underlying asset, asset group or
reporting unit exceeds its fair value. We carry our VOI inventory at the lower of cost or estimated fair value, less
costs to sell. If the estimates or assumptions used in our evaluation of impairment or fair value change, we may
be required to record impairment losses on certain of these assets. If these impairment losses are significant, our
results of operations would be adversely affected.

Changes in U.S. federal, state and local or foreign tax law, interpretations of existing tax law, or adverse
determinations by tax authorities, could increase our tax burden or otherwise adversely affect our financial
condition or results of operations.

We are subject to taxation at the federal, state and local levels in the United States and various other
countries and jurisdictions. Our future effective tax rate could be affected by changes in the composition of

33

earnings in jurisdictions with differing tax rates, changes in statutory rates and other legislative changes, changes
in the valuation of our deferred tax assets and liabilities, or changes in determinations regarding the jurisdictions
in which we are subject to tax. From time to time, the U.S. federal, state and local and foreign governments make
substantive changes to tax rules and their application, which could result in materially higher corporate taxes than
would be incurred under existing tax law and could adversely affect our financial condition or results of
operations. Changes in the non-income tax rates to which we are subject could also have an adverse effect on
the maintenance fees charged to our members, which could result in materially lower sales and higher operating
costs.

The U.S.

tax legislation enacted on December 22, 2017 represented a significant overhaul of the
United States federal tax code. This tax legislation significantly reduced the U.S. statutory corporate tax rate and
made other changes that could have a favorable impact on our overall U.S. federal tax liability in a given period.
However, the tax legislation also included a number of provisions, including, but not limited to, the limitation or
elimination of various deductions or credits, the imposition of taxes on certain cross-border payments or
transfers, the changing of the timing of the recognition of certain income and deductions or their character, and
the limitation of asset basis under certain circumstances, that could significantly and adversely affect our U.S.
federal income tax position. There can be no assurance that changes in tax laws or regulations, both within
the U.S. and the other jurisdictions in which we operate, will not materially and adversely affect our effective tax
rate, tax payments, financial condition and results of operations. Similarly, changes in tax laws and regulations
that impact our customers and counterparties, or the economy generally may also impact our financial condition
and results of operations.

Tax laws and regulations are complex and subject to varying interpretations and any significant failure to
comply with applicable tax laws and regulations in all relevant jurisdictions could give rise to substantial
penalties and liabilities. Any changes in enacted tax laws (such as the recent U.S. tax legislation), rules or
regulatory or judicial interpretations or any change in the pronouncements relating to accounting for income
taxes could materially and adversely impact our effective tax rate, tax payments, financial condition and results
of operations.

In addition, we are subject to ongoing and periodic tax audits and disputes in U.S. federal and various state,
local and foreign jurisdictions. An unfavorable outcome from any tax audit could result in higher tax costs,
penalties and interest, thereby and could materially and adversely affect our financial condition or results of
operations.

Failure to comply with laws and regulations applicable to our international operations may increase costs,
reduce profits, limit growth or subject us to broader liability.

Our business operations in countries outside the United States are subject to a number of laws and
regulations, including restrictions imposed by the Foreign Corrupt Practices Act (“FCPA”), as well as trade
sanctions administered by the Office of Foreign Assets Control (“OFAC”). The FCPA is intended to prohibit
bribery of foreign officials and requires us to keep books and records that accurately and fairly reflect our
transactions. OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and
national security goals against targeted foreign states, organizations and individuals. Although we have policies
in place designed to comply with applicable sanctions, rules and regulations, it is possible that the timeshare
properties we own or manage in the countries and territories in which we operate may provide services to or
receive funds from persons subject to sanctions. In addition, some of our operations may be subject to the laws
and regulations of non-U.S. jurisdictions, including the U.K.’s Bribery Act of 2010, which contains significant
prohibitions on bribery and other corrupt business activities, and other local anti-corruption laws in the countries
and territories in which we conduct operations.

If we fail to comply with these laws and regulations, we could be exposed to claims for damages, financial
penalties, reputational harm and incarceration of employees or restrictions on our operation or ownership of

34

timeshare and other properties, including the termination of ownership and management rights. In addition, in
certain circumstances, the actions of parties affiliated with us (including Hilton, third-party developers, and our
and their respective employees and agents) may expose us to liability under the FCPA, U.S. sanctions or other
laws. These restrictions could increase costs of operations, reduce profits or cause us to forgo development
opportunities that would otherwise support growth.

In August 2012, Congress enacted the Iran Threat Reduction and Syria Human Rights Act of 2012
(“ITRSHRA”), which expands the scope of U.S. sanctions against Iran and Syria. In particular, Section 219 of
the ITRSHRA amended the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), to require
SEC-reporting companies to disclose in their periodic reports specified dealings or transactions involving Iran or
other individuals and entities targeted by certain OFAC sanctions engaged in by the reporting company or any of
its affiliates. These companies are required to separately file with the SEC a notice that such activities have been
disclosed in the relevant periodic report, and the SEC is required to post this notice of disclosure on its website
and send the report to the U.S. President and certain U.S. Congressional committees. The U.S. President
thereafter is required to initiate an investigation and, within 180 days of initiating such an investigation with
respect to certain disclosed activities, to determine whether sanctions should be imposed.

Under ITRSHRA, we are required to report whether we or any of our “affiliates” knowingly engaged in
certain specified activities during a period covered by one of our Annual Reports on Form 10-K or Quarterly
Reports on Form 10-Q. We may engage in activities that would require disclosure pursuant to Section 219 of
ITRSHRA. In addition, because the SEC defines the term “affiliate” broadly, it includes any entity controlled by
us as well as any person or entity that controls us or is under common control with us. Disclosure of such
activities, even if such activities are permissible under applicable law, and any sanctions imposed on us or our
affiliates as a result of these activities could harm our reputation and the Hilton brands we use and have a
negative effect on our results of operations.

The recently enacted European Union (“EU”) General Data Protection Regulation (the “GDPR”) imposes
significant obligations to businesses that sell products or services to EU customers or otherwise control or
process personal data of EU residents. Complying with the GDPR could increase our compliance cost, or
adversely impact the marketing of our products and services to customers in the EU and our overall business. In
addition, the GDPR imposes fines and penalties for noncompliance, including fines of up to 4 percent of annual
worldwide revenue. If we fail to comply with the requirements of the GDPR, we could face significant
administrative and monetary sanctions, which could materially adversely impact our results of operations and
financial condition.

Risks Related to Our Indebtedness

Our substantial indebtedness and other contractual obligations could adversely affect our financial condition,
our ability to raise additional capital to fund our operations, our ability to operate our business, our ability to
react to changes in the economy or our industry and our ability to pay our debts, and could divert our cash
flow from operations for debt payments.

As of December 31, 2018, our total indebtedness was approximately $1.4 billion. Our substantial debt and

other contractual obligations could have important consequences, including:

•

•

•

requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal
and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our
operations, capital expenditures, dividends to stockholders and to pursue future business opportunities;

increasing our vulnerability to adverse economic, industry or competitive developments;

exposing us to increased interest expense, as our degree of leverage may cause the interest rates of any
future indebtedness (whether fixed or floating rate interest) to be higher than they would be otherwise;

35

•

exposing us to the risk of increased interest rates because certain of our indebtedness is at variable rates
of interest;

• making it more difficult for us to satisfy our obligations with respect to our indebtedness, and any
failure to comply with the obligations of any of our debt instruments, including restrictive covenants,
could result in an event of default that accelerates our obligation to repay indebtedness;

•

•

•

restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

limiting our ability to obtain additional financing for working capital, capital expenditures, product
development, satisfaction of debt service requirements, acquisitions and general corporate or other
purposes; and

limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and
placing us at a competitive disadvantage compared to our competitors who may be better positioned to
take advantage of opportunities that our leverage prevents us from exploiting.

For additional discussion on our indebtedness, see “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Liquidity and Capital Resources—Financing Activities,” and
Note 11: Debt & Non-recourse Debt in our audited consolidated financial statements included in Item 8 of this
Annual Report on Form 10-K.

Certain of our debt agreements and instruments impose significant operating and financial restrictions on us,
our restricted subsidiaries and the guarantors of our indebtedness, which may prevent us from capitalizing on
business opportunities.

The debt agreements and instruments that govern our outstanding indebtedness impose significant operating
and financial restrictions on us, certain of our subsidiaries and guarantors of our indebtedness. These restrictions
limit our ability and/or the ability of our restricted subsidiaries to, among other things:

•

•

incur or guarantee additional debt or issue disqualified stock or preferred stock;

pay dividends (including to us) and make other distributions on, or redeem or repurchase, capital stock;

• make certain investments;

•

•

incur certain liens;

enter into transactions with affiliates;

• merge or consolidate;

•

•

•

enter into agreements that restrict the ability of restricted subsidiaries to make dividends or other
payments to us;

designate restricted subsidiaries as unrestricted subsidiaries; and

transfer or sell assets.

In addition, our credit agreement related to our senior secured credit facilities contains affirmative covenants

that will require us to be in compliance with certain leverage and financial ratios.

As a result of these restrictions, we are limited as to how we conduct our business and we may be unable to
raise additional debt or equity financing to compete effectively or to take advantage of new business
opportunities. The terms of any other future indebtedness we may incur could include more restrictive covenants.
We may not be able to maintain compliance with these covenants in the future and, if we fail to do so, we may
not be able to obtain waivers from the lenders and/or amend the covenants.

Our failure to comply with the restrictive covenants described above, as well as other terms of our other
indebtedness and/or the terms of any future indebtedness from time to time, could result in an event of default,

36

which, if not cured or waived, could result in our being required to repay these borrowings before their due date.
If we are forced to refinance these borrowings on less favorable terms or are unable to refinance these
borrowings, our financial condition and results of operations could be adversely affected.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service
obligations to increase significantly.

Interest rates may increase in the future. As a result, interest rates on our revolving credit facility or other
variable rate debt offerings could be higher or lower than current levels. As of December 31, 2018, we had
approximately $432 million of variable rate debt, representing 31 percent of our total debt. If interest rates
increase, our debt service obligations on the variable rate indebtedness would increase, even though the amount
borrowed remained the same, and our net income and cash flows, including cash available for servicing our
indebtedness, would correspondingly decrease.

In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase
out the use of LIBOR by the end of 2021. In addition, the U.S. Federal Reserve, in conjunction with the
Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is
considering replacing U.S. dollar LIBOR with the Secured Overnight Financing Rate, or SOFR, a new index
calculated by short-term repurchase agreements, backed by Treasury securities. Although there have been a few
issuances utilizing SOFR or the Sterling Over Night Index Average, an alternative reference rate that is based on
these alternative reference rates will attain market acceptance as
transactions,
replacements for LIBOR.

is unknown whether

it

If LIBOR ceases to exist, we may need to renegotiate our revolving credit facility, which utilizes LIBOR as
a factor in determining the interest rate, to replace LIBOR with the new standard that is established. There is
currently no definitive information regarding the future utilization of LIBOR or of any particular replacement
rate. As such, the potential effect of any such event on our cost of capital and net investment income cannot yet
be determined.

Servicing our indebtedness requires a significant amount of cash. Our ability to generate sufficient cash
depends on many factors, some of which are not within our control.

Our ability to make payments on our indebtedness will depend on our ability to generate cash in the future.
Our ability to generate cash depends on our financial and operating performance, which is subject to general
economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control. In
particular, compliance with state and local laws applicable to our business, including those relating to deeds, title
transfers and certain other regulations applicable to sales of VOIs, may at times delay or hinder our ability to
access cash flows generated by our VOI sales. If we are unable to generate and access sufficient cash flow to
service our debt and meet our other commitments, we may need to restructure or refinance all or a portion of our
debt, sell material assets or operations or raise additional debt or equity capital. We may not be able to effect any
of these actions on a timely basis, on commercially reasonable terms or at all, and these actions may not be
sufficient to meet our capital requirements. In addition, the terms of our existing or future debt arrangements may
restrict us from effecting any of these alternatives.

Our failure to comply with the agreements relating to our outstanding indebtedness could result in an event of
default that could materially and adversely affect our results of operations and our financial condition.

If there were an event of default under any of the agreements relating to our outstanding indebtedness, the
holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable
immediately. We cannot assure you that our assets or cash flows would be sufficient to fully repay borrowings
under our outstanding debt instruments if accelerated upon an event of default. Further, if we are unable to repay,
refinance or restructure our indebtedness under our secured debt, the holders of such debt could proceed against

37

the collateral securing that indebtedness. In addition, any event of default or declaration of acceleration under one
debt instrument could also result in an event of default under one or more of our other debt instruments.

Repayment of our debt is dependent on cash flow generated by our subsidiaries, which may be subject to
limitations beyond our control.

Our subsidiaries own a substantial portion of our assets and conduct a substantial portion of our operations.
Accordingly, repayment of our indebtedness is dependent, to a significant extent, on the generation of cash flow
by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise.

Our subsidiaries generally do not have any obligation to pay amounts due on our indebtedness or to make
funds available to us for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make
distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legal
entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash
from our subsidiaries. While limitations on our subsidiaries restrict their ability to pay dividends or make other
intercompany payments to us, these limitations are subject to certain qualifications and exceptions. In addition,
certain of our subsidiaries are party to debt agreements that contain restrictions on their ability to pay dividends
or make other intercompany payments to us and may in the future enter into agreements that include additional
contractual restrictions on their ability to make any such payments to us.

In the event that we are unable to receive distributions from subsidiaries, we may be unable to make

required principal and interest payments on our indebtedness.

Despite our current level of indebtedness, we may be able to incur substantially more debt and enter into other
transactions, which could further exacerbate the risks to our financial condition described above.

We may be able to incur significant additional indebtedness, including secured debt, in the future. Although
the agreements that govern substantially all of our indebtedness contain restrictions on the incurrence of
additional indebtedness and entering into certain types of other transactions, these restrictions are subject to a
number of qualifications and exceptions. Additional indebtedness incurred in compliance with these restrictions
could be substantial. These restrictions also do not prevent us from incurring obligations, such as trade payables,
that do not constitute indebtedness as defined under our debt instruments. To the extent new debt is added to our
current debt levels, the substantial leverage risks described in the preceding six risk factors would increase.

Risks Related to the 2017 Spin-Off From Hilton

We may be responsible for U.S. federal income tax liabilities that relate to the distribution.

The completion of the spin-off was conditioned upon the absence of any withdrawal, invalidation or
modification of the ruling (“IRS Ruling”) Hilton received from the IRS regarding certain U.S. federal income tax
aspects of the spin-off in an adverse manner prior to the effective time of the spin-off. Although the IRS Ruling
generally is binding on the IRS, the continued validity of the IRS Ruling is based upon and subject to
the accuracy of factual statements and representations made to the IRS by Hilton.

In addition, the spin-off was conditioned on the receipt of an opinion of Simpson Thacher & Bartlett LLP,
Hilton’s tax counsel (“spin-off Tax Counsel”) to the effect that the distributions of our and Park common stock
would qualify as tax-free distributions under Section 355 of the Code. An opinion of spin-off Tax Counsel is not
binding on the IRS. Accordingly, the IRS may reach conclusions with respect to the spin-off that are different
from the conclusions reached in the opinion. The opinion was based on certain factual statements and
representations, which, if incomplete or untrue in any material respect, could alter spin-off Tax Counsel’s
conclusions.

38

We are not aware of any facts or circumstances that would cause any such factual statements or
representations in the IRS Ruling or the opinion of spin-off Tax Counsel to be incomplete or untrue or cause
the facts on which the IRS Ruling and legal opinion are based to be materially different from the facts at the time
of the spin-off.

If all or a portion of the spin-off does not qualify as a tax-free transaction for any reason, including because
any of the factual statements or representations in the IRS Ruling or the legal opinion are incomplete or untrue,
because the facts upon which the IRS Ruling is based are materially different from the facts at the time of
the spin-off or because one or more sales of our common stock, Hilton common stock or Park common stock by
our respective stockholders after the spin-off cause the spin-off not to qualify as a tax-free transaction, Hilton
may recognize a substantial gain attributable to the timeshare business for U.S. federal income tax purposes. In
such case, under U.S. Treasury regulations, each member of the Hilton consolidated group at the time of
the spin-off (including us and our subsidiaries) would be jointly and severally liable for the resulting entire
amount of any U.S. federal income tax liability. Additionally, if the distribution of our common stock and/or
the distribution of Park common stock do not qualify as tax-free under Section 355 of the Code, Hilton
stockholders will be treated as having received a taxable dividend to the extent of Hilton’s current and
accumulated earnings and profits, would have a tax-free basis recovery up to the amount of their tax basis in their
shares, and would have taxable gain from the sale or exchange of the shares to the extent of any excess.

Even if the spin-off otherwise qualifies as a tax-free transaction for U.S. federal income tax purposes,
the distribution will be taxable to Park and/or Hilton (but not to Hilton stockholders) pursuant to Section 355(e)
of the Code if there are (or have been) one or more acquisitions (including issuances) of our stock, the stock of
Park or the stock of Hilton, representing 50 percent or more, measured by vote or value, of the stock of any such
corporation and the acquisition or acquisitions are deemed to be part of a plan or series of related transactions
include the distribution. Any acquisition of our common stock within two years before or after
that
the distribution (with exceptions, including public trading by less-than-5 percent stockholders and certain
compensatory stock issuances) generally will be presumed to be part of such a plan unless that presumption is
rebutted. The resulting tax liability would be substantial, and under U.S. Treasury regulations, each member of
the Hilton consolidated group at the time of the spin-off (including us and our subsidiaries) would be jointly and
severally liable for the resulting U.S. federal income tax liability.

We have agreed not to enter into certain transactions that could cause any portion of the spin-off to be
taxable to Hilton, including under Section 355(e) of the Code. Pursuant to the Tax Matters Agreement (as defined
herein), we have also agreed to indemnify Hilton and Park for any tax liabilities resulting from such transactions
or other actions we take, and Hilton and Park have agreed to indemnify us for any tax liabilities resulting from
transactions entered into by Hilton or Park. These obligations may discourage, delay or prevent a change of
control of our company.

We may be unable to take certain actions because such actions could jeopardize the tax-free status of
the spin-off, and such restrictions could be significant.

To preserve the tax-free treatment of the spin-off, for the initial two-year period following the spin-off, we
are prohibited, except in limited circumstances, from taking or failing to take certain actions that would prevent
the spin-off and related transactions from being tax-free, including: (1) entering into any transaction pursuant to
which our stock would be acquired, whether by merger or otherwise; (2) issuing any equity securities or
securities that could possibly be converted into our equity securities; or (3) repurchasing our equity securities.

These restrictions may limit our ability to issue equity and to pursue strategic transactions or engage in new
business or other transactions that may maximize the value of our business. In addition, if we take, or fail to take,
actions that prevent the spin-off and related transactions from being tax-free, we could be liable for the adverse
tax consequences resulting from such actions. For a more detailed description, see “Item 1. Business—Key
Agreements Related to the Spin-Off—Tax Matters Agreement” and “Business—Agreements with HNA.”

39

The spin-off and related transactions may expose us to potential liabilities arising out of state and federal
fraudulent conveyance laws and legal distribution requirements.

The spin-off could be challenged under various state and federal fraudulent conveyance laws. An unpaid
creditor or an entity vested with the power of such creditor (such as a trustee or debtor-in-possession in a
bankruptcy) could claim that Hilton did not receive fair consideration or reasonably equivalent value in
the spin-off, and that the spin-off left Hilton insolvent or with unreasonably small capital or that Hilton intended
or believed it would incur debts beyond its ability to pay such debts as they mature. If a court were to agree with
such a plaintiff, then such court could void the spin-off as a fraudulent transfer and could impose a number of
different remedies, including without limitation, returning our assets or your shares in our company to Hilton or
providing Hilton with a claim for money damages against us in an amount equal to the difference between
the consideration received by Hilton and the fair market value of our company at the time of the spin-off.

The measure of insolvency for purposes of the fraudulent conveyance laws may vary depending on which
jurisdiction’s law is applied. Generally, however, an entity would be considered insolvent if the fair saleable
value of its assets is less than the amount of its liabilities (including the probable amount of contingent
liabilities), and such entity would be considered to have unreasonably small capital if it lacked adequate capital to
conduct its business in the ordinary course and pay its liabilities as they become due. No assurance can be given
as to what standard a court would apply to determine insolvency or that a court would determine that Hilton were
solvent at the time of or after giving effect to the spin-off, including the distribution of our common stock.

We have a limited operating history as an independent company and our historical financial information does
not predict our future results.

The historical financial information we have included in this Annual Report on Form 10-K for periods prior
to the spin-off has been derived in part from the consolidated financial statements of Hilton and does not
necessarily reflect what our financial position, results of operations and cash flows would have been as a
separate, stand-alone entity during the periods presented. Hilton did not account for us, and we were not
operated, as a single stand-alone entity for periods prior to the spin-off. The costs and expenses reflected in our
historical financial statements for periods prior to the spin-off include an allocation for certain corporate
functions historically provided by Hilton. These allocations were based on what we and Hilton considered to be
reasonable reflections of the historical utilization levels of these services required in support of our business.
The historical information does not necessarily indicate what our results of operations, financial position, cash
flows or costs and expenses will be in the future. For additional information, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” “Selected Financial Data,” and our audited
consolidated financial statements and notes thereto included in Item 8 of this Annual Report on Form 10-K.

We may incur greater costs as an independent company than we did when we were part of Hilton.

As part of Hilton, we were able to advantage of its size and purchasing power in procuring certain goods
and services such as insurance and health care benefits, and technology such as computer software licenses. We
were also able to rely on Hilton to provide various corporate functions. As a separate, independent entity as a
result of the spin-off, we may be unable to obtain these goods, services and technologies at prices or on terms as
favorable to us as those we obtained prior to the distribution. We may also incur costs for functions previously
performed by Hilton that are higher than the amounts reflected in our historical financial statements, which could
cause our profitability to decrease.

Our accounting and other management systems and resources may not be adequately prepared to meet
the financial reporting and other requirements to which we are subject as an independent company, and
failure to achieve and maintain effective internal controls could have a material adverse effect on our
business and the price of our common stock.

Our financial results for periods prior to the spin-off were included within the consolidated results of Hilton,
and we believe that our financial reporting and internal controls were appropriate for a subsidiary of a public

40

company. However, we were not directly subject to the reporting and other requirements of the Exchange Act.
As a result of the distribution, we are directly subject to reporting and other obligations under the Exchange Act.
We are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”)
which requires annual management assessments of the effectiveness of our internal controls over financial
reporting and a report by our independent registered public accounting firm as to whether we maintained, in all
material respects, effective internal controls over financial reporting as of the last day of the year. These
reporting and other obligations may place significant demands on our management, administrative and
operational resources, including accounting systems and resources.

The Exchange Act requires that we file annual, quarterly and current reports with respect to our business
and financial condition. Under the Sarbanes-Oxley Act, we are required to maintain effective disclosure controls
and procedures and internal controls over financial reporting. To continue to comply with these requirements,
implement additional financial and
which can change over time, we may need to upgrade our systems;
management controls, reporting systems and procedures; and hire additional accounting and finance staff. We
expect to continue to incur additional annual expenses for the purpose of addressing these requirements, and
those expenses may be significant. If we are unable to upgrade our financial and management controls, reporting
systems, information technology systems and procedures in a timely and effective fashion, our ability to comply
with our financial reporting requirements and other rules that apply to reporting companies under the Exchange
Act could be impaired.

If we are unable to conclude that we have effective internal controls over financial reporting or our
independent public accounting firm is unwilling or unable to provide us with an unqualified report on
the effectiveness of our internal controls as required by Section 404 of the Sarbanes-Oxley Act, we may be
unable to report our financial information on a timely basis, investors may lose confidence in our operating
results, the price of our common stock could decline and we may be subject to litigation or regulatory
enforcement actions, which would require additional financial and management resources. This could have a
material adverse effect on our business and lead to a decline in the price of our common stock.

We could be required to assume responsibility for obligations allocated to Hilton or Park under
the Distribution Agreement.

We entered into a Distribution Agreement with Hilton and Park (the “Distribution Agreement”) prior to
the distribution of our shares of common stock to Hilton stockholders. Under the Distribution Agreement and
related ancillary agreements, each of us, Hilton and Park are generally responsible for the debts, liabilities and
other obligations related to the business or businesses that they own and operate following the spin-off. Although
we do not expect to be liable for any obligations that were not allocated to us under the Distribution Agreement, a
court could disregard the allocation agreed to among the parties, and require that we assume responsibility for
obligations allocated to Hilton or Park (for example, tax and/or environmental liabilities), particularly if Hilton or
Park were to refuse or were unable to pay or perform the allocated obligations.

In addition, losses in respect of certain shared contingent liabilities, which generally are not specifically
attributable to any of the timeshare business, the Park business or the retained business of Hilton, were
determined on or prior to the date on which the Distribution Agreement was entered (“Shared Contingent
Liabilities”). The percentage of Shared Contingent Liabilities for which we are responsible has been fixed in a
manner that is intended to approximate our estimated enterprise value on the distribution date relative to
the estimated enterprise values of Park and Hilton. Subject to certain limitations and exceptions, Hilton is
generally vested with the exclusive management and control of all matters pertaining to any such Shared
Contingent Liabilities, including the prosecution of any claim and the conduct of any defense.

41

In connection with the spin-offs, each of Hilton and Park indemnified us for certain liabilities. These
indemnities may not be sufficient to insure us against the full amount of the liabilities assumed by Hilton and
Park, and Hilton and Park may be unable to satisfy their indemnification obligations to us in the future.

In connection with the spin-offs, each of Hilton and Park indemnified us with respect to such parties’
assumed or retained liabilities pursuant
to the Distribution Agreement and breaches of the Distribution
Agreement or other agreements related to the spin-offs. There can be no assurance that the indemnities from each
of Hilton and Park will be sufficient to protect us against the full amount of these and other liabilities. Third
parties also could seek to hold us responsible for any of the liabilities that Hilton and Park have agreed to
assume. Even if we ultimately succeed in recovering from Hilton or Park any amounts for which we are held
liable, we may be temporarily required to bear those losses ourselves. Each of these risks could negatively affect
our business, financial condition, results of operations and cash flows.

If we are required to indemnify Hilton or Park in connection with the spin-offs, we may need to divert cash to
meet those obligations, which could negatively affect our financial results.

Pursuant to the Distribution Agreement entered into in connection with the spin-offs and certain other
agreements among Hilton and Park and us, we agreed to indemnify each of Hilton and Park from certain
liabilities. Indemnities that we may be required to provide Hilton and/or Park may be significant and could
negatively affect our business.

Risks Related to Ownership of Our Common Stock

Our board of directors may change significant corporate policies without stockholder approval.

Our financing, borrowing and dividend policies and our policies with respect to all other activities,
including growth, debt, capitalization and operations, will be determined by our board of directors. These
policies may be amended or revised at any time and from time to time at the discretion of our board of directors
without a vote of our stockholders. In addition, our board of directors may change our policies with respect to
conflicts of interest provided that such changes are consistent with applicable legal requirements. A change in
these policies could have an adverse effect on our financial condition, our results of operations, our cash flow,
the per share trading price of our common stock and our ability to satisfy our debt service obligations and to pay
dividends to our stockholders.

Anti-takeover provisions in our organizational documents and Delaware law might discourage or delay
acquisition attempts for us that you might consider favorable.

Our amended and restated certificate of incorporation and bylaws contain provisions that may make the
merger or acquisition of our company more difficult without the approval of our board of directors. Among other
things:

•

•

•

although we do not have a stockholder rights plan, and would either submit any such plan to
stockholders for ratification or cause such plan to expire within a year, these provisions would allow us
to authorize the issuance of undesignated preferred stock in connection with a stockholder rights plan
or otherwise, the terms of which may be established and the shares of which may be issued without
stockholder approval, and which may include super voting, special approval, dividend, or other rights
or preferences superior to the rights of the holders of common stock;

these provisions prohibit stockholder action by written consent unless such action is recommended by
all directors then in office;

these provisions provide that our board of directors is expressly authorized to make, alter or repeal our
bylaws and that our stockholders may only amend our bylaws with the approval of 80 percent or more
of all the outstanding shares of our capital stock entitled to vote; and

42

•

these provisions establish advance notice requirements for nominations for elections to our board or for
proposing matters that can be acted upon by stockholders at stockholder meetings.

Further, as a Delaware corporation, we are also subject to provisions of Delaware law, which may impair a
takeover attempt that our stockholders may find beneficial. These anti-takeover provisions and other provisions
under Delaware law could discourage, delay or prevent a transaction involving a change in control of our
company, including actions that our stockholders may deem advantageous, or negatively affect the trading price
of our common stock. These provisions could also discourage proxy contests and make it more difficult for you
and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you
desire.

The market price and trading volume of our common stock may fluctuate widely.

For many reasons, including the risks identified in this Annual Report on Form 10-K, the market price of
our common stock may be more volatile than the market price of Hilton common stock before the spin-off. These
factors may result in short-term or long-term negative pressure on the value of our common stock.

The market price of our common stock may fluctuate significantly, depending upon many factors, some of

which may be beyond our control, including, but not limited to:

•

•

•

•

•

•

•

•

•

•

•

•

•

shifts in our investor base;

our quarterly and annual earnings, or those of comparable companies;

actual or anticipated fluctuations in our operating results;

our ability to obtain financing as needed;

changes in laws and regulations affecting our business;

changes in accounting standards, policies, guidance, interpretations or principles;

announcements by us or our competitors of significant investments, acquisitions or dispositions;

the failure of securities analysts to cover our common stock;

changes in earnings estimates by securities analysts or our ability to meet those estimates;

the operating performance and stock price of comparable companies;

overall market fluctuations;

a decline in the real estate markets; and

general economic conditions and other external factors.

Future issuances of common stock by us may cause the market price of our common stock to decline.

None of the shares outstanding upon consummation of the spin-off were “restricted securities” within
the meaning of Rule 144 under the Securities Act, and substantially all of the outstanding shares of our common
stock are freely tradable and available for resale in the public market, subject to certain restrictions in the case of
control shares held by persons deemed to be our affiliates. Accordingly, the market price of our common stock
could drop significantly if holders of a substantial number of shares of our common stock sell them in the public
market, or if the market perceives that such sales could occur.

We adopted an Omnibus Incentive Plan under which an aggregate of 10,000,000 shares of HGV common
stock are issuable. As of December 31, 2018, an aggregate of 864,964 shares have been issued, and an additional
1,913,097 shares were underlying outstanding awards pursuant to the Omnibus Incentive Plan. We also adopted a

43

Non-Employee Director Stock Plan under which 325,000 shares of our common stock are issuable, and an
Employee Stock Purchase Plan under which 2,500,000 shares of our common stock are available for issuance.
Under the Non-Employee Director Stock Plan, 30,000 shares had been issued, and there were an additional
18,810 shares underlying outstanding awards granted as of December 31, 2018. Under the Employee Stock
Purchase Plan, a total of 110,536 shares were issued as of December 31, 2018.

We have no current plans to pay cash dividends on our common stock, and our indebtedness could limit our
ability to pay dividends in the future.

Although we expect to return capital to stockholders through dividends or otherwise in the future, we have
no current plans to pay any cash dividends. The declaration, amount and payment of any future dividends on
shares of common stock will be at the sole discretion of our board of directors. Our board of directors may take
into account general and economic conditions, our financial condition and results of operations, our available
cash, current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions
on the payment of dividends by us to our stockholders or by our subsidiaries to us, and such other factors as our
board of directors may deem relevant. In addition, our ability to pay dividends is limited by our credit agreement
related to our senior secured credit facilities. Our ability to pay dividends may also be limited by covenants of
other indebtedness that we or our subsidiaries incur in the future.

ITEM 1B. Unresolved Staff Comments

None.

ITEM 2. Properties

Timeshare Properties

As of December 31, 2018, we have 54 properties, representing 8,888 units. These units are at properties we
developed or constructed by third-party developers. We owned 66 percent of all unsold units, representing 2,069
of the 3,131 unsold units, at these properties. We also own, manage or lease fitness, spa and sports facilities,
undeveloped and partially developed land and other common area assets at some of our resorts, including resort
lobbies and food and beverage outlets.

As of December 31, 2018, our resorts included the following locations and units:

Property Name

Ownership(1)

Location

Units

Hilton Grand Vacations (U.S.)
HGVClub at SeaWorld Orlando
HGVClub at Tuscany Village
Parc Soleil by HGVClub
Las Palmeras, a Hilton Grand Vacations Club
HGVClub at McAlpin—Ocean Plaza
HGVClub at the Flamingo
HGVClub on Paradise
HGVClub on the Boulevard
HGVClub at Trump International Hotel Las Vegas(3)
Elara, a Hilton Grand Vacations Club
The Grand Islander by HGVClub
HGVClub at Hilton Hawaiian Village—The Lagoon Tower Developed
HGVClub at Hilton Hawaiian Village—The Kalia Tower Developed
Developed
Grand Waikikian by HGVClub
Hokulani Waikiki by HGVClub(3)
Developed

Developed
Developed
Developed
Fee-for-service(2)
Developed
Developed
Developed
Developed
Developed
Fee-for-service
Fee-for-service

Orlando, FL
Orlando, FL
Orlando, FL
Orlando, FL
Miami Beach, FL
Las Vegas, NV
Las Vegas, NV
Las Vegas, NV
Las Vegas, NV
Las Vegas, NV
Honolulu, HI
Honolulu, HI
Honolulu, HI
Honolulu, HI
Honolulu, HI

516
440
312
226
52
200
232
714
205
1,201
418
236
72
331
143

44

Property Name

Ownership(1)

Location

Units

Kohala Suites by HGVClub
Kings’ Land by HGVClub
Ocean Tower by Hilton Grand Vacations
The Bay Club at Waikoloa Beach Resort
The Hilton Club—New York
West 57th Street by Hilton Club
The Residences by Hilton Club
The Quin Central Park by Hilton Club
The District by Hilton Club
HGVClub at Anderson Ocean Club
Ocean 22 by Hilton Grand Vacations Club
Ocean Enclave by Hilton Grand Vacations Club(4)
Ocean Oak Resort by Hilton Grand Vacation Club(4)
Sunrise Lodge, a Hilton Grand Vacations Club
Valdoro Mountain Lodge
HGVClub at MarBrisa(3)(4)
The Cottages at South Seas Island Resort
Harbourview Villas at South Seas Island Resort
Plantation Bay Villas at South Seas Island Resort
Plantation Beach Club at South Seas Island Resort
Plantation House at South Seas Island Resort
South Seas Club at South Seas Island Resort
Casa Ybel Resort
Hurricane House Resort
Sanibel Cottages Resort
Tortuga Beach Club Resort
Seawatch On-the-Beach Resort
The Charter Club of Marco Beach
Eagle’s Nest Beach Resort
Club Regency of Marco Island
The Surf Club of Marco
Plantation Beach Club at Indian River Plantation Resort
Hilton International Grand Vacations (non-U.S.)
HGVClub at Coylumbridge
HGVClub at Craigendarroch Suites
HGVClub at Craigendarroch Lodge
HGVClub at Dunkeld
HGVClub at Borgo alle Vigne
The Bay Forest Odawara by Hilton Club
The Crane(4)

Developed
Developed
Developed
Collection
Developed
Developed
Developed
Developed
Developed
Fee-for-service
Fee-for-service
Fee-for-service
Fee-for-service
Developed
Collection
Fee-for-service
Collection
Collection
Collection
Collection
Collection
Collection
Collection
Collection
Collection
Collection
Collection
Collection
Collection
Collection
Collection
Collection

Developed
Developed
Developed
Developed
Fee-for-service
Developed
Developed

Waikoloa, HI
Waikoloa, HI
Waikoloa, HI
Waikoloa, HI
New York, NY
New York, NY
New York, NY
New York, NY
Washington, DC
Myrtle Beach, SC
Myrtle Beach, SC
Myrtle Beach, SC
Hilton Head, SC
Park City, UT
Breckenridge, CO
Carlsbad, CA
Captiva, FL
Captiva, FL
Captiva, FL
Captiva, FL
Captiva, FL
Captiva, FL
Sanibel, FL
Sanibel, FL
Sanibel, FL
Sanibel, FL
Ft. Myers Beach, FL
Marco Island, FL
Marco Island, FL
Marco Island, FL
Marco Island, FL
Hutchinson Island, FL

Scotland
Scotland
Scotland
Scotland
Italy
Japan
Barbados

120
435
72
172
127
166
47
208
108
172
230
330
125
83
70
232
14
10
4
56
12
24
74
15
28
54
42
80
96
32
44
30

61
32
99
22
31
10
23

(1)

Fee-for-service and collection properties are properties that were funded and constructed by a third-party developer.
Collection properties are properties that were contributed by a third party during Hilton’s joint venture with Grand
Vacations or prior to the spin-off. A developed property is a property that was funded and constructed by Hilton Grand
Vacations or acquired through a just-in-time arrangement. Hilton Grand Vacations also manages the operation of the
developed properties.

(2) As of December 31, 2018, we acquired 20 units as part of a just-in-time arrangement.
(3)

Property sub-managed by a third party.

(4) During the year ended December 31, 2018, we pre-sold certain units to be occupied beginning in 2019.

45

Corporate Headquarters and Sales Distribution Centers

Our corporate headquarters are located at 6355 MetroWest Boulevard, Suite 180, Orlando, Florida 32835,
and consist of approximately 102,000 square feet of leased space. The lease for this property initially expires on
November 30, 2021 with options to renew for two additional five-year periods. In November 2017, the initial
lease was amended extending the lease term through November 30, 2026 with no changes to renewal options.
Our sales distribution centers are located in Las Vegas, Myrtle Beach, Hilton Head, New York, Washington,
D.C., Orlando, Park City, Honolulu, Waikoloa and Tokyo. We also have other corporate offices and call centers
located in Orlando, Las Vegas, Honolulu and Tokyo.

We believe that our existing office properties are in good condition and are sufficient and suitable for the
conduct of our business. In the event we need to expand our operations, we believe that suitable space will be
available on commercially reasonable terms.

ITEM 3. Legal Proceedings

We are involved in various claims and lawsuits arising in the ordinary course of business, some of which
include claims for substantial sums, including proceedings involving tort and other general liability claims,
employee claims, consumer protection claims and privacy claims. Most occurrences involving liability, claims of
negligence and employees are covered by insurance with solvent insurance carriers. For those matters not
covered by insurance, which include commercial matters, we recognize a liability when we believe the loss is
probable and can be reasonably estimated. The ultimate results of claims and litigation cannot be predicted with
certainty. We believe we have adequate reserves against such matters. We currently believe that the ultimate
outcome of such lawsuits and proceedings will not, individually or in the aggregate, have a material adverse
effect on our consolidated financial position, results of operations or liquidity. However, depending on the
amount and timing, an unfavorable resolution of some or all of these matters could materially affect our future
results of operations in a particular period or our ability to run our business as currently conducted.

ITEM 4. Mine Safety Disclosures

Not applicable.

46

PART II

ITEM 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities

Market Information

Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “HGV.” Our
common stock began trading on a “when-issued” basis on December 15, 2016 but did not commence regular-way
trading on the NYSE until January 4, 2017, the day after the completion of our spin-off. We have not made any
unregistered sales of our equity securities.

Performance Graph

The following graph compares the cumulative share price performance since December 15, 2016 with the
Russell 2500 (R2500) Index and the Dow Jones US Travel & Leisure Index GICS Level 3 (DJUSTLE). The
graph assumes that the value of the investment in our common stock and each index was $100 on December 15,
2016, which was the first day our common stock began trading on a “when-issued” basis.

$190

$180

$170

$160

$150

$140

$130

$120

$110

$100

$90

Hilton Grand Vacations

R2500

DJUSTLE

Holders of Record

The number of stockholders of record of our common stock as of February 22, 2019 was 310.

Dividends

Although we expect to return capital to stockholders through dividends or otherwise in the future, we have
no current plans to pay dividends on our common stock. Any decision to declare and pay dividends in the future
will be made at the sole discretion of our board of directors and will depend on, among other things, our results
of operations, cash requirements, financial condition, contractual restrictions and other factors that our board of
directors may deem relevant. In addition, our senior secured credit facilities and certain of our non-recourse debt
includes a provision limiting our ability to make restricted payments, including dividends.

Issuer Purchases of Equity Securities

On November 28, 2018, the Company announced that our Board of Directors approved a share repurchase
program authorizing the Company to repurchase up to an aggregate of $200 million of its outstanding shares of

47

common stock. The timing and actual number of shares repurchased will depend on a variety of factors,
including the stock price, corporate and regulatory requirements and other market and economic conditions. The
stock repurchase program may be suspended or discontinued at any time and will automatically expire on
November 26, 2019. The following table presents details regarding our repurchase of securities during the quarter
ended December 31, 2018.

Period

Total Number of
Shares
Purchased

Average Price
per Share

October 1, 2018—October 31, 2018 . . . . . . . . . .
November 1, 2018—November 30, 2018 . . . . . .
December 1, 2018—December 31, 2018 . . . . . .

—
—
2,487,263

$ —
$ —
$28.62

Total Number of
Shares
Purchased as
Part of Publicly
Announced Plans
or Programs

Approximate
Dollar
Value of Shares
that
May Yet Be
Purchased
Under Plan

— $
— $

—
—
$128,807,462

2,487,263

ITEM 6. Selected Financial Data

The following selected consolidated statement of operations data for the years ended December 31, 2018,
2017 and 2016 and the selected consolidated balance sheet data as of December 31, 2018 and 2017 are derived
from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The
selected historical consolidated statement of operations data for the years ended December 31, 2015 and 2014
and the selected consolidated balance sheet data as of December 31, 2016 and 2015 are derived from our audited
consolidated financial statements not included in this Annual Report on Form 10-K but was included in our
previously filed Annual Report on Form 10-K. The selected historical consolidated balance sheet data as of
December 31, 2014 is derived from our unaudited consolidated financial statements that are not included in this
Annual Report on Form 10-K but included in our Registration Statement on Form 10. Our historical results are
not necessarily indicative of the results expected for any future period.

The selected consolidated financial data below should be read together with the audited consolidated
financial statements, including the notes thereto, and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” included elsewhere in this Annual Report on Form 10-K.

($ in millions, except per share amounts)

2018

2017

2016

2015

2014

Year Ended December 31,

Statement of Operations Data:
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share(1)

$1,999
1,565
298

$1,711
1,374
327

$1,583
1,260
168

$1,475
1,154
174

$1,317
1,004
167

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 3.07
$ 3.05

$ 3.30
$ 3.28

$ 1.70
$ 1.70

$ 1.76
$ 1.76

$ 1.69
$ 1.69

($ in millions)

December 31,

2018

2017

2016

2015

2014

Balance Sheet Data:
Securitized timeshare financing receivables, net . . . . . . . . . . . . . . .
Unsecuritized timeshare financing receivables, net . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-recourse debt, net(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities(3)

$ 617
503
2,753
604
759
2,137

$ 444
627
2,384
482
583
1,866

$ 244
781
2,180
490
694
2,013

$ 350
626
1,724
—
502
1,830

$ 468
460
1,621
—
625
1,994

48

(1)

For periods ending prior to the spin-off on January 3, 2017, basic and diluted earnings per share was calculated based on shares
distributed our shareholders on January 3, 2017. See Note 19: Earnings Per Share in our audited consolidated financial statements
included in Item 8 of this Annual Report on Form 10-K for further discussion.

(2) Amounts are net of deferred financing costs.
(3)

Includes allocated Parent debt of $634 million and $719 million as of December 31, 2015 and 2014, respectively. In November 2016, we
were released from the unconditional obligation to guarantee certain debt balances and related deferred loan costs were allocated to us by
Hilton.

ITEM 7. 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 consolidated financial statements and related notes that appear elsewhere in this Annual
Report on Form 10-K.

Forward-Looking Statements

This disclosure includes forward-looking statements; and actual results and events may differ substantially
from those discussed or highlighted in these forward-looking statements. See “Cautionary Note Regarding
Forward-Looking Statements.”

Overview

Our Business

We market and sell VOIs, manage vacation resorts in top leisure and urban destinations and operate a point-
based vacation club. As of December 31, 2018, we had 54 properties, representing 8,888 units, and
approximately 309,000 Hilton Grand Vacations Club (the “Club”) members. Club members have the flexibility
to exchange their VOIs for stays at any Hilton Grand Vacations resort or any property in the Hilton system of
14 industry-leading brands across more than 5,000 properties, as well as numerous experiential vacation options,
such as cruises and guided tours.

On January 3, 2017, Hilton completed a tax-free spin-off of HGV and Park. As a result of the spin-off, HGV
became an independent publicly-traded company and our common stock is listed on the New York Stock
Exchange under the symbol “HGV.” Following the spin-off, Hilton did not retain any ownership in our company.
In connection with the spin-off, we entered into agreements with Hilton and other third parties, including licenses
to use the Hilton Grand Vacations brand. For more information regarding these agreements, see “—Key
Agreements Related to the Spin-Off” in this Annual Report on Form 10-K for additional information.

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, developed either
by us or by third parties. This ownership interest is an interest in real estate generally equivalent to one week
annually, at the timeshare resort where the VOI was purchased. Traditionally, timeshare operators have funded
100 percent of the investment necessary to acquire land and construct timeshare properties. In 2010, we began
sourcing VOIs through fee-for-service and just-in-time agreements with third-party developers and have
successfully transformed from a capital-intensive business to one that
is highly capital-efficient. The
fee-for-service agreements enable us to generate fees from the sales and marketing of the VOIs and Club
memberships and from the management of the timeshare properties without requiring us to fund acquisition and
construction costs. The just-in-time agreements enable us to source VOI inventory in a manner that allows us to
correlate the timing of acquisition of the inventory with the sale to purchasers. Sales of owned, including

49

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 year ended December 31, 2018, 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 “—Real Estate Sales
Metrics” for additional discussion of contract sales. Based on our 2018 sales pace, we have access to
approximately seven years of future inventory, with capital efficient arrangements representing approximately
56 percent of that supply. We believe that the visibility into our long-term supply allows us to efficiently manage
inventory to meet predicted sales, reduce capital investments, minimize our exposure to the cyclicality of the real
estate market and mitigate the risks of entering into new markets.

We originate loans for members purchasing our developed and acquired inventory and generate interest
income. Our loans 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 nine percent to 18 percent per annum.

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:

Weighted average FICO score . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2018

749

2017

743

2016

741

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. Historical default rates, which represent
annual defaults as a percentage of each year’s beginning gross timeshare financing receivables balance, were as
follows:

Year Ended December 31,

2018

2017

2016

Historical default rates(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.71% 4.12% 3.67%

(1) A loan is considered to be in default if it is equal to or greater than 121 days past due as of the prior month end.

Some of our loans have been pledged as collateral in our securitization transactions, which have in the past
and may in the future provide funding for our business activities. In these securitization transactions, special
purpose entities are established to issue various classes of debt securities which are generally collateralized by a
single pool of assets, consisting of timeshare financing receivables that we service and related cash deposits. For
additional information see Note 5: Timeshare Financing Receivables in our audited consolidated financial
statements included in Item 8 of this Annual Report on form 10-K.

In addition, we earn fees from servicing our securitized loan portfolio and the loans provided by third-party

developers of our fee-for-service projects to purchasers of their VOIs.

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 comprising owner and developer
representatives that are charged with ensuring the resorts are well-maintained and financially stable. Our
management services include day-to-day operations of the resorts, maintenance of the resorts, preparation of

50

reports, budgets and projections and employee training and oversight. Our HOA management agreements
provide for a cost-plus management fee, which means we generally earn a fee equal to 10 percent to 15 percent
of the costs to operate the applicable resort. The fees we earn are highly predictable due to the relatively fixed
nature of resort operating expenses and our management fees are unaffected by changes in rental rate or
occupancy. We are reimbursed for the costs incurred to perform our services, principally related to personnel
providing on-site services. The initial term of our management agreements typically ranges from three to five
years and the agreements are subject to periodic renewal for one to three year periods. Many of these agreements
renew automatically unless either party provides advance notice of termination before the expiration of the term.

We also manage and operate the points-based Hilton Grand Vacations Club and Hilton Club exchange
programs, which provide exclusive exchange, leisure travel and reservation services to our Club members. When
owners purchase a VOI, they are generally enrolled in the Club and given an annual allotment of points that
allow the member to exchange their annual usage rights in the VOI that they own for a number of vacation and
travel options. In addition to an annual membership fee, Club members pay incremental fees depending on
exchanges they choose within the Club system.

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

Principal Components and Factors Affecting Our Results of Operations

Principal Components of Revenues

•

•

Sales of VOIs, net represents revenue recognized from the sale of owned VOIs.

Sales, marketing, brand and other fees represents sales commissions, brand fees and other fees earned
on the sales of VOIs through fee-for-service agreements with third-party developers. The sales
commissions and brand fees are based on the total sales price of the VOIs. Also included in Sales,
marketing, brand and other fees are revenues from marketing and incentive programs, including
redemption of Club Bonus Points and prepaid vacation packages, excluding stays at Hilton Grand
Vacations properties, which are included in Rental and ancillary services.

• Financing represents revenue from the financing of sales of our owned intervals, which includes
interest income and fees from servicing loans. We also earn fees from servicing the loans provided by
third-party developers to purchasers of their VOIs.

• Resort and club management represents revenues from Club activation fees, annual dues and
transaction fees from member exchanges. Resort and club management also includes recurring
management fees under our agreements with HOAs for day-to-day-management services, including
housekeeping services, maintenance, and certain accounting and administrative services for HOAs,
generally based on a percentage of costs to operate the resorts.

• Rental and ancillary services represents revenues from transient rentals of unoccupied vacation
ownership units and revenues recognized from the utilization of Club points and vacation packages
when points and packages are redeemed for rental stays at one of our resorts. We also earn fees from
the rental of inventory owned by third parties. Ancillary revenues include food and beverage, retail, spa
offerings and other guest services provided to resort guests.

• Cost reimbursements include costs that HOAs and developers reimburse to us. These costs primarily
consist of payroll and payroll-related costs for management of the HOAs and other services we provide
where we are the employer. The corresponding expenses are presented as Cost reimbursements expense
in our consolidated statements of operations resulting in no effect on net income.

51

Factors Affecting Revenues

• Relationships with developers. In recent years, we have entered into fee-for-service and just-in-time
agreements to sell VOIs on behalf of or acquired from third-party developers. The success and
sustainability of our capital-efficient business model depends on our ability to maintain good
relationships with third-party developers. Our relationships with these third parties also generate new
relationships with developers and opportunities for property development that can support our growth.
We believe that we have strong relationships with our third-party developers and are committed to the
continued growth and development of these relationships. These relationships exist with a diverse
group of developers and are not significantly concentrated with any particular third party.

• Relationship with Hilton. Following the spin-off, Hilton retained ownership of the Hilton-branded
trademarks, tradenames and certain related intellectual property used in the operation of our business.
We entered into a license agreement with Hilton granting us the right to use the Hilton-branded
trademarks, trade names and related intellectual property in our business for the term of the agreement.
The termination of the license agreement or exercise of other remedies would materially harm our
business and results of operations and impair our ability to market and sell our products and maintain
our competitive position. For example, if we are not able to rely on the strength of the Hilton brands to
attract prospective members and guest tours in the marketplace, our revenue would decline and our
marketing and sales expenses would increase.

• Consumer demand and global economic conditions. Consumer demand for our products and services
may be affected by the performance of the general economy and is sensitive to business and personal
discretionary spending levels. Declines in consumer demand due to adverse general economic
conditions, risks affecting or reducing travel patterns, lower consumer confidence and adverse political
conditions can subject and have subjected our revenues to significant volatility.

•

Interest rates. We generate interest income from consumer loans we originate and declines in interest
rates may cause us to lower our interest rates on our originated loans, which would adversely affect our
income generated on future loans.

• Competition. We compete with other hotel and resort timeshare operators for sales of VOIs based
principally on location, quality of accommodations, price, service levels and amenities, financing
terms, quality of service, terms of property use, reservation systems and flexibility for VOI owners to
exchange into time at other timeshare properties or other travel rewards. In addition, we compete based
on brand name recognition and reputation. Our primary branded competitors in the timeshare space
include Marriott Vacations Worldwide, Wyndham Destinations, Vistana Signature Experiences,
Disney Vacation Club, Hyatt Residence Club, Holiday Inn Club Vacations, Bluegreen Vacations and
Diamond Resorts International.

Principal Components of Expenses

• Cost of VOI sales represents the costs attributable to the sales of owned VOIs recognized, as well as
charges incurred related to granting credit to customers for their existing ownership when upgrading
into fee-for-service projects.

•

Sales and marketing represents costs incurred to sell and market VOIs, including costs incurred relating
to marketing and incentive programs, costs for tours, rental expense and wages and sales commissions.

• Financing represents consumer financing interest expense related to our debt securitized by gross
timeshare financing receivables (‘‘Securitized Debt”) and Timeshare Facility, amortization of the
related deferred loan costs and other expenses incurred in providing consumer financing and servicing
loans.

• Resort and club management represents costs incurred to manage resorts and the Club, including

payroll and related costs and other administrative costs.

52

• Rental and ancillary services include payroll and related costs, costs incurred from participating in the
Hilton Honors loyalty program, retail, food and beverage costs and maintenance fees on unsold
inventory.

• General and administrative consists primarily of compensation expense for our corporate staff and
personnel supporting our business segments, professional fees (including consulting, audit and legal
fees), administrative and related expenses. General and administrative also includes costs for services
provided to us by Hilton.

• Depreciation and amortization are non-cash expenses that primarily consist of depreciation of fixed
assets such as buildings and leasehold improvements and furniture and equipment at our sales centers,
corporate offices, and assets purchased for future conversion to inventory, as well as amortization of
our management agreement intangible and capitalized software.

•

License fee expense represents the royalty fee paid to Hilton under a license agreement for the
exclusive right to use the Hilton Grand Vacations mark, which is generally based on a percentage of
gross sales volume, of certain revenue streams.

• Cost reimbursements include costs that HOAs and developers reimburse to us. These costs primarily
consist of payroll and payroll-related costs for management of the HOAs and other services we provide
where we are the employer. The corresponding revenues are presented as Cost reimbursements revenue
in our consolidated statements of operations resulting in no effect on net income.

Factors Affecting Expenses

• Costs of VOI sales. In periods where there is increased demand for VOIs, we may incur increased costs
to acquire inventory in the short-term, which can have an adverse effect on our cash flows, margins and
profits. Additionally, as we encourage owners to upgrade into other products, we incur expenses when
owners upgrade from an interval in a project we developed into fee-for-service projects, on which we
earn fees. In periods where more upgrades are occurring and we are not generating increased sales
volume on unsold supply, we could see an adverse effect on our cash flows, margins and profits.

•

Sales and marketing expense. A significant portion of our costs relates to selling and marketing of our
VOIs. In periods of decreased demand for VOIs, we may be unable to reduce our sales and marketing
expenses quickly enough to prevent a deterioration of our profit margins on our real estate operations.

• Rental and ancillary services expense. These expenses include personnel costs, rent, property taxes,
insurance and utilities. We pay a portion of these costs through maintenance fees of unsold intervals
and by subsidizing the costs of HOAs not covered by maintenance fees collected. If we are unable to
decrease these costs significantly or rapidly when demand for our unit rentals decreases, the resulting
decline in our revenues could have an adverse effect on our net cash flow, margins and profits.

• General and administrative. Increases in general and administrative expenses as a result of becoming
an independent publicly traded company such as costs of separation, regulatory filings and professional
fees may affect our net cash flows, margins and profits.

•

Interest rates. Increases in interest rates would increase the consumer financing interest expense we
pay on the Timeshare Facility and could adversely affect our financing operations in future
securitization or other debt transactions, affecting net cash flow, margins and profits.

Other Items

•

Seasonality. We experience modest seasonality in VOI sales at certain resorts, with increased revenue
during traditional vacation periods for those locations.

• Regulation. Our business activities are highly regulated. We are subject to a wide variety of complex
international, national, federal, state and local laws, regulations and policies in jurisdictions in which

53

we operate. These laws, regulations and policies primarily affect four areas of our business: real estate
development activities; marketing and sales activities;
lending activities; and resort management
activities. We seek to actively participate in the determination of new laws or other regulations
affecting the timeshare industry. For further detail of these regulations see “Risk Factors” and
“Business–Government Regulation” included elsewhere in this Annual Report on Form 10-K.

Key Business and Financial Metrics and Terms Used by Management

Real Estate Sales Metrics

• Contract sales represents the total amount of VOI products (fee-for-service and developed) under
purchase agreements signed during the period where we have received a down payment of at least
10 percent of the contract price. Contract sales is not a recognized term under U.S. GAAP and should
not be considered in isolation or as an alternative to Sales of VOIs, net or any other comparable
operating measure derived in accordance with U.S. GAAP. Contract sales differ from revenues from
the Sales of VOIs, net
in our consolidated statements of operations due to the
requirements for revenue recognition as described in Note 2: Basis of Presentation and Summary of
Significant Accounting Policies in our audited consolidated financial statements included in Item 8 of
this Annual Report on form 10-K, as well as adjustments for incentives and other administrative fee
revenues. We consider contract sales to be an important operating measure because it reflects the pace
of sales in our business.

that we report

•

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

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

•

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

• Volume per guest (“VPG”) represents the sales attributable to tours at our sales locations and is
calculated by dividing 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.

Resort and Club Management and Rental Metrics

•

Transient rate represents the total rental room revenue for transient guests divided by total number of
transient room nights sold in a given period and excludes room rentals associated with marketing
programs, owner usage and the redemption of Club Bonus Points. See Note 2: Basis of Presentation
and Summary of Significant Accounting Policies in our audited consolidated financial statements
included in Item 8 of this Annual Report on Form 10-K for further discussion on Club Bonus Points.

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.

54

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

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

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

• EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working

capital needs;

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

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

taxes;

• EBITDA and Adjusted EBITDA do not reflect historical cash expenditures or future requirements for

capital expenditures or contractual commitments;

• EBITDA and Adjusted EBITDA do not reflect the effect on earnings or changes resulting from matters

that we consider not to be indicative of our future operations;

• EBITDA and Adjusted EBITDA do not reflect any cash requirements for future replacements of assets

that are being depreciated and amortized; and

• EBITDA and Adjusted EBITDA may be calculated differently from other companies in our industry

limiting their usefulness as comparative measures.

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

Recent Events

In November 2018, our Board of Directors approved a share repurchase program authorizing the Company
to purchase up to $200 million of its issued and outstanding common stock. The timing and amounts of any
repurchases under the program will depend on certain factors, including, but not limited to, market conditions
and stock prices, available funds, corporate and regulatory requirements and alternative uses of capital. The stock
repurchase program may be carried out through open-market purchases, block trades or other transactions. HGV
expects to fund the repurchase program through a combination of cash on hand, operating cash flow, receivables
funding and bank facilities. In December 2018, we repurchased 2.5 million shares for $71 million.

In November 2018, we entered into an amendment

to the credit agreement originally, dated as of
December 28, 2016, which amended certain terms of the credit facilities. Pursuant to the amendment, the senior
secured credit facilities consist of (i) a five-year $200 million term loan facility and (ii) a five-year revolving

55

credit facility in an aggregate borrowing capacity of up to $800 million. We drew down the entire $200 million
on the term loan facility and $55 million of the revolving credit facility to refinance the existing term loan and
revolving credit facility balances. See Note 14: Debt and Non-recourse debt in our audited consolidated financial
statements included in Item 8 of this Annual Report on form 10-K for additional information.

Results of Operations

Year Ended December 31, 2018 Compared with Year Ended December 31, 2017 and Year Ended
December 31, 2017 Compared with Year Ended December 31, 2016

Segment Results

We evaluate our business segment operating performance using segment Adjusted EBITDA, as described in
Note 21: Business Segments in our audited consolidated financial statements included in Item 8 of this Annual
Report on Form 10-K. We do not include equity in earnings (losses) from unconsolidated affiliate in our
measures of segment revenues. 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:

($ in millions)

Revenues:

Year Ended December 31,

2018 vs 2017
Variance

2017 vs 2016
Variance

2018

2017

2016

$

%

$

%

Real estate sales and financing . . . . . . . . . . . . . . . . .
Resort operations and club management . . . . . . . . .

$1,462
422

$1,239
367

$1,143
339

$223
55

18.0% $ 96
28
15.0

8.4%
8.3

Segment revenues . . . . . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . . . . . . . .
Intersegment eliminations(1) . . . . . . . . . . . . . . . . . . .

1,884
147
(32)

1,606
135
(30)

1,482
126
(25)

278
12
(2)

17.3
8.9
6.7

8.4
124
9
7.1
(5) 20.0

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . .

$1,999

$1,711

$1,583

$288

16.8

$128

8.1

(1) Refer to Note 21: Business Segments in our audited consolidated financial statements included in Item 8 of this Annual Report on

Form 10-K for details on the intersegment eliminations.

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

and Adjusted EBITDA:

($ in millions)

Year Ended December 31,

2018 vs 2017
Variance

2017 vs 2016
Variance

2018

2017

2016

$

%

$

%

Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . .
Allocated Parent interest expense(2)
. . . . . . . .
Income tax (benefit) expense . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . .
Interest expense, depreciation and

amortization included in equity in earnings
from unconsolidated affiliates . . . . . . . . . .

EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other loss, net . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation expense . . . . . . . .
. . . . . . . . . . . . . . . .
Other adjustment items(3)

$298
30
—
105
36

4

473
1
16
13

$327
27
—
(16)
29

$168
3
26
125
24

$ (29)
3
— NM(1)
NM(1)
24.1

(8.9)% $ 159
24
11.1
(26)
(141)
5

121
7

94.6%
NM(1)
(100.0)
NM(1)
20.8

3

370
—
15
10

—

346
1
8
35

1

33.3

103
1
1
3

27.8
NM(1)
6.7
30.0

3

24
(1)
7
(25)

NM(1)

6.9
(100.0)
87.5
(71.4)

Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . .

$503

$395

$390

$108

27.3

$

5

1.3

56

(1)

(2)

(3)

Fluctuation in terms of percentage change is not meaningful.
This amount represents interest expense on an unconditional obligation to guarantee certain Hilton allocated debt balances which were
released in November 2016.
Includes costs associated with the spin-off transaction of $11 million, $8 million and $30 million for the years ended December 31, 2018,
2017 and 2016, respectively.

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

($ in millions)

Adjusted EBITDA:

Year Ended December 31,

2018 vs 2017
Variance

2017 vs 2016
Variance

2018

2017

2016

$

%

$

%

Real estate sales and financing(2) . . . . . . . . . . . . .
. . . . .
Resort operations and club management(2)

Segment Adjusted EBITDA . . . . . . . . . . . .

$447
245

692

$359
204

563

$336
189

525

$ 88
41

24.5% $ 23
15
20.1

6.8%
7.9

129

22.9

38

7.2

Adjustments:
Adjusted EBITDA from unconsolidated

affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
License fee expense . . . . . . . . . . . . . . . . . . .
General and administrative(3) . . . . . . . . . . . .

4
(98)
(95)

4
(87)
(85)

—
(80)
(55)

—
(11)
(10)

Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . .

$503

$395

$390

$108

—
12.6
11.8

27.3

4
(7)
(30)

NM(1)
8.8
54.5

$ 5

1.3

(1)

(2)

(3)

Fluctuation in terms of percentage change is not meaningful.
Includes intersegment eliminations, share-based compensation attributable to the segment and other adjustments.
Excludes segment related share-based compensation and other adjustment items.

Real Estate Sales and Financing

Real estate sales and financing segment

revenues increased by $223 million for the year ended
December 31, 2018, compared to 2017, primarily due to (i) a $234 million increase in sales revenue and (ii) a
$11 million increase in financing revenue, partially offset by a decrease of $22 million in marketing revenue and
other fees. The increase in sales revenue of $234 million was primarily due to (i) an increase related to revenue
recognized from the completion of construction of two timeshare resorts and (ii) a $48 million increase in
commission and brand fees due to higher fee-for-service sales primarily related to a new resort in South Carolina.
The decrease in marketing revenue was primarily due to (i) a $10 million one-time benefit recognized in the
second quarter of 2017 related to a reduction of expected redemptions of expired discounted vacation packages
and (ii) recognition of certain sales incentives on a net versus gross basis as a result of Accounting Standards
Update 2014-09, Revenue from Contracts with Customers (“ASC 606”). The increase in financing revenue was
primarily due to an increase in interest income and loan servicing fees from higher outstanding timeshare
financing receivable balances. Real estate sales and financing segment Adjusted EBITDA increased by
$88 million for the year ended December 31, 2018, compared to 2017, primarily due to an increase in revenues
associated with the segment discussed above, partially offset by (i) a $71 million increase in sales and marketing
and financing expenses and (ii) a $62 million increase in cost of VOI sales.

Real estate sales and financing segment revenues increased for the year ended December 31, 2017,
compared to 2016, primarily due to a $62 million increase in sales revenue, a $23 million increase in marketing
revenue and a $13 million increase in financing revenue. The increase in sales revenue was primarily due to a
$40 million increase in Sales of VOIs, net, due to sales at our newly developed projects beginning the second half
of 2016, in Washington, DC and New York, NY as well as a $22 million increase in commission and brand fees.
The $23 million increase in marketing revenue was primarily due to a $10 million reduction of our expected
redemptions of expired discounted vacation packages and an $11 million increase in other marketing revenue.
The increase in financing revenue was primarily due to an increase in interest income from higher outstanding

57

timeshare financing receivable balances. Real estate sales and financing segment Adjusted EBTIDA increased by
$23 million for the year ended December 31, 2017, compared to 2016, primarily due to an increase in revenues
associated with the segment, partially offset by a $69 million increase in sales and marketing and financing
expenses.

Refer to “—Real Estate” and “—Financing” for further discussion on the revenues and expenses of the real

estate sales and financing segment.

Resort Operations and Club Management

Resort operations and club management segment revenues increased by $55 million for the year ended
December 31, 2018, compared to 2017, primarily due to (i) an increase of $14 million in resort and club
management revenues primarily due to an increase in Club members and higher rates and (ii) an increase of
$39 million in rental and ancillary services revenues as a result of higher rental room revenue from transient
guests primarily due to the acquisition of an operating hotel in New York City, New York in June 2018 and
higher club inventory rentals at our developed and fee-for-service properties. Resort operations and club
management segment Adjusted EBITDA increased by $41 million for the year ended December 31, 2018,
compared to the same period in 2017, primarily due to the increases in revenues associated with the segment,
partially offset by a $15 million increase in segment expenses.

Resort operations and club management segment revenues increased for the year ended December 31, 2017,
compared to 2016, primarily due to (i) a $15 million increase in resort and club management revenues from the
launch of new properties during and subsequent to the second quarter of 2016 and (ii) an increase of $6 million in
rental and ancillary services revenues as a result of higher transient room and club inventory rentals at our
developed and fee-for-service properties. Resort operations and club management segment Adjusted EBITDA
increased from the year ended December 31, 2017, compared to 2016, primarily due to increases in revenues
associated with the segment, partially offset by a $16 million increase in segment expenses.

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

($ in millions, except Tour flow and VPG)

2018

2017

2016

$

%

$

%

Year Ended December 31,

2018 vs 2017
Variance

2017 vs 2016
Variance

$

734

$

548

$

508

$

186

33.9% $

657
49

82
11

11.8
19.0

40

37
9

7.9%

5.6
18.4

Sales of VOIs, net . . . . . . . . . . . . . . . . . . .
Adjustments:

. . . . . . . . . . .
Fee-for-service sales(2)
Loan loss provision . . . . . . . . . . . . . .
Reportability and other:

Deferral of sales of VOIs under
. . . . . . . . . . . .

construction(3)

Fee-for-service sale upgrades,

net . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .

Other(4)

776
69

(133)

(63)
27

694
58

5

(52)
22

5

(138) NM(1)

—

—

(74)
27

(11) 21.2
22.7

5

22
(5)

(29.7)
(18.5)

Contract sales . . . . . . . . . . . . . . . . . . . . . .

$ 1,410

$

1,275

$

1,172

$

135

10.6

$

103

Tour flow . . . . . . . . . . . . . . . . . . . . . . . . .
VPG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

357,861
$ 3,743

330,775
3,657

$

306,141
3,596

$

27,086
86

$

8.2
2.4

24,634
61

$

8.8

8.0
1.7

(1)

Fluctuation in terms of percentage change is not meaningful.

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

58

(3)

(4)

Includes $112 million cumulative effect of applying Accounting Standards Codification (“ASC”) Topic 606.
Includes adjustments for revenue recognition, including amounts in rescission and sales incentives.

Contract sales increased for the year ended December 31, 2018 compared to 2017, primarily due to an
increase in tour flow and VPG. VPG increased due to a 1.1 percent increase in average transaction price and a 0.2
percentage point increase in the close rate.

Contract sales increased for the year ended December 31, 2017, compared to 2016, primarily due to an
increase in tour flow, telesales and VPG. VPG increased due to a 1.9 percentage point increase in average
transaction price, partially offset by a 0.2 percentage point decrease in the close rate.

($ in millions)

Sales of VOIs, net . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales, marketing, brand and other fees . . . . . . . . . .
Less:

Year Ended December 31,

2018 vs 2017
Variance

2017 vs 2016
Variance

2018

2017

2016

$

%

$

%

$ 734
570

$ 548
544

$ 508
499

$186
26

33.9% $40
45
4.8

7.9%
9.0

Marketing revenue and other fees . . . . . . . . . .

123

Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,181

Less:

Cost of VOI sales . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . .
Sales and marketing expense, net(1)

210
575

145

947

148
492

122

885

152
447

Real estate margin . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 396

$ 307

$ 286

$ 89

Real estate margin percentage . . . . . . . . . . . . . . . .

33.5% 32.4% 32.3%

(22)

(15.2)

234

24.7

23

62

18.9

7.0

62
83

41.9
16.9

29.0

(4)
45

(2.6)
10.1

$21

7.3

(1)

Includes revenue recognized through our marketing programs for existing owners and prospective first-time buyers and revenue
associated with sales incentives, title service and document compliance.

Sales revenue increased by $234 million for the year ended December 31, 2018, compared to 2017,
primarily due to (i) an increase related to revenue recognized from the completion of construction of two
timeshare resorts in Hawaii and New York and (ii) a $48 million increase in commission and brand fees due to
higher fee-for-service sales primarily related to a new resort in South Carolina. Cost of VOI sales and Sales and
marketing expense, net, increased for the year ended December 31, 2018, compared to 2017, primarily as a result
of (i) recognition of direct expenses as a result of the completion of the two resorts, (ii) a $10 million reduction of
marketing revenue due to a one-time benefit recognized in the second quarter of 2017 related to a reduction of
expected redemptions of expired discounted vacation packages, (iii) recognition of certain sales incentives on a
net versus gross basis as a result of ASC 606 and (iv) higher sales and marketing expense driven by higher
contract sales.

Real estate margin and margin percentage increased for the year ended December 31, 2018, compared to
2017, primarily due to the aforementioned increase in revenue and a reduction in operating expenses relative to
revenue.

Sales revenue increased for the year ended December 31, 2017, compared to 2016, primarily due to (i) a
$40 million increase in Sales of VOIs, net, beginning the second half of 2016, as we started sales at our newly
developed projects in Washington, DC and New York, NY and (ii) a $22 million increase in commission and
brand fees due to the launch of one new fee-for-service property in the second quarter of 2016. Real estate
margin increased for the year ended December 31, 2017, compared to 2016, primarily as a result of the
aforementioned increase in sales revenue, partially offset by higher sales and marketing expense due to an
increase in contract sales volume and research and development costs to evaluation new markets. The increase in
Sales and marketing expense, net, was partially offset by a $10 million reduction of our expected redemptions of
expired discounted vacation packages and a $11 million increase in other marketing revenue. Real estate margin
percentage was flat for the year ended December 31, 2017, compared to 2016.

59

Financing

($ in millions)

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financing revenue . . . . . . . . . . . . . . . . . . . . . . . .

Financing revenue . . . . . . . . . . . . . . . . . . . . . . . .

Consumer financing interest expense . . . . . . . . . . . . . .
Other financing expense . . . . . . . . . . . . . . . . . . . . . . . .

Financing expense . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2018

2017

2016

$ 140
18

158

$ 132
15

147

$ 122
12

134

24
25

49

20
23

43

12
20

32

Financing margin . . . . . . . . . . . . . . . . . . . . . . . . .

$ 109

$ 104

$ 102

$ 5

Financing margin percentage . . . . . . . . . . . . . . . .

69.0% 70.7% 76.1%

2018 vs. 2017
Variance

2017 vs. 2016
Variance

$

$ 8
3

11

4
2

6

%

$

%

6.1% $10
3
20.0

8.2%
25.0

7.5

20.0
8.7

14.0

4.8

13

8
3

11

$ 2

9.7

66.7
15.0

34.4

2.0

Financing revenue increased by $11 million for the year ended December 31, 2018, compared to 2017,
primarily due to an increase of $8 million in interest income resulting from a higher average outstanding
timeshare financing receivables balance during the year ended December 31, 2018.

Financing margin increased for the year ended December 31, 2018, compared to 2017, primarily due to an
increase in interest
income resulting from a higher outstanding timeshare financing receivables balance.
Financing margin percentage decreased for the year ended December 31, 2018, compared to 2017, primarily due
to an increase in interest expense related to our 2018 securitization and an increase in the interest rate on our
Timeshare Facility. See Note 14: Debt & Non-recourse Debt in our audited consolidated financial statements
included in Item 8 of this Annual Report on Form 10-K for additional information.

Financing revenue increased for the year ended December 31, 2017, compared to 2016, due to an increase
of $10 million in interest income resulting from a higher outstanding timeshare financing receivables balance and
an increase of $3 million in fees generated from servicing the loans provided by third-party developers to
purchasers of their VOIs.

Financing margin increased for the year ended December 31, 2017, compared to 2016, primarily due to an
increase in the loan portfolio. Financing margin percentage decreased for the year ended December 31, 2017,
compared to 2016, primarily due to higher non-recourse debt balance associated with the additional drawdown
on our Timeshare Facility in December 2016 and our 2017 securitization. See Note 14: Debt & Non-recourse
Debt in our audited consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for
additional information.

Resort and Club Management

($ in millions)

Year Ended December 31,

2018

2017

2016

Club management revenue . . . . . . . . . . . . . . . . . . . . .
Resort management revenue . . . . . . . . . . . . . . . . . . . .

$ 112
60

$ 99
59

$ 92
51

Resort and club management revenues . . . . . . . .

172

158

143

$

$13
1

14

Club management expense . . . . . . . . . . . . . . . . . . . . .
Resort management expense . . . . . . . . . . . . . . . . . . . .

Resort and club management expenses . . . . . . . .

29
18

47

25
18

43

4
23
13 —

36

4

Resort and club management margin . . . . . . . . .

125

$ 115

$ 107

$10

Resort and club management margin

percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . .

72.7% 72.8% 74.8%

60

2018 vs 2017
Variance

%

2017 vs 2016
Variance

$

%

13.1% $ 7
8
1.7

7.6%
15.7

8.9

16.0
—

9.3

8.7

15

2
5

7

$ 8

10.5

8.7
38.5

19.4

7.5

Resort and club management revenues increased by $14 million for the year ended December 31, 2018,
compared to 2017, primarily due to an increase of approximately 20,200 in Club members and higher rates
pertaining to annual dues and transaction fees.

Resort and club management margin increased for the year ended December 31, 2018, compared to 2017,
primarily due to the aforementioned increases in revenues. Resort and club management margin percentage
remained relatively flat for the year ended December 31, 2018, compared to 2017.

Resort and club management revenues increased for the year ended December 31, 2017 compared to 2016,
primarily due to (i) an increase in resort management revenue from the launch of new properties during the
second half of 2016 and (ii) an increase of approximately 19,300 in Club members and higher rates pertaining to
annual dues and transaction fees. These increases were partially offset by higher resort and club management
expenses due to an increase in costs for servicing additional Club members and properties and a one-time fee
earned in 2016 on a prepaid contract.

Resort and club management margin increased for the year ended December 31, 2017, compared to 2016,
primarily due to the aforementioned increases in segment revenues, partially offset by a one-time fee earned in
2016 on a prepaid contract as well as a $7 million increase in segment expenses as a result of customer and
company related initiatives. Rental and club management margin percentage decreased for the year ended
December 31, 2017, compared to 2016, primarily due to an increase in segment expenses as a result of customer
and company related initiatives, partially offset by the aforementioned increases in segment revenues.

Rental and Ancillary Services

($ in millions)

Year Ended December 31,

2018

2017

2016

Rental revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ancillary services revenues . . . . . . . . . . . . . . . . . . . . .

$ 191
27

$ 156
23

$ 149
24

Rental and ancillary services revenues . . . . . . . .

Rental expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ancillary services expense . . . . . . . . . . . . . . . . . . . . .

Rental and ancillary services expenses . . . . . . . .

218

110
23

133

179

103
19

122

173

90
23

113

Rental and ancillary services margin . . . . . . . . . .

85

$ 57

$ 60

Rental and ancillary services margin

percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . .

39.0% 31.8% 34.7%

$

$35
4

39

7
4

11

$28

2018 vs 2017
Variance

%

2017 vs 2016
Variance

$

%

22.4% $ 7
(1)
17.4

4.7%
(4.2)

21.8

6.8
21.1

9.0

49.1

6

13
(4)

9

3.5

14.4
(17.4)

8.0

$ (3)

(5.0)

Rental and ancillary services revenues increased by $39 million for the year ended December 31, 2018,
compared to 2017, primarily due to an increase of $35 million in rental revenues as a result of higher rental room
revenue from transient guests due to the acquisition of an operating hotel in New York City, New York in June
2018. Additionally, we had higher club inventory rentals at our developed and fee-for-service properties. Rental
and ancillary services margin and margin percentage increased for year ended December 31, 2018 compared to
2017, primary due to the aforementioned increases in revenues and related expenses.

Rental and ancillary services margin decreased for the year ended December 31, 2017, compared to 2016,
primarily due to a net increase of $9 million in rental and ancillary expenses due to (i) additional owners and new
properties resulting in higher travel exchange program expenses including Hilton Honors and partners perks as
well as higher maintenance expense from new and existing properties with unsold inventory, (ii) a one-time
insurance claim payment of $2 million received in 2016, and (iii) a reduction in access fees received due to
higher quantity of access fees sold in 2016. The increase in expenses was partially offset by higher transient
room and club inventory rentals at our developed and fee-for-service properties. Rental and ancillary services

61

margin percentage decreased for the year ended December 31, 2017, compared to 2016, due to aforementioned
increases in segment expenses.

Other Operating Expenses

($ in millions)

Unallocated general and administrative . . . . . . . . . . .
Allocated general and administrative . . . . . . . . . . . .

General and administrative . . . . . . . . . . . . . . . . . . . .

(1)

Fluctuation in terms of percentage change is not meaningful.

Year Ended December 31,

2018

$117
—

$117

2017

$104
—

$104

2016

$65
27

$92

2018 vs 2017
Variance

2017 vs 2016
Variance

$

%

$

%

$13
— NM(1)

12.5% $ 39
(27)

60.0%

(100.0)

$13

12.5

$ 12

13.0

Unallocated general and administrative expenses increased by $13 million for the year ended December 31,
2018, compared to 2017, primarily due to higher one-time consulting and software license fees relating to the
Oracle cloud-based information system implemented during 2018. Additionally, the substantial completion of the
spin-off from Hilton during 2018 resulted in additional costs related to the establishment of stand-alone corporate
functions.

Unallocated general and administrative expenses increased for the year ended December 31, 2017, compared
to 2016, primarily due to an increase in expenses relating to regulatory filings, professional fees and other costs as a
result of becoming an independent publicly-traded company. Allocated general and administrative were expenses
allocated to us from Hilton relating to the spin-off which was completed on January 3, 2017.

($ in millions)

Depreciation and amortization . . . . . . . . . .
License fee expense . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2018 vs 2017
Variance

2017 vs 2016
Variance

2018

$36
98

2017

$29
87

2016

$24
80

$

$ 7
11

%

24.1%
12.6

$

$5
7

%

20.8%
8.8

Depreciation and amortization expense increased for the year ended December 31, 2018, compared to 2017,

primarily due to additional leasehold improvements and software placed into service in 2018.

Depreciation and amortization expense increased for the year ended December 31, 2017, compared to 2016,
primarily due to asset transfers from Hilton during the fourth quarter of 2016, some of which we hold as property
and equipment for future conversion into inventory.

License fee expense increased for the years ended December 31, 2018, compared to the respective prior

periods, as a result of increases in revenues subject to license fees during those periods.

Non-Operating Expenses

($ in millions)

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . .
Allocated Parent interest expense . . . . . . . . . . .
Equity in earnings from unconsolidated

affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other loss, net . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . .

Year Ended December 31,

2018 vs 2017
Variance

2017 vs 2016
Variance

2018

$ 30
—

—
1
105

2017

$ 27
—

(1)
—
(16)

2016

$

%

$

%

3
26

—
1
125

$

3
—

1
1
121

11.1% $ 24
(26)
NM(1)

NM(1)
(100.0)%

(100.0)
NM(1)
NM(1)

(1)
(1)
(141)

NM(1)
(100.0)
NM(1)

(1)

Fluctuation in terms of percentage change is not meaningful.

62

The change in non-operating expenses for the year ended December 31, 2018, compared to 2017, is
primarily due to (i) an increase in interest expense due to a higher average outstanding balance on our senior
secured credit facilities in 2018 and (ii) the change in our income tax expense (benefit) due to a one-time
re-measurement benefit of our deferred tax balance in 2017 as a result of the Tax Cut and Jobs Act.

The change in non-operating expenses for the year ended December 31, 2017, compared to 2016, is
primarily due to (i) an increase in interest expense which directly relates to the financing transactions closed
during and subsequent to the fourth quarter of 2016, (ii) a decrease in allocated parent interest expense primarily
due to us being released from the unconditional obligation to guarantee certain Hilton allocated debt in
November 2016, (iii) equity in earnings from unconsolidated affiliated relates to our 25 percent interest in BRE
Ace LLC (see Note 9: Investment in Unconsolidated Affiliate in our audited consolidated financial statements
included in Item 8 of this Annual Report on Form 10-K for additional information) and (iv) a decrease in our net
deferred income tax liabilities primarily as a result of the Tax Cut and Jobs Act enacted on December 22, 2017.

2019 Outlook

We announced the following full year guidance, which assumes no impact from construction-related

revenue and expenses deferrals.

($ in millions, except share data)

2019
Low Case

2019
High Case

Contract Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fee-for-service as % of contract sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.0%
48%

$ 260
97

11.0%
54%

$ 275
103

Pre-tax income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense and depreciation and amortization included in equity in earnings
from unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other adjustment items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

357
30
42

1

430
18
2

378
27
39

2

446
20
4

Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 450

$ 470

Diluted shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share—diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flow from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-inventory capex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Free Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net proceeds from securitization activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

95
$2.74
$ 75
(60)

15
45

95
$2.89
$ 115
(50)

65
55

Adjusted Free Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 60

$ 120

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

63

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
inventory related purchase commitments and costs associated with potential acquisitions and
maturities,
development projects.

We finance our short- and long-term liquidity needs primarily by cash and cash equivalents, cash generated
from our operations, draws on our senior secured credit facility and Timeshare Facility, and through periodic
securitizations of our timeshare financing receivables.

• As of December 31, 2018, we had total cash and cash equivalents of $180 million,

including
$72 million of restricted cash. The restricted cash balance relates to escrowed cash from our sales of
our VOIs and reserves related to our non-recourse debt.

•

In November 2018, we amended certain terms of our existing senior secured credit facilities, whereby,
the borrowing capacity under the revolving facility was increased from $200 million to $800 million
and the existing term loan was increased to $200 million. The new facility includes incrementally
better pricing than the previous facility and provides HGV greater flexibility to pursue its capital
deployment strategies. As of December 31, 2018, we have $684 million remaining borrowing capacity
under the revolver facility which includes $29 million of undrawn borrowing capacity available for
letters of credit and $10 million available under short-term borrowings. See Note 14: Debt and
Non-Recourse Debt included in Item 8 of this Annual Report on Form 10-K for additional information.

•

In September 2018, we completed a securitization of approximately $350 million. We have additional
borrowing capacity of $330 million under our Timeshare Facility as of December 31, 2018.

We believe these sources of capital will be adequate to meet our short-term and long-term liquidity
requirements for operating expenses and other expenditures, including payroll and related benefits, legal costs,
and to finance our long-term growth plan and capital expenditures for the foreseeable future.

We believe that our capital allocation strategy provides adequate funding for our operations, is flexible
enough to fund our development pipeline, securitizes the optimal level of receivables at metrics setting the
benchmark for the industry, and provides the ability to be strategically opportunistic in the marketplace, while
providing returns to our shareholders. We have made commitments with developers to purchase vacation
ownership units at a future date to be marketed and sold under our Hilton Grand Vacations brand. As of
December 31, 2018, our inventory related purchase commitment was $607 million over six years of which we
expect to purchase $237 million in 2019.

Prior to the first quarter of 2017, any net cash generated by our business was transferred to Hilton, where it
was centrally managed. Transfers of cash to and from Hilton for prior periods were reflected as a component of
Net transfers (to) from Parent in our consolidated statements of cash flows.

Sources and Uses of Our Cash

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

($ in millions)

Net cash provided by (used in):

Year Ended December 31,

2018 vs 2017
Variance

2018

2017

2016

$

%

2017 vs 2016
Variance

$

%

Operating activities . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . .

$(159)
(62)
104

$ 356
(87)
(123)

$182
(34)
(76)

$(515)
25
227

(1)

Fluctuation in terms of percentage change is not meaningful.

64

NM(1) $174
(28.7)
NM(1)

95.6%
(53) NM(1)
(47)

61.8

Operating Activities

Cash flow (used in) provided by operating activities is primarily generated from (i) sales and financing of
VOIs and (ii) 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 acquisition of inventory,
development of new phases of existing resorts and funding our working capital needs. Our cash flows provided
by 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 real estate to be converted to
inventory in the future. Additionally, cash flow provided by operations will also vary depending upon our sales
mix of VOIs; over time, we generally receive more cash from the sale of an owned VOI as compared to that from
a fee-for-service sale.

The change in net cash flows (used in) provided by operating activities for the year ended December 31,
2018 compared to 2017 was primarily due to increased uses of cash for working capital requirements such as
(i) purchases of $299 million of real estate for future conversion to inventory; and (ii) deposits of $46 million
related to inventory purchase commitments. Additionally, operating activities were impacted by the following
timing items: (i) a federal tax payment of $63 million made in January 2018 that was deferred from 2017
pursuant to a tax relief program for regions impacted by Hurricane Irma; (ii) timing of license fee payments; and
(iii) an increase in inventory spending in 2018 due to a deferral of certain VOI inventory expenditure in 2017.

Net cash flows provided by operating activities increased by $174 million during the year ended
December 31, 2017, compared to 2016, primarily as a result of improved operating results in both segments as
well as increased sources of cash for working capital requirements along with the timing of following items: (i) a
one-time $63 million deferral of estimated federal tax payments until January 2018 for regions impacted by
Hurricane Irma and (ii) a reduction of inventory spending due to a deferral of certain VOI inventory expenditures
until the first half of 2018.

The following table exhibits our VOI inventory spending for the years ended December 31, 2018, 2017 and

2016.

($ in millions)

VOI spending - owned properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VOI spending - fee-for-service upgrades(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate for future conversion into inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total VOI inventory spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2018

2017

2016

$135
51
299
46

$531

$45
53
—
—

$98

$ 73
74
—
—

$147

(1)

Includes expense related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects of
$34 million, $36 million and $49 million recorded in Costs of VOI sales for the years ended December 31, 2018, 2017 and 2016,
respectively.

65

Investing Activities

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

($ in millions)

Capital expenditures for property and equipment . . .
Software capitalization costs . . . . . . . . . . . . . . . . . . .
Return of investment from unconsolidated

affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in unconsolidated affiliates . . . . . . . . . .

Year Ended December 31,

2018 vs 2017
Variance

2018

2017

2016

$

%

2017 vs 2016
Variance

$

%

$(44)
(19)

$(35)
(12)

$(26)
(8)

$ (9)
(7)

25.7% $ (9)
(4)
58.3

34.6%
50.0%

11
(10)

—
(40)

—
—

11
30

NM(1) — NM(1)
(40) NM(1)
(75.0)

Net cash used in investing activities . . . . . . . . . . . . .

$(62)

$(87)

$(34)

$25

(28.7)

$(53) NM(1)

(1)

Fluctuation in terms of percentage change is not meaningful.

Net cash used in investing activities decreased by $25 million during the year ended December 31, 2018
compared to 2017, primarily due to (i) a reduction in investment in unconsolidated affiliates (ii) an $11 million
return of investment from our 25 percent interest in BRE Ace LLC, partially offset by (iii) higher capital
expenditures for property and equipment and higher software capitalization costs related to the Oracle cloud
based information system implemented during the second quarter of 2018.

Our capital expenditures include spending related to technology and buildings and leasehold improvements
used to support sales and marketing locations, resort operations and corporate activities. We believe the
renovations of our existing assets are necessary to stay competitive in the markets in which we operate.

Net cash used in investing activities increased by $53 million during the year ended December 31, 2017,
compared to 2016, primarily due to our 25 percent investment interest in BRE Ace LLC (see Note 9: Investment
in Unconsolidated Affiliates in our audited consolidated financial statements included in Item 8 of this Annual
Report on Form 10-K for further discussion) and higher capital expenditures for property and equipment.

Financing Activities

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

($ in millions)

Issuance of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of non-recourse debt . . . . . . . . . . . . . . . . . .
Repurchase and retirement of common stock . . . . . .
Repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of non-recourse debt . . . . . . . . . . . . . . . .
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . .
Allocated debt activity . . . . . . . . . . . . . . . . . . . . . . . .
Net transfers to Parent . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock option exercises . . . . . . . . . . . .
Payment of withholding taxes on vesting of

restricted stock units . . . . . . . . . . . . . . . . . . . . . . .
Capital contribution . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash provided by (used in) financing

Year Ended December 31,

2018 vs 2017
Variance

2018

2017

2016

$

%

2017 vs 2016
Variance

$

%

$ 530
663
(183)
(408)
(485)
(12)
—
—
—

(100.0)%
16.7

NM(1) $(200)
$ 530
$ — $ 200
50
89.4
313
300
— NM(1)
NM(1)
— (183)
NM(1)
(10)
NM(1)
— (398)
NM(1)
(349)
5.7
(26)
(50.0)
5
NM(1)
(7)
(100.0)
(111)
— NM(1)
(100.0)
567
— NM(1)
NM(1)
1
(100.0)
(1)

350
—
(10)
(110)
(459)
(10)
(5)
— 111
— (567)
—
1

(4)
3

—
—

—
—

(4)
3

NM(1)
NM(1)

— NM(1)
— NM(1)

activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 104

$(123) $ (76) $ 227

NM(1) $ (47)

61.8

(1)

Fluctuation in terms of percentage change is not meaningful.

66

The change in net cash provided by (used in) financing activities for the year ended December 31, 2018,
compared to 2017, was primarily due to additional borrowings of $530 million and $313 million, respectively,
under our senior secured credit facilities and Timeshare Facility, partially offset by (i) additional repayments
related to the borrowings on our senior secured credit facilities and securitized debt, (ii) higher debt issuance
costs as a result of amending our Credit Agreement for our senior secured credit facilities in November 2018, and
(iii) the repurchase of 4,987,263 shares of our common stock. See Recent Events and Note 14: Debt &
Non-recourse Debt in our consolidated financial statements included in Item 8 of this Annual Report on Form
10-K for further discussion.

The change in net cash used in financing activities for the year ended December 31, 2017, compared to
2016, was primarily due to our financing transactions that occurred during the first quarter of 2017. During the
year ended December 31, 2017, we issued $350 million in non-recourse securitized debt and paid $5 million in
debt issuance costs. The proceeds received from the non-recourse securitized debt were used to pay down a
portion of our Timeshare Facility. We also paid $10 million of the principal amount of the senior secured term
loan. See Note 14: Debt & Non-recourse Debt in our audited consolidated financial statements included in Item 8
of this Annual Report on Form 10-K for further discussion. Additionally, following the spin-off date we no
longer transfer cash to or from Hilton.

In 2016, subsequent to our guarantor obligation release of Hilton’s Allocated Parent Debt, we entered into
several financing transactions including the issuance of our senior secured credit facilities, consisting of a
$200 million variable-rate term loan facility (the “Term Loans”) and a revolving credit facility in an aggregate
principal amount of up to $200 million, each with a five-year maturity, and incurred $4 million of debt issuance
costs.

The Timeshare Facility is a non-recourse obligation and is payable solely from the pool of timeshare
financing receivables pledged as collateral to the debt and related assets. In August and December 2016, we
amended the terms of the Timeshare Facility to, among other things, increase the borrowing capacity from
$300 million to $450 million, allowing us to borrow up to the maximum amount until August 2018 and requiring
all amounts borrowed to be repaid in August 2019. In connection with the amendments, we recognized
$3 million of debt issuance costs. In December 2016, we borrowed $300 million under the Timeshare Facility.

Contractual Obligations

The following table summarizes our significant contractual obligations as of December 31, 2018:

($ in millions)

Debt(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-recourse debt(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase commitments . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

$ 783
825
94
607

Total contractual obligations . . . . . . . . . . . . . . . . . .

$2,309

Payments Due by Period

Less Than 1
Year

1-3 Years

3-5 Years

More Than 5
Years

$ 42
215
16
237

$510

$ 82
397
29
238

$746

$342
149
20
98

$609

$317
64
29
34

$444

(1)

Includes principal, as well as estimated interest payments. For our variable-rate debt, we have assumed a constant 30-day LIBOR rate of
2.50 percent as of December 31, 2018.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements as of December 31, 2018, consisted of $607 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. The ultimate amount and timing of the

67

acquisitions is subject to change pursuant to the terms of the respective arrangements, which could also allow for
cancellation in certain circumstances, see Note 22: Commitments and Contingencies in our audited consolidated
financial statements included in Item 8 of this Annual Report on Form 10-K for additional information.

Subsequent Events

In January 2019, we acquired land in Maui, Hawaii for future development into timeshare inventory. The
purchase was comprised of a $60 million cash payment and a $23 million promissory note, which will bear
contractual interest of $27 million. The combined principal and interest of the promissory note will be paid in
four equal annual installments beginning in January 2028.

In January 2019, we purchased timeshare inventory in Barbados for $9 million.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in accordance with U.S. GAAP requires us to make
estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the
consolidated financial statements, the reported amounts of revenues and expenses during the reporting periods
and the related disclosures in the consolidated financial statements and accompanying footnotes. We believe that
of our significant accounting policies, which are described in Note 2: Basis of Presentation and Summary of
Significant Accounting Policies in our audited consolidated financial statements included in Item 8 of this Annual
Report on Form 10-K, the following accounting policies are critical because they involve a higher degree of
judgment, and the estimates required to be made are based on assumptions that are inherently uncertain. As a
result, these accounting policies could materially affect our financial position, results of operations and related
disclosures. On an ongoing basis, we evaluate these estimates and judgments based on historical experiences and
various other factors that are believed to reflect the current circumstances. While we believe our estimates,
assumptions and judgments are reasonable, they are based on information presently available. Actual results may
differ significantly from these estimates due to changes in judgments, assumptions and conditions as a result of
unforeseen events or otherwise, which could have a material effect on our financial position or results of
operations.

Revenue Recognition

In accordance with ASC 606, revenue is recognized upon the transfer of control of promised goods or
services to customers in an amount that reflects the consideration we expect to receive in exchange for those
products or services. To achieve the core principle of the guidance, we take the following steps: (i) identify the
contract with the customer; (ii) determine whether the promised goods or services are separate performance
obligations in the contract; (iii) determine the transaction price, including considering the constraint on variable
consideration; (iv) allocate the transaction price to the performance obligations in the contract based on the
standalone selling price or estimated standalone selling price of the good or service; and (v) recognize revenue
when (or as) we satisfy each performance obligation.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is
the unit of account in ASC 606. For arrangements that contain multiple goods or services, we determine whether
such goods or services are distinct performance obligations that should be accounted for separately in the
arrangement. When allocating the transaction price in the arrangement, we may not have observable standalone
sales for all the performance obligations in these contracts; therefore, we exercise significant judgement when
determining the standalone selling price of certain performance obligations. In order to estimate the standalone
selling prices, we primarily rely on the expected cost plus margin and adjusted market assessment approaches. We
then recognize the revenue allocated to each performance obligation as the related performance obligation is
satisfied. See Note 2: Basis of Presentation and Summary of Significant Accounting Policies in our audited
consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further discussion.

68

Inventory and Cost of Sales

We use the relative sales value method of costing our VOI sales and relieving inventory, which requires us
to make estimates subject to significant uncertainty. The estimates include future sales prices, timing and volume,
provisions for loan losses on financed sales of VOIs, sales incentives, projected future cost and volume of
recoveries, including inventory reacquired from our upgrade programs. We aggregate these factors to calculate
total net cost of sales of VOIs as a percentage of net sales of VOIs and apply this ratio to allocate the cost of sales
to recognized sales of VOIs. The effect of changes in these estimates over the life of a project are recognized on a
retrospective basis through corresponding adjustments to inventory and cost of sales in the period in which the
estimates are revised.

Due to the application of the retrospective adjustments, small changes in any of our estimates, including
changes in our development and sales strategies could have a material effect on the carrying value of certain
projects and inventory. We monitor our projects and inventory on an ongoing basis and complete an evaluation
each reporting period to ensure that the inventory is stated at the lower of cost or fair value less cost to sell. In
addition, we continually assess our VOI inventory and, if necessary, impose pricing adjustments to modify sales
pace.

Allowance for Loan Losses

The allowance for loan losses is related to the receivables generated by our financing of VOI sales, which
are secured by the underlying timeshare properties. We determine our timeshare financing receivables to be past
due based on the contractual terms of the individual mortgage loans. We use a technique referred to as static pool
analysis as the basis for determining our general reserve requirements on our timeshare financing receivables.
The adequacy of the related allowance is determined by management through analysis of several factors
requiring judgment, such as current economic conditions and industry trends, as well as the specific risk
characteristics of the portfolio, including historic and assumed default rates.

Changes in the estimates used in developing our default rates could result in a material change to our
allowance. A 0.5 percentage point increase to our projected default rates used in the allowance calculation would
increase our allowance for loan losses by approximately $8 million.

Income Taxes

We recognize deferred tax assets and liabilities based on the differences between the financial statement
carrying amounts and the tax basis of assets and liabilities using currently enacted tax rates. We regularly review
our deferred tax assets to assess their potential realization and establish a valuation allowance for portions of
such assets that we believe will not be ultimately realized. In performing this review, we make estimates and
assumptions regarding projected future taxable income, the expected timing of reversals of existing temporary
differences and the implementation of tax planning strategies. A change in these assumptions may increase or
decrease our valuation allowance resulting in an increase or decrease in our effective tax rate, which could
materially affect our consolidated financial statements.

We use a prescribed more-likely-than-not recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return if there is
uncertainty in income taxes recognized in the financial statements. Assumptions and estimates are used to
determine the more-likely-than-not designation. Changes to these assumptions and estimates can lead to an
additional income tax benefit (expense), which can materially change our consolidated financial statements.

Legal Contingencies

We are subject to various legal proceedings and claims, the outcomes of which are subject to significant
uncertainty. An estimated loss from a loss contingency should be accrued by a charge to income if it is probable

69

and the amount of the loss can be reasonably estimated. Significant judgment is required when we evaluate,
among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable
estimate of the amount of loss. Changes in these factors could materially affect our consolidated financial
statements.

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk from changes in interest rates, currency exchange rates and debt prices. We
manage our exposure to these risks by monitoring available financing alternatives, through pricing policies that
may take into account currency exchange rates and prior to the spin-off, through Hilton entering into derivative
arrangements on our behalf. We do not foresee any significant changes in either our exposure to fluctuations in
interest rates or how we manage interest rates or currency rates or how we manage such exposure in the future.

Interest Rate Risk

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

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

To the extent we utilize variable-rate indebtedness in the future, any increase in interest rates beyond
amounts covered under any corresponding derivative financial instruments, particularly if sustained, could have
an adverse effect on our net income, cash flows and financial position. Hedging transactions we 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 December 31, 2018, for our financial instruments that are materially affected by interest rate risk:

Maturities by Period

Weighted
Average
Interest
Rate(1)

2019

2020

2021

2022

2023

There-
after

Total(2)

Fair
Value

($ in millions)

Assets:

Fixed-rate securitized timeshare

financing receivables . . . . . . . . . .

11.916% $ 86

$ 87

$ 86

$83

$ 80

$238

$660

$679

Fixed-rate unsecuritized timeshare

financing receivables . . . . . . . . . .

12.678% 64

54

58

Liabilities:(3)

Fixed-rate debt(4) . . . . . . . . . . . . . . . .
. . . . . . . . . . . . .
Variable-rate debt(4)

4.022% 193
4.421% 10

165
10

87
130

63

63
10

67

326

632

660

76
272

362
946
— 432

935
429

(1) Weighted average interest rate as of December 31, 2018.
(2) Amount excludes unamortized deferred financing costs.
(3)

(4)

Includes debt and non-recourse debt.
Fixed-rate debt includes principal outstanding debt of $300 million and non-recourse debt of $646 million as of December 31, 2018.
Variable-rate debt includes principal outstanding debt of $312 million and non-recourse debt of $120 million as of December 31, 2018.
See Note 14: Debt & Non-recourse Debt in our audited consolidated financial statements included in Item 8 of this Annual Report on
Form 10-K for additional information.

70

Foreign Currency Exchange Rate Risk

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

71

ITEM 8. Financial Statements And Supplementary Data

HILTON GRAND VACATIONS INC.
INDEX TO FINANCIAL STATEMENTS

Audited Consolidated Financial Statements of Hilton Grand Vacations Inc.

Management’s Report on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Balance Sheets as of December 31, 2018 and 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016 . . . . . .

Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016 . . . . . .

Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2018,

2017 and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

73

74

75

76

77

78

79

80

72

Management’s Report on Internal Control Over Financial Reporting

Management of Hilton Grand Vacations Inc. (the “Company”) is responsible for establishing and maintaining
adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under
the Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The
Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the Company are being made only in accordance with authorizations of the Company’s
management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of assets of the Company that could have a material effect on the
financial statements.

internal control over financial reporting may not prevent or detect
Because of its inherent
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

limitations,

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2018. In making this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework
(2013). Based on this assessment, management determined that the Company maintained effective internal
control over financial reporting as of December 31, 2018.

Ernst & Young LLP, the independent registered public accounting firm that has audited the consolidated
financial statements included in this Annual Report on Form 10-K, has issued an attestation report on the
Company’s internal control over financial reporting as of December 31, 2018. The report is included herein.

73

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Hilton Grand Vacations Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Hilton Grand Vacations Inc. (the Company)
as of December 31, 2018 and 2017, the related consolidated statements of operations, stockholders’ equity
(deficit) and cash flows for each of the three years in the period ended December 31, 2018, and the related notes
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2018
and 2017, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2018, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018,
based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2019 expressed
an unqualified opinion thereon.

Adoption of New Accounting Standard

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting
for revenue in 2018 due to the adoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from
Contracts with Customers (Topic 606), and the related amendments.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the Company’s financial statements based on our audits. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2016.
Orlando, Florida
February 28, 2019

74

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Hilton Grand Vacations Inc.

Opinion on Internal Control over Financial Reporting

We have audited Hilton Grand Vacations Inc.’s internal control over financial reporting as of December 31,
2018, based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion,
Hilton Grand Vacations Inc. (the Company) maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2018, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2018 and 2017,
the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the
three years in the period ended December 31, 2018, and the related notes and our report dated February 28, 2019
expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that
a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.

Because of its inherent
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

limitations,

/s/ Ernst & Young LLP

Orlando, Florida
February 28, 2019

75

HILTON GRAND VACATIONS INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)

December 31,

2018

2017

ASSETS

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for doubtful accounts of $14 and $9 . . . . . . . . . . . .
Timeshare financing receivables, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 108
72
153
1,120
527
559
38
81
95

$ 246
51
112
1,071
509
238
41
72
44

TOTAL ASSETS (variable interest entities - $647 and $471) . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,753

$2,384

LIABILITIES AND EQUITY

Accounts payable, accrued expenses and other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advanced deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt, net
Non-recourse debt, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total liabilities (variable interest entities - $640 and $455) . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies - see Note 22
Equity:
Preferred stock, $0.01 par value; 300,000,000 authorized shares, none issued or

outstanding as of December 31, 2018 and 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Common stock, $0.01 par value; 3,000,000,000 authorized shares, 94,558,086 and

99,136,304 issued and outstanding as of December 31, 2018 and 2017, respectively . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
Accumulated retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 324
101
604
759
95
254

$ 339
104
482
583
109
249

2,137

1,866

—

1
174
441

616

—

1
162
355

518

TOTAL LIABILITIES AND EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,753

$2,384

See notes to consolidated financial statements.

76

HILTON GRAND VACATIONS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)

Year Ended December 31,

2018

2017

2016

Revenues

Sales of VOIs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales, marketing, brand and other fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort and club management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental and ancillary services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 734
570
158
172
218
147

$ 548
544
147
158
179
135

$ 508
499
134
143
173
126

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,999

1,711

1,583

Expenses

Cost of VOI sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort and club management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental and ancillary services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
License fee expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allocated Parent interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings from unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . .
Other loss, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (expense) benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

210
728
49
47
133
117
36
98
147

148
663
43
43
122
104
29
87
135

152
605
32
36
113
92
24
80
126

1,565
(30)
—
—
(1)

403
(105)

1,374
(27)
—
1
—

311
16

1,260
(3)
(26)
—
(1)

293
(125)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 298

$ 327

$ 168

Earnings per share:(1)

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 3.07
$ 3.05

$ 3.30
$ 3.28

$ 1.70
$ 1.70

(1)

For the year ended December 31, 2016, basic and diluted earnings per share was calculated based on shares distributed to
Hilton Grand Vacations Inc.’s shareholders on January 3, 2017. See Note 19: Earnings Per Share for further discussion.

See notes to consolidated financial statements.

77

HILTON GRAND VACATIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)

Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of costs to obtain a contract
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred financing costs and other . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other loss, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings from unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . .
Distributions received from unconsolidated affiliates . . . . . . . . . . . . . . . . . . . .
Net changes in assets and liabilities:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivables, net
Timeshare financing receivables, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of real estate for future conversion to inventory . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable, accrued expenses and other
. . . . . . . . . . . . . . . . . . . . .
Advanced deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing Activities

Capital expenditures for property and equipment . . . . . . . . . . . . . . . . . . . .
Software capitalization costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return of investment from unconsolidated affiliates . . . . . . . . . . . . . . . . .
Investment in unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing Activities

Issuance of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of non-recourse debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase and retirement of common stock . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of non-recourse debt
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allocated debt activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transfers to Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock option exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of withholding taxes on vesting of restricted stock units . . . . . . .
Capital contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in cash, cash equivalents and restricted cash . . . . . . . . .
Cash, cash equivalents and restricted cash, beginning of period . . . . . . . . . . . . .
Cash, cash equivalents and restricted cash, end of period . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2018

2017

2016

$ 298

$ 327

$ 168

36
2
5
69
1
16
20
—
2

(41)
(118)
16
(299)
(31)
(24)
14
(126)
1
(159)

(44)
(19)
11
(10)
(62)

29
—
5
58
—
15
(129)
(1)
—

12
(103)
47
—
(4)
95
1
3
1
356

(35)
(12)
—
(40)
(87)

24
—
5
49
1
—
23
—
—

(30)
(98)
7
—
(4)
28
7
3
(1)
182

(26)
(8)
—
—
(34)

530
663
(183)
(408)
(485)
(12)
—
—
—
(4)
3
104
(117)
297
$ 180

— 200
300
350
—
—
—
(10)
(110)
(459)
(5)
(10)
— 111
— (567)
—
—
—
(76)
72
79
$ 151

1
—
—
(123)
146
151
$ 297

Supplemental Disclosures (1)

(1)

For supplemental disclosures, see Note 23: Supplemental Disclosures of Cash Flow Information.

See notes to consolidated financial statements.

78

HILTON GRAND VACATIONS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in millions)

Common Stock

Shares Amount

Parent
Deficit

Additional
Paid-in
Capital

Accumulated
Retained
Earnings

Total
Equity
(Deficit)

Balance as of December 31, 2015 . . . . . . . . . . . . . . . —
. . . . . . . . . . . . . . . . . . . . . . . . . . . —
Net income(1)
Net transfers from Parent . . . . . . . . . . . . . . . . . . —
Capital contribution from Parent . . . . . . . . . . . . —
Issuance of common stock(2)
99
Reclassification of Parent equity to additional

. . . . . . . . . . . . . . .

paid-in capital(2) . . . . . . . . . . . . . . . . . . . . . . . —

Balance as of December 31, 2016 . . . . . . . . . . . . . . .

99
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Deferred intercompany transaction(3)
. . . . . . . . —
Activity related to share-based

compensation . . . . . . . . . . . . . . . . . . . . . . . . . —
Other(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —

Balance as of December 31, 2017 . . . . . . . . . . . . . . .

99
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Activity related to share-based

compensation . . . . . . . . . . . . . . . . . . . . . . . . . —
(5)

Repurchase and retirement of common stock . .
Revenue recognition cumulative-effect

adjustment

. . . . . . . . . . . . . . . . . . . . . . . . . . . —
Capital contribution . . . . . . . . . . . . . . . . . . . . . . —
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Other

$— $(106)
140
(567)
672
(1)

—
—
—
1

—

1
—
—

—
—

1
—

—
—

—
—
—

(138)

—
—
—

—
—

—
—

—
—

—
—
—

$ —
—
—
—
—

138

138
—
9

12
3

162
—

13
(7)

—
3
3

$ —
28
—
—
—

$(106)
168
(567)
672
—

—

28
327
—

—
—

355
298

—
(176)

(38)
—
2

—

167
327
9

12
3

518
298

13
(183)

(38)
3
5

Balance as of December 31, 2018 . . . . . . . . . . . . . . .

94

$ 1

$ — $174

$ 441

$ 616

(2)

(1) Net income earned prior to October 24, 2016, is included in Additional paid-in-capital instead of Accumulated retained
earnings since the accumulated of retained earnings began as of the date of issuance of the Company’s common stock to
Park Hotels & Resorts Inc. See Note 1: Organization for further discussion.
Parent deficit was reclassified and allocated between common stock and additional paid-in capital based on the number
of shares issued and outstanding as of the stock split that occurred on January 3, 2017. See Note 1: Organization for
further information.
Includes pre-spin tax adjustment.

(3)

See notes to consolidated financial statements.

79

HILTON GRAND VACATIONS INC.
NOTES TO 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; operating resorts; financing and servicing loans provided to
consumers for their timeshare purchases; and managing our points-based Hilton Grand Vacations Club exchange
program (the “Club”). As of December 31, 2018, we had 54 properties, comprised of 8,888 units, located in the
United States (“U.S.”), Japan and Europe.

Our Spin-off from Hilton Worldwide Holdings Inc.

During 2016, Hilton Worldwide Holdings Inc. (“Hilton”) completed an internal reorganization and
contributed to the Company the US. and non- U.S. timeshare subsidiaries, including Hilton Resorts Corporation
in preparation of the tax-free spin-offs of Park Hotels & Resorts Inc. (“Park”) and HGV. We are a Delaware
corporation formed on May 2, 2016. On May 4, 2016, the Company issued 100 shares of its common stock, par
value $0.01 per share, to Park for $1.00 in cash. On October 24, 2016, the Company issued one share of its
common stock, par value $0.01 per share, to Park in connection with the contribution by Park of all shares of
common stock of Hilton Resorts Corporation owned by Park to HGV. Net income earned prior to October 24,
2016, is included in Additional paid-in capital instead of Accumulated retained earnings since the accumulation
of retained earnings began as of the date of issuance of the Company’s common stock to Park. The issuance of
such share of common stock was not registered under the Securities Act, because the share was issued in a
transaction by the issuer not involving any public offering exempt from registration under Section 4(a)(2) of the
Securities Act. We filed a Registration Statement on Form 10 describing the transaction with the U.S. Securities
and Exchange Commission (the “SEC”), which was declared effective on December 2, 2016.

On December 30, 2016, we filed an Amended & Restated Charter with an effective date of 4:59 p.m.,
Eastern time, on January 3, 2017, whereby our shares were split into 98,802,597 shares using a formula by
reference to the number of Hilton shares outstanding.

On January 3, 2017, the previously announced spin-off of Hilton Grand Vacations from Hilton was
completed. As a result of the spin-off, we became an independent public company, and our common stock is
listed on the New York Stock Exchange under the symbol “HGV.” Following the spin-off, Hilton did not retain
any ownership interest in our company. In connection with the completion of the spin-off, we entered into
agreements with Hilton (who at the time was a related party) and other third parties, including licenses to use the
Hilton Grand Vacations brand. The audited consolidated financial statements reflect
the effect of these
agreements. For each of the years ended December 31, 2018 and 2017, we incurred $178 million in costs relating
to the agreements entered with Hilton. See Key Agreements Related to the Spin-Off section in Part I—Item 1.
Business for further information.

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

Basis of Presentation

Principles of Consolidation

The consolidated financial statements include 100 percent of our assets, liabilities, revenues, expenses and
cash flows and all entities in which we have a controlling financial interest. Through the date of the spin-off, the
consolidated financial statements presented herein were prepared on a stand-alone basis and were derived from
the consolidated financial statements and accounting records of Hilton.

80

The determination of a controlling financial interest is based upon the terms of the governing agreements of
the respective entities, including the evaluation of rights held by other interests. If the entity is considered to be a
variable interest entity (“VIE”), we determine whether we are the primary beneficiary, and then consolidate those
VIEs for which we have determined we are the primary beneficiary. If the entity in which we hold an interest
does not meet the definition of a VIE, we evaluate whether we have a controlling financial interest through our
voting interests in the entity. We consolidate entities when we own more than 50 percent of the voting shares of a
company or otherwise have a controlling financial interest. All material intercompany transactions and balances
have been eliminated in consolidation. The consolidated financial statements reflect our financial position, results
of operations and cash flows as prepared in conformity with U.S. generally accepted accounting principles
(“GAAP”).

All of our significant transactions with Hilton had been included in these consolidated financial statements.
The net effect of the settlement of any intercompany transactions prior to the spin-off has been included in the
consolidated statements of cash flows as a financing activity within Net transfers (to) from Parent.

Use of Estimates

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.

Allocations

Prior

to the spin-off, our consolidated financial statements included certain indirect general and
administrative costs allocated to us by Hilton for certain functions and services including, but not limited to,
executive office, finance and other administrative support primarily on the basis of financial and operating
metrics that Hilton had historically used to allocate resources and evaluate performance against its strategic
objectives. Both we and Hilton considered the basis on which expenses had been allocated to be a reasonable
reflection of the utilization of services provided to or the benefit received by us during the periods presented.
These costs were included in General and administrative in our consolidated statements of operations, for the
year ended December 31, 2016.

Summary of Significant Accounting Policies

Revenue Recognition

On January 1, 2018, we adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from
Contracts with Customers (commonly referred to as Accounting Standards Codification (“ASC”) Topic 606
(“ASC 606”). We adopted ASC 606 using the modified retrospective method in which the cumulative effect of
applying the new standard has been recognized at the date of initial application with an adjustment to our
opening balance of retained earnings. This approach applies to all contracts as of January 1, 2018. The new
standard, as amended, replaces all current U.S. GAAP guidance on this topic and eliminates all industry-specific
guidance.

The reported results as of and for the year ended December 31, 2018, reflects the application of ASC 606
while the reported financial position as of December 31, 2017 and results for years ended December 31, 2017
and 2016 were prepared under the guidance of ASC 605, Revenue Recognition (“ASC 605”) and ASC 978-605,
Real Estate—Time-Sharing Activities, Revenue Recognition, which is also referred to herein as the “previous
accounting guidance.”

In accordance with ASC 606, revenue is recognized upon the transfer of control of promised goods or
services to customers in an amount that reflects the consideration we expect to receive in exchange for those

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products or services. To achieve the core principle of the new guidance, we take the following steps: (i) identify
the contract with the customer; (ii) determine whether the promised goods or services are separate performance
obligations in the contract; (iii) determine the transaction price, including considering the constraint on variable
consideration; (iv) allocate the transaction price to the performance obligations in the contract based on the
standalone selling price or estimated standalone selling price of the good or service; and (v) recognize revenue
when (or as) we satisfy each performance obligation.

Contracts with Multiple Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and
is the unit of account in ASC 606. For arrangements that contain multiple goods or services, we determine
whether such goods or services are distinct performance obligations that should be accounted for separately in
the arrangement. When allocating the transaction price in the arrangement, we may not have observable
standalone sales for all of the performance obligations in these contracts; therefore, we exercise significant
judgement when determining the standalone selling price of certain performance obligations. In order to estimate
the standalone selling prices, we primarily rely on the expected cost plus margin and adjusted market assessment
approaches. We then recognize the revenue allocated to each performance obligation as the related performance
obligation is satisfied as discussed below.

•

•

Sales of VOIs, net—Customers who purchase vacation ownership products, whether paid in cash or
financed, enter into multiple contracts, which we combine and account for as a single contract.
Revenue from VOI sales is recognized at the point in time when control of the VOI is transferred to the
customer which is when the customer has executed a binding sales contract, collectability is reasonably
assured, the purchaser’s period to cancel for a refund has expired and the customer has the right to use
the VOI. Revenue from sales of VOIs under construction is deferred until the point in time when
construction activities are deemed to be completed, occupancy of the development is permissible, and
the above criteria has been met. For financed sales, we estimate the variable consideration to be
received under such contracts and recognize revenue net of amounts deemed uncollectible as the VOI
is returned to inventory upon customer default. Variable consideration which has not been included
within the transaction price is presented as a reserve on the financing receivable. See Note 5:
Timeshare Financing Receivables
for more information regarding our estimate of variable
consideration.

We award Club Bonus Points (“Bonus Points”) to our customers. These points are valid for a
maximum of two years and may be used toward reservations at Club resorts, hotel reservations within
Hilton’s system and VOI interval exchanges with other third-party vacation ownership exchanges. At
the time of the VOI sale, we estimate the fair value of the incentives to be redeemed, including an
adjustment for breakage, to determine the standalone selling price of the first day incentive (“FDI”).
We defer a portion of the total transaction price for the combined VOI contract as a liability for the FDI
and recognize the corresponding revenue at the point in time when the customer receives the benefits
of the FDI, which is upon the customer’s redemption of the Bonus Points. At that time, we also
determine whether we are principal or agent for the redeemed good or service and recognize revenue
on a gross or net basis accordingly.

Sales, marketing, brand and other fees—We enter into contracts with third-party developers to sell
VOIs on their behalf through fee-for-service agreements for which we earn sales commissions and
other fees. These commissions are variable as they are based on the sales and marketing results, which
are subject to the constraint on variable consideration and resolved on a monthly basis over the contract
term. We estimate such commissions to the extent that it is probable that a significant reversal of such
revenue will not occur and recognize the commissions as the developer receives and consumes the
benefits of the services. Any changes in these estimates would affect revenue and earnings in the period
such variances are realized.

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Additionally, we enter into contracts to sell prepaid vacation packages. Our obligation in such contracts
is satisfied when customers stay at our property; therefore, we recognize revenue for these packages
when they are redeemed. On a portfolio basis, we exercise judgement to estimate the amount of
expected breakage related to unused prepaid vacation packages and recognize such breakage in
proportion to the pattern of packages utilized by our portfolio of customers.

• Financing—We offer financing to qualifying customers purchasing our VOI. Revenue from the
financing of timeshare sales is recognized on the accrual method as earned based on the outstanding
principal, interest rate and terms stated in each individual financing agreement. We also recognize
revenue from servicing the loans provided by third-party developers to purchasers of their VOIs over
the period services are rendered.

• Resort and club management—As part of our VOI sales, our customers enter into a Club arrangement
which gives the customer an annual allotment of Club points that allow the customer to exchange the
Club points for a number of vacation options. We manage the Club, receiving Club activation fees,
annual dues and transaction fees from member exchanges. Club activation fees and the member’s first
year of annual dues are paid at the time of the VOI sale. The Club activation fee relates to activities we
are required to undertake at or near contract inception to fulfill the contract, and does not result in the
transfer of a promised good or service. Since our customers are granted the opportunity to renew their
membership on an annual basis for no additional activation fee, we defer and amortize the activation
fee on a straight-line basis over the seven year average inventory holding period. Annual dues for
membership renewals are billed each year, and we recognize revenue from these annual dues over the
period services are rendered. A member may elect to enter into an optional exchange transaction with
their allotted Club points at which point the member pays their required transaction fee. This option
does not represent a material right as the transactions are priced at their standalone selling price.
Revenue related to the transaction is recognized when the services are rendered.

As part of our resort operations, we contract with homeowner’s associations (“HOAs”) to provide
day-to-day-management services, including housekeeping services, operation of a reservation system,
maintenance, and certain accounting and administrative services. We receive compensation for such
management services, which is generally based on a percentage of costs to operate the resorts, on a
monthly basis. These fees represent a form of variable consideration and are estimated and recognized
over time as the HOAs receive and consume the benefits of the management services. Management
fees received related to the portion of unsold VOIs at each resort which we own are recognized on a net
basis given we retain these VOIs in our inventory.

• Rental and ancillary services—Our rental and ancillary services consist primarily of rental revenues on
unoccupied vacation ownership units and ancillary revenues. Rental revenue is recognized when
occupancy has occurred. Advance deposits on the rental unit and the corresponding revenue is deferred
and recognized upon the customer’s vacation stay. Ancillary revenues consist of food and beverage,
retail, spa offerings and other guest services. We recognize ancillary revenue when goods have been
provided and/or services have been rendered.

We account for rental operations of unsold VOIs, including accommodations provided through the use
of our vacation sampler programs, as incidental operations. Incremental carrying costs in excess of
incremental revenues are recognized in the period incurred. In all periods presented, incremental
carrying costs exceeded incremental revenues and all revenues and expenses are recognized in the
period earned or incurred. customer’s vacation stay. Ancillary revenues include food and beverage,
retail, spa offerings and other guest services.

• Cost reimbursements—As part of our management agreements with HOAs and fee-for-service
developers, we receive cost reimbursements for performing the day to day management services,
including direct and indirect costs that HOAs and developers reimburse to us. These costs primarily
consist of payroll and payroll related costs for management of the HOAs and other services we provide
where we are the employer. Cost reimbursements are based upon actual expenses with no added

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margin, and are billed to the HOA on a monthly basis. We recognize cost reimbursements when we
incur the related reimbursable costs as the HOA receives and consumes the benefits of the management
services.

We capitalize all incremental costs incurred to obtain a contract when such costs would not have been
incurred if the contract had not been obtained. We elect to expense costs incurred to obtain a contract when the
deferral period would be one year or less. Commissions for VOI sales for resorts under construction are expensed
when the associated VOI revenue is recognized which is upon completion of the resort. These commissions are
classified as Sales and marketing expense in our audited consolidated statements of operations.

As of December 31, 2018, the ending asset balance for costs to obtain a contract was $2 million relating to
deferred commission costs for certain vacation package sales. For the year ended December 31, 2018, we
recognized $17 million of expense relating to certain vacation packages and VOI sales.

Other than the United States, there were no countries that individually represented more than 10 percent of

total revenues for the years ended December 31, 2018, 2017 and 2016.

We earn commission and other fees related to fee-for-service agreements to sell VOIs. For the year ended
December 31, 2018, we did not earn more than 10 percent of our total revenue from one customer. For the years
ended December 31, 2017 and 2016, approximately 15 percent and 11 percent, respectively, of our total revenue
was earned from one customer.

We are required to collect certain taxes and fees from customers on behalf of government agencies and
remit these back to the applicable governmental agencies on a periodic basis. We have a legal obligation to act as
a collection agent with respect to these taxes and fees. We do not retain these taxes and fees and, therefore, they
are not included in revenues. We record a liability when the amounts are collected and relieve the liability when
payments are made to the applicable taxing authority or other appropriate governmental agency.

Investments in Unconsolidated Affiliates

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

Cash and Cash Equivalents

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

less.

Restricted Cash

Restricted cash includes advance deposits received on VOI sales that are held in escrow until the contract is

closed and cash reserves required by our non-recourse debt agreements.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable primarily consists of trade receivables and is reported at the customers’ outstanding
balances, less any allowance for doubtful accounts. An allowance for doubtful accounts is provided on accounts
receivable when losses are probable based on historical collection activity and current business conditions.

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Timeshare Financing Receivables and Allowance for Loan Loss

Our timeshare financing receivables consist of loans related to our financing of VOI sales that are secured
by the underlying timeshare properties. We determine our timeshare financing receivables to be past due based
on the contractual terms of the individual mortgage loans. We recognize interest income on our timeshare
financing receivables as earned. The interest rate charged on the notes correlates to the risk profile of the
borrower at the time of purchase and the percentage of the purchase that is financed, among other factors. We
record an estimate of uncollectibility as a reduction of revenue from VOI sales at the time revenue is recognized
on a VOI sale.

We evaluate this portfolio collectively, since we hold a large group of homogeneous timeshare financing
receivables, which are individually immaterial. We monitor the credit quality of our receivables on an ongoing
basis. There are no significant concentrations of credit risk with any individual counterparty or groups of
counterparties. We use a technique referred to as static pool analysis as the basis for determining our loan loss
reserve requirements on our timeshare financing receivables. For static pool analysis, we stratify our portfolio
using certain key dimensions including: FICO scores and equity percentage at the time of sale. 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 apply payments we receive for loans, including those in non-accrual status, to amounts due in the
following order: servicing fees; interest; principal; and late charges. Once a note is 91 days past due we cease
accruing interest and reverse the accrued interest recognized up to that point. We resume interest accrual for
loans for which we had previously ceased accruing interest once the loan is less than 91 days past due. We fully
reserve for a timeshare financing receivable in the month following the date that the loan is 121 days past due
and, subsequently, we write off the uncollectible note against the reserve once the foreclosure process is
complete and we receive the deed for the foreclosed unit.

Inventory and Cost of Sales

Inventory includes unsold, completed VOIs; VOIs under construction; and land and infrastructure held for
future VOI product development at our current resorts. We carry our completed VOI inventory at the lower of
cost or estimated fair value, less costs to sell, which can result in impairment losses and/or recoveries of previous
impairments. Projects under development, along with land and infrastructure for future development are under a
held and use impairment model and are reviewed for indicators of impairment quarterly.

We capitalize costs directly associated with the acquisition, development and construction of a real estate
project when it is probable that the project will move forward. We capitalize salary and related costs only to the
extent they directly relate to the project. We capitalize interest expense, taxes and insurance costs when activities
that are necessary to get the property ready for its intended use are underway. We cease capitalization of costs
during prolonged gaps in development when substantially all activities are suspended or when projects are
considered substantially complete.

We account for our VOI inventory and cost of VOI sales using the relative sales value method. Also, we do
not reduce inventory for the cost of VOI sales related to anticipated credit losses, and accordingly, no adjustment
is made when inventory is reacquired upon default of the related receivable. This results in changes in estimates
within the relative sales value calculations to be accounted for as real estate inventory true-ups, which we refer to
as cost of sales true-ups, and are included in Cost of VOI sales in our consolidated statements of operations to
retrospectively adjust the margin previously recognized subject to those estimates.

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Property and Equipment

Property and equipment includes land, building and leasehold improvements and furniture and equipment at
our corporate offices, sales centers and management offices. Additionally, certain property and equipment is held
for future conversion into inventory. Construction-in-progress primarily relates to leasehold improvements not
yet placed in service. Property and equipment are recorded at cost. Costs of improvements that extend the
economic life or improve service potential are also capitalized. Capitalized costs are depreciated over their
estimated useful lives. Costs for normal repairs and maintenance are expensed as incurred. Other than the United
States, there were no countries that individually represented over 10 percent of total property and equipment, net
as of December 31, 2018 and 2017.

Depreciation is recorded using the straight-line method over the assets’ estimated useful lives, which are
generally as follows: buildings and improvements (eight to 40 years); furniture and equipment (three to eight
years); and computer equipment and acquired software (three years). Leasehold improvements are depreciated
over the shorter of the estimated useful life, based on the estimates above, or the lease term.

We evaluate the carrying value of our property and equipment

if there are indicators of potential
impairment. We perform an analysis to determine the recoverability of the asset’s carrying value by comparing
the expected undiscounted future cash flows to the net book value of the asset. If it is determined that the
expected undiscounted future cash flows are less than the net book value of the asset, to the extent the net book
value is in excess of fair value we recognize an impairment loss. Fair value is generally estimated using valuation
techniques that consider the discounted cash flows of the asset using discount and capitalization rates deemed
reasonable for the type of asset, as well as prevailing market conditions, appraisals, recent similar transactions in
the market and, if appropriate and available, current estimated net sales proceeds from pending offers.

If sufficient information exists to reasonably estimate the fair value of a conditional asset retirement
obligation, including environmental remediation liabilities, we recognize the fair value of the obligation when the
obligation is incurred.

Intangible Assets

Our intangible assets consist of management agreements and certain proprietary technologies with finite
lives. We have management agreements that were recorded at their fair value at the time of the completion of a
merger on October 24, 2007 where Hilton became a wholly-owned subsidiary of an affiliate of The Blackstone
Group L.P. (“Blackstone”). Additionally, we capitalize costs incurred to develop internal-use computer software,
including costs incurred in connection with development of upgrades or enhancements that result in additional
functionality. These capitalized costs are included in Intangible assets, net in our consolidated balance sheets.
Intangible assets with finite useful lives are amortized using the straight-line method over their respective useful
lives, which for management agreements is the contract term. In our consolidated statements of operations, the
amortization of these intangible assets is included in depreciation and amortization expense and the amortization
of costs to obtain a contract is recognized as a reduction to the related revenues.

We review all finite life intangible assets 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 consolidated statements of operations.

Deferred Financing Costs

Deferred financing costs, including legal fees and upfront lenders fees, related to the Company’s debt and
non-recourse debt are deferred and amortized over the life of the respective debt using the effective interest
method. These capitalized costs are included in Other assets or Debt, net in our consolidated balance sheets (see
Note 14: Debt & Non-recourse debt for additional information. The amortization of deferred financing costs is
included in interest expense in our consolidated statements of operations.

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Costs Incurred to Sell VOIs

We expense indirect sales and marketing costs we incur to sell VOIs when incurred. Deferred selling and
marketing expenses, which are direct selling and marketing costs related either to an unclosed contract or a
contract for which revenue has not yet been recognized, were $4 million and $8 million as of December 31, 2018
and 2017, respectively, and were included in Other assets in our consolidated balance sheets.

Fair Value Measurements—Valuation Hierarchy

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants on the measurement date (an exit price). We use the three-level
valuation hierarchy for classification of fair value measurements. The valuation hierarchy is based upon the
transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to
the assumptions that market participants would use in pricing an asset or liability. Inputs may be observable or
unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing
the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are
inputs that reflect our own assumptions about the data market participants would use in pricing the asset or
liability developed based on the best information available in the circumstances. The three-level hierarchy of
inputs is summarized below:

• Level 1—Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active

markets;

• Level 2—Valuation is based upon quoted prices for similar assets and liabilities in active markets, or
other inputs that are observable for the asset or liability, either directly or indirectly, for substantially
the full term of the instrument; and

• Level 3—Valuation is based upon unobservable inputs that are significant

to the fair value

measurement.

The classification of assets and liabilities within the valuation hierarchy is based upon the lowest level of

input that is significant to the fair value measurement in its entirety.

Currency Translation and Remeasurement

The United States dollar (“USD”) is our reporting currency and is the functional currency of the majority of
our operations. For operations whose functional currency is not the USD, assets and liabilities measured in
foreign currencies are translated into USD at the prevailing exchange rates in effect as of the financial statement
date and the related gains and losses are reflected with Total Equity in our consolidated balance sheets. Related
income and expense accounts are translated at the average exchange rate for the period. Gains and losses from
foreign exchange rate changes related to other transactions denominated in a currency other than an entity’s
functional currency or intercompany receivables and payables denominated in a currency other than an entity’s
functional currency that are not of a long-term investment nature are recognized as gain or loss on foreign
currency transactions included in Other loss, net in our consolidated statements of operations.

Share-Based Compensation Costs

Certain of our employees participate in our 2017 Omnibus Incentive Plan (the “Stock Plan”) which
compensates eligible employees and directors with restricted stock units (“RSUs”), time and performance-
vesting restricted stock units (“PSUs”) and nonqualified stock options (“options”). We record compensation
expense based on the share-based awards granted to our employees.

Share-based compensation awards issued prior to the spin-off have been converted to reflect the separation
from Hilton. Upon the separation on January 3, 2017, holders of Hilton share-based awards received an adjusted

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award based on our shares. The adjustments were designed to generally preserve the fair value of each award
before and after the separation.

• RSUs vest in annual installments over three years from the date of grant, subject to the individual’s
continued employment through the applicable vesting date. Vested RSUs generally will be settled for
Hilton Grand Vacation’s common stock. The grant date fair value is equal to Hilton Grand Vacation’s
closing stock price on the date of grant.

•

PSUs are settled at the end of a three-year performance period, with 70 percent of the PSUs subject to
achievement based on the Company’s adjusted earnings before interest expense, taxes and depreciation
and amortization. This metric is further adjusted by sales of VOIs under construction. The remaining
30 percent of the PSUs are subject to the achievement of certain VOI sales targets.

• Options vest over three years in annual installments from the date of grant, subject to the individual’s
continued employment through the applicable vesting date and will terminate 10 years from the date of
grant or earlier on the unvested portion of an individual whose service was terminated. The exercise
price is equal to the closing price of the Hilton Grand Vacation’s common stock on the date of grant.
The grant date fair value is estimated using the Black-Scholes-Merton Model.

We recognize the cost of services received in share-based payment transactions with employees as services
are received and recognize a corresponding change in Total Equity in our consolidated balance sheets. The
measurement objective for these equity awards is the estimated fair value at the grant date of the equity
instruments that we are obligated to issue when employees have rendered the requisite service and satisfied any
other conditions necessary to earn the right to benefit from the instruments. Compensation expense is recognized
ratably over the requisite service period. The requisite service period is the period during which an employee is
required to provide service in exchange for an award.

Income Taxes

We account for income taxes using the asset and liability method. The objectives of accounting for income
taxes are to recognize the amount of taxes payable or refundable for the current year, to recognize the deferred
tax assets and liabilities that relate to tax consequences in future years, which result from differences between the
respective tax basis of assets and liabilities and their financial reporting amounts, and tax loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in
which the respective temporary differences or operating loss or tax credit carryforwards are expected to be
recovered or settled. The realization of deferred tax assets and tax loss and tax credit carryforwards is contingent
upon the generation of future taxable income and other restrictions that may exist under the tax laws of the
jurisdiction in which a deferred tax asset exists. Valuation allowances are provided to reduce such deferred tax
assets to amounts more likely than not to be ultimately realized.

We use a prescribed recognition threshold and measurement attribute for the financial statement recognition
and measurement of a tax position taken in a tax return. For all income tax positions, we first determine whether
it is “more-likely-than-not” that a tax position will be sustained upon examination, including resolution of any
related appeals or litigation processes, based on the technical merits of the position. If it is determined that a
position meets the more-likely-than-not recognition threshold, the benefit recognized in the financial statements
is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon
settlement.

Earnings Per Share

Basic earnings per share (“EPS”) is calculated by dividing the earnings available to common shareholders
by the weighted average number of common shares outstanding for the period. Diluted earnings per common
share is calculated to give effect to all potentially dilutive common shares that were outstanding during the
reporting period.

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Defined Contribution Plan

We administer and maintain a defined contribution plan for the benefit of all employees meeting certain
eligibility requirements who elect to participate in the plan. Contributions are determined based on a specified
percentage of salary deferrals by participating employees. We recognized compensation expense for our
participating employees totaling $10 million for the year ended December 31, 2018. Prior to the year ended
December 31, 2018, Hilton administrated the plan on our behalf.

Reclassifications

Certain prior period amounts in the consolidated financial statements have been reclassified to conform to
the current period presentation with no effect on previously reported total assets and total liabilities, net income
or stockholders’ equity.

Recently Issued Accounting Pronouncements Other Than ASC 606

Adopted Accounting Standards

In August 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-15, Classification
of Certain Cash Receipts and Cash Payments, which in part requires entities to assess whether distributions of
cash from unconsolidated entities represent a return on the investment or a return of the investment
to
appropriately classify the distributions in the statement of cash flows. We have made an accounting policy
election to use the cumulative earnings approach. Under the cumulative earnings approach, distributions up to the
amount of cumulative equity in earnings recognized will be treated as returns on investment as operating cash
flows and those in excess of that amount will be treated as returns of investment as investing cash flows. On
January 1, 2018, we adopted ASU 2016-15 which had no impact on our historical consolidated financial
statements.

Accounting Standards Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), Leases (Topic 842), which
supersedes existing guidance on accounting for leases. Under the new provisions of ASU 2016-02 (as
subsequently amended), all lessees will report a right-of-use asset and a liability for the obligation to make
payments for all leases with the exception of those leases with a term of 12 months or less. Subsequent to
ASU 2016-02, the FASB has issued ASU No. 2018-01 Leases (Topic 842): Land Easement Practical Expedient
for Transition, which clarifies the application of lease easements and eases adoption efforts for some land
easements. In addition, ASU No. 2018-11 Leases (Topic 842): Targeted Improvements provides for an additional
(and optional) transition method by which entities may elect to initially apply the transition requirements in
Topic 842 at that entity’s adoption date with the effects of initially applying Topic 842 recognized as a
cumulative effect adjustment to the opening balance of retained earnings in the period of adoption and without
retrospective application to any comparative prior periods presented. Also, ASU No. 2018-20 Leases (Topic
842): Narrow-Scope Improvements for Lessors provides certain narrow-scope improvements to Topic 842 as it
relates to lessors. The provisions of ASU 2016-02 as clarified are effective for reporting periods beginning after
December 15, 2018; early adoption is permitted. The provisions of this ASU are to be applied using a modified
retrospective approach. We expect to elect the initial application on January 1, 2019 without retrospective
application to any comparative periods presented in accordance with ASU 2018-11. We will choose to elect the
package of practical expedients available to us upon adoption and have selected a lease software solution. We
continue to evaluate the effect that this ASU will have on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, (“ASU 2016-13”), Financial Instruments-Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss
impairment methodology in current U.S. GAAP, with a methodology that reflects expected credit losses. The
update is intended to provide financial statement users with more decision-useful information about the expected

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credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each
reporting date. The update is effective for annual periods beginning after December 15, 2021, with early adoption
permitted for annual periods beginning after December 15, 2020. We are currently evaluating the effect that this
ASU will have on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-03 (“ASU 2017-03”), Accounting Changes and Error
Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323). ASU 2017-03
requires registrants to disclose the effect that recently issued accounting standards will have on their financial
statements when adopted in a future period. The SEC staff expects the additional qualitative disclosures to
include a description of the effect of the accounting policies that the registrant expects to apply, if determined,
and a comparison to the registrant’s current accounting policies. In addition, a registrant should describe the
status of its process to implement the new standards and the significant implementation matters yet to be
addressed. ASU 2017-03 is effective for fiscal years beginning after December 15, 2019, and interim periods
within those fiscal years with early adoption permitted for fiscal years beginning after December 15, 2018, and
interim periods within those fiscal years. We are currently evaluating the effect that this ASU will have on our
consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07 (“ASU 2018-07”), Compensation—Stock Compensation
(Topic 718). Under the new guidance, the existing employee guidance will apply to nonemployee share-based
transactions, with the exception of specific guidance related to attribution of compensation cost. The cost of
nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. In
addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for
nonemployee awards. The provisions of
reporting periods beginning after
December 15, 2018; early adoption is permitted. We are currently evaluating the effect that this ASU will have
on our consolidated financial statements.

this ASU are effective for

In August 2018, the FASB issued ASU 2018-13 (“ASU 2018-13”), Fair Value Measurement (Topic 8420):
Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13
modifies the requirements associated with the hierarchy associated with Level 1, Level 2 and Level 3 fair value
measurements. The provisions of this ASU are effective for reporting periods after December 15, 2019; early
adoption is permitted. We are currently evaluating the effect that this ASU will have on our consolidated
financial statements.

that

In August 2018, the FASB issued 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
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,
include an internal-use software license. The
provisions of this ASU are effective for reporting periods after December 15, 2019; early adoption is permitted.
We are currently evaluating the effect that this ASU will have on our consolidated financial statements.

including hosting arrangements that

is a service contract

Note 3: Revenue from Contracts with Customers

Financial Statement Impact of Adopting ASC 606

The cumulative effect of applying the new guidance to all contracts with customers as of January 1, 2018
to retained earnings as of the adoption date. The following cumulative

was recorded as an adjustment
adjustments were made to the consolidated balance sheet as of January 1, 2018:

•

Sales of VOIs, net—Under the previous accounting guidance, we recognized revenue for sales of VOIs
under construction in accordance with the percentage of completion method. Under ASC 606, the

90

timing of revenue recognition for Sales of VOIs under construction and all related direct costs have
been deferred until construction is complete.

•

Sales, marketing, brand and other fees—Under the previous accounting guidance, we recognized
breakage revenue from prepaid vacation packages when the likelihood of redemption was remote post
expiration. Under ASC 606, using a portfolio approach, we have recognized the expected breakage
revenue on packages not expected to be redeemed as Sales, marketing, brand and other fees
proportionately when our other customers redeem their packages.

The table below shows the adjustments that were made to the consolidated balance sheet as of January 1,

2018:

($ in millions)

ASSETS

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for doubtful accounts . . .
Timeshare financing receivables, net . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in unconsolidated affiliate . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

LIABILITIES AND EQUITY
Liabilities:
Accounts payable, accrued expenses and other . . . . . . . . . . . . . .
Advanced deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-recourse debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
Equity:
Preferred stock, $0.01 par value; 300,000,000 authorized shares,
none issued or outstanding as of December 31, 2017 . . . . . . .

Common stock, $0.01 par value; 3,000,000,000 authorized

shares, 99,136,304 issued and outstanding as of December 31,
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . .

Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,
2017

Adjustments

January 1,
2018

$ 246
51
112
1,071
509
238
41
72
44

$2,384

$ 339
104
482
583
109
249

1,866

$ —
—
—
—
30
—
—
—
16

$ 46

$

2
(17)
—
—
112
(13)

84

$ 246
51
112
1,071
539
238
41
72
60

$2,430

$ 341
87
482
583
221
236

1,950

—

—

—

1
162
355

518

—
—
(38)

(38)

1
162
317

480

TOTAL LIABILITIES AND EQUITY . . . . . . . . . . . . . . . . . .

$2,384

$ 46

$2,430

91

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 21: Business Segments below for more details related to our
segments.

($ in millions)

Real Estate and Financing Segment

Sales of VOIs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales, marketing, brand and other fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financing revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Real estate and financing segment revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

($ in millions)

Resort Operations and Club Management Segment

Year Ended
December 31,
2018

$ 734
570
140
18

$1,462

Year Ended
December 31,
2018

Club management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ancillary services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Resort operations and club management segment revenues . . . . . . . . . . . . . . . . . . . . . . . .

$112
60
191
27

$390

(1)

Includes intersegment eliminations.

Contract Balances

The following table provides information on our accounts receivable with customers which are included in

Accounts Receivable, net on our consolidated balance sheets:

($ in millions)

January 1,
2018

December 31,
2018

Receivables(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$97

$122

(1) Does not include financing receivables from sales of VOIs. See Note 5: Timeshare Financing Receivables for additional

information.

The following table presents changes in our contract liabilities for the year ended December 31, 2018.

($ in millions)

Contract liabilities:

January 1,
2018

Additions

Subtractions

December 31,
2018

Advanced deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue(1)
. . . . . . . . . . . . . . . .
Club Bonus Point incentive liability(2)

$ 87
197
52

$167
264
54

$(153)
(389)
(50)

$101
72
56

(1)

The deferred revenue balance is primarily comprised of (i) sales of VOI under construction, (ii) Club activation fees that are
paid at the closing of a VOI purchase, which grants access to our points-based Club and (iii) annual dues for Club membership
renewals. As of December 31, 2018, we have no deferred revenues relating to sales of VOIs under construction.

(2) Amounts related to the Club Bonus Point incentive liability are included in Accounts payable, accrued expenses and

other on our consolidated balance sheets.

92

Revenue earned for the year ended December 31, 2018 that was included in the contract liabilities balance at

January 1, 2018 was approximately $214 million.

to consideration for completed performance obligations related primarily to our

Accounts receivable for the year ended December 31, 2018 include amounts associated with our contractual
right
fee-for-service
arrangements and are realized 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. For the year ended
December 31, 2018, there were no associated impairment losses. Refer to Note 5: Timeshare Financing
Receivables for information on balances and changes in balances during the period related to our Timeshare
financing receivables.

Contract liabilities include payments received or due in advance of satisfying our performance obligations,
offset by revenues recognized. Such contract liabilities include advance deposits received on prepaid vacation
packages for future stays at our resorts, deferred revenues 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) Club activation
fees paid at closing of a VOI purchase, (ii) customers’ advanced deposits on prepaid vacation packages and
(iii) Club Bonus Points that may be redeemed in the future. As of December 31, 2018, we had no remaining
performance obligations on sales of VOIs under construction.

The following table includes the remaining transaction price related to Advanced deposits, Club activation

fees and Club Bonus Points as of December 31, 2018:

($ in millions)

Remaining
Transaction
Price

Advanced deposits . . . .
Club activation fees . . .

$101
63

Recognition
Period

18 months
7 years

Club Bonus Points . . . .

56

24 months

Recognition Method

Upon customer stays
Straight-line basis over average inventory
holding period
Upon redemption

ASC 606 provides certain practical expedients that facilitate the disclosure around performance obligations.

We have elected the following practical expedients options:

•

•

to not disclose the variable consideration allocated entirely to a wholly unsatisfied performance
obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a
single performance obligation for which revenue recognition criteria have been met; and

to not disclose the transaction price allocated to remaining performance obligations that are part of a
contract that has an original expected duration of one year or less.

Our performance obligations under the management service arrangements and fee-for-service arrangements
are satisfied over time and the related fees represent variable consideration that meets the first practical expedient
option. Fees for management services are variable consideration as these fees are based off of costs to operate the
resorts in a given annual period, which is resolved on a monthly basis over the contract term.

93

Impact of New Revenue Guidance on Financial Statement Line Items

The following tables compare the reported consolidated balance sheet and statement of operations as of and
for the year ended December 31, 2018, as well as the cash flows for the year ended December 31, 2018, to the
previous accounting guidance:

(in millions)

ASSETS

December 31, 2018

As
Reported

Effects
of ASC 606

Previous
Accounting
Guidance

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for doubtful accounts . . . . . . .
Timeshare financing receivables, net
. . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 108
72
153
1,120
527
559
38
81
95

TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,753

LIABILITIES AND EQUITY
Liabilities:
Accounts payable, accrued expenses and other
. . . . . . . . . . . . . . . . .
Advanced deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt, net
Non-recourse debt, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
Equity:
Preferred stock, $0.01 par value; 300,000,000 authorized shares,

none issued or outstanding as of December 31, 2018 . . . . . . . . . . .

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

94,558,086 issued and outstanding as of December 31, 2018 . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 324
101
604
759
95
254

2,137

—

1
174
441

616

$ —
—
—
—
—
—
—
—
—

$ —

$ (2)
16
—
—
—
—

14

—

—
—
(14)

(14)

$ 108
72
153
1,120
527
559
38
81
95

$2,753

$ 322
117
604
759
95
254

2,151

—

1
174
427

602

TOTAL LIABILITIES AND EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,753

$ —

$2,753

94

Total reported liabilities were $14 million less than the balance if the previous accounting guidance were in
effect as of December 31, 2018. This was primarily due to releasing the advanced deposits liability to recognize
expected breakage revenue on prepaid vacation packages proportionally as our customers redeem their packages.

($ in millions)

Revenues

Year Ended December 31, 2018

As
Reported

Effects
of ASC 606

Previous
Accounting
Guidance

Sales of VOIs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales, marketing, brand and other fees . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort and club management
Rental and ancillary services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 734
570
158
172
218
147

$ (112)
16
—
1
—
—

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,999

Expenses

Cost of VOI sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort and club management
Rental and ancillary services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
License fee expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other loss, net

Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income tax (expense) benefit

210
728
49
47
133
117
36
98
147

1,565
(30)
(1)

403
(105)

(95)

(30)
1
—
—
—
—
2
—
—

(27)
—
—

(68)
17

$ 622
586
158
173
218
147

1,904

180
729
49
47
133
117
38
98
147

1,538
(30)
(1)

335
(88)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 298

$ (51)

$ 247

Earnings per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 3.07
$ 3.05

$(0.53)
$(0.53)

$ 2.54
$ 2.52

The following summarizes the significant changes to our consolidated statement of operations for the year
ended December 31, 2018 as a result of the adoption of ASC 606 on January 1, 2018 compared to if we had
continued to recognize revenues under the previous accounting guidance:

• Under ASC 606, the timing of revenue recognition for sales of VOIs under construction and all related
direct costs have been deferred until construction is complete. Under the previous accounting guidance,
we recognized revenue for sales of VOIs under construction in accordance with the percentage of
completion method. This resulted in a lower Sales of VOIs, net, Cost of VOI sales and Total operating
expenses;

• Under ASC 606, using a portfolio approach, we have recognized the expected breakage revenue on
packages not expected to be redeemed as Sales, marketing, brand and other fees proportionately when
our other customers redeem their packages. Under the previous accounting guidance, we recognized
breakage revenue from prepaid vacation packages when the likelihood of redemption was remote post
expiration; and

95

Under ASC 606, certain sales incentives where we are acting as the agent are recognized on a net basis,
therefore, resulted in a lower Sales, marketing, brand and other fees and Total operating expenses. Under the
previous accounting guidance, we recognized certain sales incentives on a gross basis which resulted in higher
Sales, marketing, brand and other fees and Total operating expenses.

The adoption of ASC 606 had no impact on our total cash flows provided by operating activities or used by
investing and financing activities. ASC 606 resulted in offsetting shifts in cash flows throughout net income and
various changes in working capital balances.

($ in millions)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash used in by operating activities . . . . . . . . .
Changes in operating assets and liabilities

Year Ended
December 31, 2018

As
Reported

$ 298
151

Previous
Accounting
Guidance

$ 247
138

Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Timeshare financing receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of real estate for future conversion to inventory . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable, accrued expenses and other . . . . . . . . . . . . . . . . . . . . . . .
Advanced deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(41)
(118)
16
(299)
(31)
(24)
14
(126)
1

(41)
(118)
(14)
(299)
(48)
(24)
13
(14)
1

Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(159)

$(159)

Note 4: Restricted Cash

Restricted cash was as follows:

($ in millions)

Escrow deposits on VOI sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserves related to non-recourse debt(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2018

2017

$45
27

$72

$29
22

$51

(1)

See Note 14: Debt & Non-recourse Debt for further discussion.

Note 5: Timeshare Financing Receivables

Timeshare financing receivables were as follows:

($ in millions)

Timeshare financing receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: allowance for loan loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31, 2018

Securitized
and Pledged Unsecuritized(1)

$660
(43)

$617

$ 632
(129)

$ 503

Total

$1,292
(172)

$1,120

96

($ in millions)

Timeshare financing receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: allowance for loan loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31, 2017

Securitized
and Pledged Unsecuritized(1)

$471
(27)

$444

$ 741
(114)

$ 627

Total

$1,212
(141)

$1,071

(1)

Includes amounts used as collateral to secure a non-recourse revolving timeshare receivable credit facility (“Timeshare
Facility”) as well as amounts held as future collateral for upcoming securitizations.

In September 2018, we completed a securitization of approximately $350 million of gross timeshare
financing receivables and issued approximately $268 million of 3.54 percent notes, $54 million of 3.70 percent
notes and $28 million of 4.0 percent notes, which have a stated maturity date of February 25, 2032. The
securitization transaction did not qualify as sales and, accordingly, no gain or loss was recognized. The
transaction is considered a secured borrowing; therefore, the proceeds from the transaction are presented as
non-recourse debt (collectively, the “Securitized Debt”). The proceeds were primarily used to pay down a portion
of our Timeshare Facility. As of December 31, 2018 and 2017, we had $190 million and $143 million,
respectively, of gross timeshare financing receivables securing the Timeshare Facility. See Note 14: Debt and
Non-Recourse Debt for additional information on our Timeshare Facility.

Our timeshare financing receivables as of December 31, 2018 mature as follows:

($ in millions)

Year
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: allowance for loan loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Securitized
and Pledged Unsecuritized

Total

$ 86
87
86
83
80
238

660
(43)

$617

$ 64
54
58
63
67
326

632
(129)

$ 150
141
144
146
147
564

1,292
(172)

$ 503

$1,120

We evaluate this portfolio collectively for purposes of estimating variable consideration, since we hold a
large group of homogeneous timeshare financing receivables which are individually immaterial. We monitor the
credit quality of our receivables on an ongoing basis. There are no significant concentrations of credit risk with
any individual counterparty or groups of counterparties. We use a technique referred to as static pool analysis as
the basis for determining our allowance for loan loss 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.

97

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

($ in millions)

FICO score
700+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
600-699 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<600 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
No score(1)

December 31,

2018

2017

$ 843
237
27
185

$ 770
225
28
189

$1,292

$1,212

(1)

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

We recognize interest income on our timeshare financing receivables as earned. The interest rate charged on
the notes correlates to the risk profile of the borrower at the time of purchase and the percentage of the purchase
that is financed, among other factors. As of December 31, 2018, our timeshare financing receivables had interest
rates ranging from 5.25 percent to 20.50 percent, a weighted average interest rate of 12.28 percent, a weighted
average remaining term of 7.8 years and maturities through 2030.

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

As of December 31, 2018 and 2017, we had ceased accruing interest on timeshare financing receivables
with an aggregate principal balance of $69 million and $49 million, respectively. The following tables detail an
aged analysis of our gross timeshare financing receivables balance:

($ in millions)

Current
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31 - 90 days past due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
91 - 120 days past due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
121 days and greater past due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

($ in millions)

Current
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31 - 90 days past due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
91 - 120 days past due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
121 days and greater past due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31, 2018

Securitized
and Pledged Unsecuritized

$648
8
3
1

$660

$556
11
3
62

$632

December 31, 2017

Securitized
and Pledged Unsecuritized

$462
6
1
2

$471

$685
10
4
42

$741

Total

$1,204
19
6
63

$1,292

Total

$1,147
16
5
44

$1,212

98

The changes in our allowance for loan loss were as follows:

($ in millions)

Securitized
and Pledged

Unsecuritized

Total

December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan loss(1)

December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securitizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan loss(1)

December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securitizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan loss(1)

$ 17
—
(8)

9
—
28
(10)

27
—
28
(12)

$ 89
(35)
57

111
(37)
(28)
68

114
(38)
(28)
81

$106
(35)
49

120
(37)
—
58

141
(38)
—
69

December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 43

$129

$172

(1)

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

Note 6: Inventory

Our Inventory was comprised of the following:

($ in millions)

Completed unsold VOIs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, infrastructure and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2018

2017

$243
9
275

$527

$191
60
258

$509

We benefited from $10 million and $4 million in cost of sales true-ups relating to VOI products for the
years ended December 31, 2018 and 2017, respectively, which resulted in a $10 million and $4 million increase
to the carrying value of inventory as of December 31, 2018 and 2017, respectively. The incurred expenses below,
recorded in Cost of VOI sales, relate to granting credit to customers for their existing ownership when upgrading
into fee-for-service projects.

($ in millions)

December 31,

2018

2017

2016

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

$34

$36

$49

In 2018 and 2017, we recorded non-cash transfers from property and equipment into inventory. See Note

23: Supplemental Disclosure of Cash Flow Information for additional information.

99

Note 7: Property and Equipment

Property and equipment and related accumulated depreciation were as follows:

($ in millions)

December 31,

2018

2017

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction-in-progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$268
295
54
25

$ 53
182
48
20

Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

642
(83)

303
(65)

$559

$238

In June 2018, we acquired an operating hotel in New York City, New York for $176 million for future
conversion to timeshare inventory. In September 2018, we acquired land in Honolulu, Hawaii for $123 million
which will be used to construct a timeshare resort. Each transaction was accounted for as asset acquisition with
the purchase prices being allocated primarily to land, building and leasehold improvements and furniture and
equipment.

In 2018 and 2017, we recorded non-cash transfers from property and equipment to inventory. See Note 23:

Supplemental Disclosure of Cash Flow Information for additional information.

Depreciation expense on property and equipment was $23 million, $17 million, and $12 million for the

years ended December 31, 2018, 2017 and 2016 respectively.

Note 8: Consolidated Variable Interest Entities

As of December 31, 2018 and 2017, we consolidated four and three variable interest entities (“VIEs”),
respectively, that issued Securitized Debt, secured by pledged assets primarily consisting 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 the VIEs are available to settle the obligations of the respective entities.

Our consolidated balance sheets included the assets and liabilities of these entities, which primarily

consisted of the following:

($ in millions)

December 31,

2018

2017

Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Timeshare financing receivables, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-recourse debt(1)

$ 23
617
639

$ 18
445
454

(1) Net of deferred financing costs.

During the years ended December 31, 2018, 2017 and 2016, 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.

100

Note 9: Investments in Unconsolidated Affiliates

In March 2018, we entered into an agreement with SCG 1776, LLC, an affiliate of Strand Capital Group,
LLC and formed 1776 Holding, LLC, a VIE. Pursuant to the agreement, during the year ended December 31,
2018, we contributed a total of $10 million in cash for a 50 percent interest in 1776 Holding, LLC, which will
construct an approximately 99-unit timeshare resort in Charleston, South Carolina.

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

We do not consolidate 1776 Holdings LLC and BRE Ace LLC because we are not the primary beneficiaries.
Our investment interests in and equity earned from both VIEs are included in the consolidated balance sheets as
Investments in unconsolidated affiliates and in the consolidated statements of operations as Equity in earnings
from unconsolidated affiliates, respectively.

During the year ended December 31, 2018, we received cash distributions of $13 million from our

investment in BRE Ace LLC, of which $11 million was considered a return of investment.

We held investments in our two unconsolidated affiliates with aggregated debt balances of $490 million and
$488 million as of December 31, 2018 and 2017, 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 $38 million and
$41 million as of December 31, 2018 and 2017, respectively and (ii) receivables for commission and other fees
earned under a fee-for-service arrangement. See Note 20: Related Party Transactions for additional information.

Note 10: Intangible Assets

Intangible assets and related amortization expense were as follows:

($ in millions)

Management agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

($ in millions)

Management agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Gross
Carrying
Amount

$ 88
71

$159

Gross
Carrying
Amount

$ 88
51

$139

December 31, 2018

Accumulated
Amortization

Net Carrying
Amount

$(41)
(37)

$(78)

$47
34

$81

December 31, 2017

Accumulated
Amortization

Net Carrying
Amount

$(37)
(30)

$(67)

$51
21

$72

Amortization expense on intangible assets was $13 million for the year ended December 31, 2018 and
$12 million for each of the years ended December 31, 2017 and 2016. As of December 31, 2018, the weighted
average amortization period on management agreements was 13.3 years and capitalized software was 2.6 years.

101

As of December 31, 2018, we estimated our future amortization expense for our amortizing intangible assets

to be as follows:

($ in millions)

Year
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 11: Other Assets

Other assets were as follows:

($ in millions)

Inventory deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Future
Amortization
Expense

$18
16
12
4
3
28

$81

December 31,

2018

2017

$46
18
31

$95

$—
18
26

$44

During the year ended December 31, 2018, we made $46 million of deposits on real estate for future

conversion to timeshare inventory.

Note 12: Accounts Payable, Accrued Expenses and Other

Accounts payable, accrued expenses and other were as follows:

($ in millions)

Accrued employee compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bonus point incentive liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due to Hilton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2018

2017

$ 86
51
56
20
7
104

$324

$ 70
45
52
23
64
85

$339

102

Note 13: Deferred Revenues

Deferred revenues were as follows:

($ in millions)

Deferred VOI sales(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Club activation fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2018

2017

$19
63
13

$95

$ 45
54
10

$109

(1) As of December 31, 2018, we do not have deferred revenues associated with Sales of VOIs under construction.

Deferred VOI sales include the deferred revenues associated with: the sales associated with incomplete
phases or buildings; the sales of unacquired inventory; and deferred sales associated with our long-term lease
product with a reversionary interest. Club activation fees are paid at closing of a VOI purchase, which grants
access to our points-based Club. The revenue from these fees are deferred and amortized on a straight-line basis
over the average inventory holding period. Deferred revenues do not include prepaid vacation packages or other
prepayments for future stays at our resorts, which are included in Advanced deposits in our consolidated balance
sheets.

Note 14: Debt & Non-recourse Debt

Debt

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

($ in millions)

Debt(1)

Senior secured credit facilities:

December 31

2018

2017

Term loans with an average rate of 4.253%, due 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolver with an average rate of 4.253%, due 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior notes with a rate of 6.125%, due 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$197
115
300

$190
—
300

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

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

612
(8)

490
(8)

$604

$482

(1)

For the years ended December 31, 2018 and 2017, weighted average interest rates were 5.170 percent and 5.229 percent,
respectively.

(2) Amount includes deferred financing costs of $2 million and $6 million as of December 31, 2018 and $1 million and

$7 million as of December 31, 2017, relating to our term loan and senior notes, respectively.

(3) Amount does not include deferred financing costs of $6 and $2 million as of December 31, 2018 and 2017, relating to

our revolving facility included in Other Assets in our consolidated balance sheets.

Senior Secured Credit Facilities

In November 2018, we amended certain terms of our existing credit facilities (the “Amendment”) such as,
but not limited to, (i) the existing term loan was increased to $200 million, (ii) the amount of borrowing capacity
under the revolving facility was increased from $200 million to $800 million and (iii) the maturity date was
extended to November 28, 2023. The revolving facility has $30 million of borrowing capacity available for
letters of credit and $10 million available for short-term borrowings. As of December 31, 2018, we had
$1 million of outstanding letter of credit under the revolving facility.

103

In addition, we are required to pay a commitment fee to the lenders under the Revolving Facility in respect
of the unutilized commitments thereunder. The commitment fee will be determined based on a first lien net
leverage ratio and will range from 0.25% to 0.35% per annum. We are also required to pay customary letter of
credit fees.

As a result of the Amendment, we incurred $6 million in debt issuance costs of which $5 million is recorded
in Other assets. During the year ended December 31, 2018, we borrowed $530 million and repaid $408 million,
in aggregate, under the original and amended senior secured credit facilities.

The obligations under the senior secured credit facility are unconditionally and irrevocably guaranteed by us
and certain of our subsidiaries. We are in compliance with all applicable financial covenants as of December 31,
2018.

Senior Notes

In November 2016, we issued $300 million aggregate principal amount of 6.125 percent senior unsecured
notes due 2024 (the “Senior Unsecured Notes”) and incurred $8 million of debt issuance costs. Interest on the
Senior Unsecured Notes is payable semi-annually in arrears on June 1 and December 1 of each year, beginning
on June 1, 2017.

We may, at our sole option, redeem the Senior Unsecured Notes, in whole or in part, at any time prior to
December 1, 2021, at a price equal to 100 percent of the principal amount, plus an applicable make-whole
premium and accrued and unpaid interest. On and after, December 1, 2021, we may, at our sole option, redeem
the Senior Unsecured Notes at 103.25 percent, 101.625 percent or 100 percent of the principal amount in 2021,
2022 or 2023, respectively, without any make-whole premium.

The Senior Unsecured Notes are guaranteed on a senior unsecured basis by certain of our subsidiaries. We

are in compliance with all applicable financial covenants as of December 31, 2018.

Non-recourse Debt

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

($ in millions)

Non-recourse debt(1)

Timeshare Facility with an average rate of 3.559%, due 2021 . . . . . . . . . . . . . . . . . . . . . . . . . .
Securitized Debt with a rate of 2.280%, due 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securitized Debt with an average rate of 1.810%, due 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securitized Debt with an average rate of 2.711%, due 2028 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securitized Debt with an average rate of 3.602%, due 2032 . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: unamortized deferred financing costs(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31

2018

2017

$120
33
74
206
333

$129
54
112
293
—

766
(7)

588
(5)

$759

$583

(1)

For the years ended December 31, 2018 and 2017, weighted average interest rates were 3.126 percent and 2.492 percent,
respectively.

(2) Amount relates to Securitized Debt only and does not include deferred financing costs of $3 million and $2 million as of
December 31, 2018 and 2017, respectively, relating to our Timeshare Facility included in Other Assets in our
consolidated balance sheets.

104

In September 2018, we completed a securitization of approximately $350 million of gross timeshare
financing receivables and issued approximately $268 million of 3.54 percent notes, $54 million of 3.70 percent
notes and $28 million of 4.0 percent notes, which have a stated maturity date of February 25, 2032. 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 used to pay down a portion of our
Timeshare Facility.

The Timeshare Facility is a non-recourse obligation with a borrowing capacity of $450 million and is
payable solely from the pool of timeshare financing receivables pledged as collateral and related assets. In March
2018, we extended the commitment termination date to March 2020. The maturity date was extended 12 months
from the commitment date to March 2021. As a result of this extension, we incurred $2 million in debt issuance
costs recorded in Other assets. During the year ended December 31, 2018, we borrowed $313 million and repaid
$322 million under the Timeshare Facility.

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 $27 and $22 million as of
December 31, 2018 and 2017, respectively, and were included in Restricted cash in our consolidated balance
sheets.

Debt Maturities

The contractual maturities of our debt and non-recourse debt as of December 31, 2018 were as follows:

($ in millions)

Year
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Debt

$ 10
10
10
10
272
300

$612

Non-recourse
Debt

Total

$193
165
207
63
76
62

$766

$ 203
175
217
73
348
362

$1,378

105

Note 15: Fair Value Measurements

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

($ in millions)

Assets:

December 31, 2018

Hierarchy Level

Carrying
Amount

Level 1

Level 3

Timeshare financing receivables(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,120

$ — $1,339

Liabilities:

Debt(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-recourse debt(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

604
759

302
—

309
753

($ in millions)

Assets:

December 31, 2017

Hierarchy Level

Carrying
Amount

Level 1

Level 3

Timeshare financing receivables(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,071

$ — $1,292

Liabilities:

Debt(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-recourse debt(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

482
583

329
—

194
577

(1) Carrying amount net of allowance for loan loss.
(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 loan terms respective to the
portfolio based on current market assumptions for similar types of arrangements.

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

value of our Level 3 debt and non-recourse debt were as follows:

• Debt—based on indicative quotes obtained for similar issuances and projected future cash flows

discounted at risk-adjusted rates

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

We do not have any assets or liabilities measured at fair value on a recurring basis as of December 31, 2018

or 2017.

Note 16: Leases

We lease sales centers, office space and equipment under operating leases. Our operating leases may require
minimum rent payments, contingent rent payments based on a percentage of revenue or income or rent payments
equal to the greater of a minimum rent or contingent rent. Our leases expire at various dates from 2019 through
2030, with varying renewal options.

106

The future minimum rent payments under non-cancelable leases, due in each of the next five years and

thereafter as of December 31, 2018, were as follows:

($ in millions)

Year
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter

Total minimum rent payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating
Leases

$16
15
14
10
10
29

$94

Rent expense for all operating leases was as follows:

($ in millions)

Minimum rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2018

$21
3

$24

2017

$17
3

$20

2016

$16
1

$17

Note 17: Income Taxes

On December 22, 2017, the United States enacted tax reform legislation commonly known as the Tax Cuts
and Jobs Act (the “Act”), resulting in significant modifications to existing law. We followed the guidance in SEC
Staff Accounting Bulletin 118 (“SAB 118”), which provided additional clarification regarding the application of
ASC Topic 740 in situations where we did not have the necessary information available, prepared, or analyzed in
reasonable detail to complete the accounting for certain income tax effects of the Act for the reporting period in
which the Act was enacted. SAB 118 provided for a measurement period which began in the reporting period that
included the Act’s enactment date and ended when we obtained, prepared, and analyzed the information needed
to complete the accounting requirements, but in no circumstances could the measurement period extend beyond
one year from the enactment date. As of December 22, 2018, we have completed our accounting for the tax
effects of the following elements of the Act, considering all guidance from the U.S. Treasury Department (“U.S.
Treasury”) released since the enactment date.

One-Time Repatriation Tax: The one-time deemed repatriation transition tax (“Transition Tax”) is a tax on
certain previously untaxed accumulated and current earnings and profits (E&P) of our foreign subsidiaries. We
were able to reasonably estimate the Transition Tax and recorded a provisional Transition Tax obligation of
$1 million, with a corresponding adjustment of $1 million to income tax expense for the year ended
December 31, 2017. Based on revised E&P computations that were completed during the reporting period, we
recognized an additional measurement-period adjustment to reduce the Transition Tax obligation by $1 million,
with a corresponding adjustment to reduce income tax expense by $1 million during the period. The effect of the
measurement-period adjustment on the 2018 effective tax rate was approximately (0.2) percent. The Transition
Tax, which has now been determined to be complete, resulted in recording an immaterial total Transition Tax
obligation, with a corresponding immaterial adjustment to income tax expense. The Act provided for the
Transition Tax obligation to be paid in installments over eight years, but we chose to pay the Transition Tax
obligation in full since the amount due was immaterial.

Deferred Tax Assets and Liabilities: The Act reduced the U.S. federal corporate income tax rate from
35 percent to 21 percent. This required certain deferred tax assets and liabilities to be re-measured as a result of

107

the lower U.S. federal tax rate when the deferred tax assets and liabilities are expected to reverse. The Act also
expanded the scope and repealed certain exceptions to the deduction limitation for executive compensation under
Internal Revenue Code (“IRC”) section 162(m), resulting in a write-off of the share-based compensation deferred
tax asset related to certain executives’ subject to the IRC section 162(m) limitation. We were able to reasonably
estimate the impact
to our deferred tax assets and liabilities and recorded a provisional adjustment of
$132 million to reduce our net deferred tax liability balance, with a corresponding adjustment to reduce income
tax expense by $132 million for the year ended December 31, 2017. Based on revised computations that were
completed during the reporting period, we recognized an additional measurement-period adjustment of
$3 million to reduce our net deferred tax liability balance, with a corresponding adjustment to reduce income tax
expense by $3 million during the period. The effect of the measurement-period adjustment on the 2018 effective
tax rate was approximately (0.8) percent. The impact to our deferred tax assets and liabilities, which has now
been determined to be complete, resulted in recording a total reduction to our net deferred tax liability balance of
$135 million, with a corresponding adjustment to reduce income tax expense by $135 million.

The Act also subjects a U.S. shareholder to current tax on Global Intangible Low-Taxed Income (“GILTI”).
The FASB staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income, states that an
entity can make an accounting policy election to either recognize deferred taxes for temporary differences
expected to reverse as GILTI in future years or provide for the tax expense related to GILTI resulting from those
items in the year the tax is incurred. As of December 31, 2017, we had not yet elected an accounting policy to
account for the impact of the GILTI tax as a period expense in the future period the tax arises or as part of
deferred tax related to the investment or subsidiary. As of December 31, 2018, we have elected to recognize the
resulting tax on GILTI as a period expense in the period the tax is incurred. For the year ended December 31,
2018, our estimated GILTI tax, net of related foreign tax credit is immaterial. We will continue to refine this
calculation as additional information becomes available and further guidance is provided by the U.S. Treasury.

Tax loss and credit carryforwards as of December 31, 2018 have expiration dates ranging between nine
years and no expiration in certain instances. The amount of foreign tax loss carryforwards as of December 31,
2018 were $1 million. The amount of federal tax credit carryforwards as of December 31, 2018 were $2 million.
The valuation allowance increased $2 million from none as of December 31, 2017 to $2 million as of
December 31, 2018. The valuation allowance has been established for financial reporting purposes to offset
certain federal deferred tax assets due to uncertainty regarding our ability to realize them in the future.

Our tax provision includes federal, state and foreign income taxes payable. The domestic and foreign

components of income before taxes were as follows:

($ in millions)

U.S. income before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign income before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2018

2017

2016

$380
23

$403

$283
28

$311

$270
23

$293

108

The components of our provision for income taxes were as follows:

($ in millions)

Current:

Year Ended December 31,

2018

2017

2016

Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 62
15
8

$ 94
11
8

Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

85

113

Deferred:

Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17
4
(1)

20

(137)
8
—

(129)

$ 87
8
7

102

21
2
—

23

Total provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$105

$ (16) $125

Reconciliations of our tax provision at the U.S. statutory rate to the provision for income taxes were as

follows:

($ in millions)

Statutory U.S. federal income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
State and local income taxes, net of U.S. federal tax benefit
Foreign income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. benefit of foreign taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible transactions costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on installment sales, net of U.S. federal tax benefit . . . . . . . . . . . . . . . . . . . . . .
Interest on installment sales adjustment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. tax reform: one-time repatriation tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. tax reform: remeasurement of deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. tax reform: remeasurement of long-term interest liability on installment sales, net
of federal tax benefit at 21% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other

Year Ended December 31,

2018

2017

2016

$ 85
19
6
(6)
2
—
3
—
(1)
(3)

—
—

$ 109
12
7
(7)
—
—
3
(5)
1
(132)

$102
10
7
(7)
—
5
7
—
—
—

(2)
(2)

—
1

Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$105

$ (16)

$125

Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets

and liabilities plus carryforward items.

The compositions of net deferred tax balances were as follows:

($ in millions)

December 31,

2018

2017

Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

1
(255)

$

1
(250)

Net deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(254)

$(249)

109

The tax effects of the temporary differences and carryforwards that give rise to our net deferred tax liability

were as follows:

($ in millions)

Deferred tax assets:

December 31,

2018

2017

Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Domestic tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 11
2
57

$

Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

70

(2)

68

9
—
42

51

—

51

Deferred tax liabilities:

Property and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortizable intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(46)
(10)
(266)

(54)
(10)
(236)

Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(322)

(300)

Net deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(254) $(249)

Note 18: Share-Based Compensation

Stock Plan

The share-based compensation award amounts presented below have been converted to reflect
the
separation from Hilton. Upon the separation on January 3, 2017, holders of Hilton stock options, RSUs and
performance shares received an adjusted award based on our shares.

We issue time-vesting restricted stock units (“RSUs”), time and performance-vesting restricted stock units
(“PSUs”) and nonqualified stock options (“options”) to certain employees and directors. We recognized share-
based compensation expense of $16 million, $15 million and $8 million during the years ended December 31,
2018, 2017 and 2016 respectively. The total tax benefit recognized related to this compensation was $4 million,
$4 million and $3 million for the years ended December 31, 2018, 2017 and 2016 respectively.

As of December 31, 2018, unrecognized compensation costs for unvested awards were approximately
$20 million, which is expected to be recognized over a weighted average period of 2.0 years. As of December 31,
2018, there were 7,509,691 shares of common stock available for future issuance.

RSUs

The following table provides information about our RSU grants for the last three fiscal years:

Number of shares granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average grant date fair value per share . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of shares vested (in millions)

378,069
42.63
13

$
$

534,329
29.23
11

$
$

331,227
18.68
4

$
$

Year Ended December 31,

2018

2017

2016

110

The following table summarizes the activity of our RSUs during the year ended December 31, 2018:

Outstanding, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Weighted
Average
Grant Date
Fair Value

$25.29
42.63
23.80
32.91

Number of
Shares

839,800
378,069
(413,440)
(61,047)

Outstanding, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

743,382

34.31

Options

The following table provides information about our option grants for the last three fiscal years:

Number of options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average exercise price per share . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average grant date fair value per share . . . . . . . . . . . . . . . . . . . . . . .

312,141
46.48
14.78

$
$

669,658
28.30
8.66

$
$

148,929
18.69
5.21

$
$

The grant date fair value of each of these option grants was determined using the Black-Scholes-Merton

option-pricing model with the following assumptions:

Year Ended December 31,

2018

2017

2016

Year Ended December 31,

2018

2017

2016

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free rate(3)
Expected term (in years)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

26.6% 26.3% 32.0%
1.4%
1.4%
6.0

—% —%
2.3%
2.7%
6.0
6.0

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

(2) At the date of grant we had no plans to pay dividends during the expected term of these options.
(3) Based on the yields of U.S. Department of Treasury instruments with similar expected lives.
(4)

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

The following table summarizes the activity of our options during the year ended December 31, 2018:

Weighted
Average
Exercise
Price Per
Share

Number
of Shares

Outstanding, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited, canceled or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

874,574
312,141
(3,792)
(76,251)

$25.96
46.48
28.30
34.60

Outstanding, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,106,672

31.14

Exercisable, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

378,137

24.14

111

Performance Shares

During the year ended December 31, 2018 we issued 92,578 PSUs with a weighted average grant date fair
value of $42.94. The PSUs are settled at the end of a three-year performance period, with 70 percent of the PSUs
subject to achievement based on the Company’s adjusted earnings before interest expense, taxes and depreciation
and amortization. This metric is further adjusted by sales of VOIs under construction. The remaining 30 percent
of the PSUs are subject to the achievement of certain VOI sales targets. We determined that the performance
conditions for these awards are probable of achievement and, as of December 31, 2018, we recognized
compensation expense based on the number of PSUs we expect to vest.

The following table provides information about our PSU grants, which is based on our Adjusted EBITDA
metric described in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations of this Annual Report on Form 10-K, further adjusted by sales of VOIs under construction, for the
year ended December 31, 2018. We had no PSU grants for the years ended December 31, 2017 and 2016:

Number of shares granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average grant date fair value per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of shares vested (in millions)

64,809
$ 42.94
N/A

The following table provides information about our PSU grants, which is based on contract sales as defined
in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this
Annual Report on Form 10-K for the year ended December 31, 2018. We had no PSU grants for the years ended
December 31, 2017 and 2016:

Number of shares granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average grant date fair value per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of shares vested (in millions)

27,769
$ 42.94
N/A

The following table summarizes the activity of our PSUs during the year ended December 31, 2018:

Adjusted EBITDA(1)

Contract Sales

Weighted
Average
Grant
Date Fair
Value per
Share

Weighted
Average
Grant
Date Fair
Value per
Share

Number of
Shares

Number of
Shares

Outstanding, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited, canceled or expired . . . . . . . . . . . . . . . . . . . . . . . . . .

— $ —
42.94
—
46.62

64,809
—
(7,508)

— $ —
42.94
—
46.62

27,769
—
(3,217)

Outstanding, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

57,301

42.46

24,552

42.46

(1) Represents our Adjusted EBITDA metric described in Part 1 of this Form 10-K, further adjusted by net recognition and

deferral activity from sales of VOIs under construction.

Note 19: Earnings Per Share

The following table presents the calculation of our basic and diluted earnings per share (“EPS”). The
weighted average shares outstanding used to compute basic and diluted EPS for the year ended December 31,
2018 is 97,209,889 and 97,898,242, respectively. The weighted average shares outstanding used to compute
basic and diluted EPS for the year ended December 31, 2017 is 98,934,352 and 99,621,199, respectively. The

112

weighted average shares outstanding for the year ended December 31, 2016 reflect 98,802,597 shares distributed
on January 3, 2017, our spin-off date, to our stockholders.

($ in millions, except per share amounts)

Basic EPS

Numerator:

Year Ended December 31,

2018

2017

2016

Net Income(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 298

$ 327

$ 168

Denominator:

Weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

97

99

99

Basic EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$3.07

$3.30

$1.70

Diluted EPS

Numerator:

Net Income(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 298

$ 327

$ 168

Denominator:

Weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

98

100

99

Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$3.05

$3.28

$1.70

(1) Net income for years ended December 31, 2018, 2017, and 2016 was $298,124,983; $326,777,744 and $167,618,659,

respectively.

The dilutive effect of outstanding share-based compensation awards is reflected in diluted earnings per

common share by application of the treasury stock method using average market prices during the period.

For the years ended December 31, 2018 and 2017, we excluded 384,860 and 229,621 share-based

compensation awards because their effect would have been anti-dilutive under the treasury stock method.

Note 20: Related Party Transactions

BRE Ace LLC

In July 2017, we entered into an agreement with BRE Ace Holdings LLC and formed BRE Ace LLC, a VIE.
BRE Ace LLC owns the Elara, by Hilton Grand Vacations located in Las Vegas, Nevada. For the year ended
December 31, 2017, we recorded $1 million in Equity in earnings from unconsolidated affiliates, included in our
consolidated statements of operations. We did not have any Equity in earnings from unconsolidated affiliates for
the year ended December 31, 2018. See Note 9: Investment
in Unconsolidated Affiliates for additional
information. Additionally, we earn commissions and other fees related to a fee-for-service agreement with the
investee to sell VOIs at Elara, by Hilton Grand Vacations. These amounts are summarized in the following table
and included in our consolidated statements of operations as of the date they became a related party.

($ in millions)

2018

Commission and other fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$132

2017

$79

2016

$—

December 31,

Also related to the fee-for-service agreement, as of both December 31, 2018 and 2017, we have outstanding

receivables of $29 million.

1776 Holding, LLC

In March 2018, we entered into an agreement with SCG 1776, LLC to form 1776 Holding, LLC. In
conjunction with this agreement we contributed $5 million in cash for a 50 percent ownership interest in 1776
Holding LLC. In December 2018, we contributed an additional $5 million in cash. For the year ended

113

December 31, 2018, we recorded less than $1 million loss included in the consolidated statements of operations
as Equity in equity (losses) from unconsolidated affiliates. See Note 9: Investment in Unconsolidated Affiliates
for additional information.

HNA Tourism Group Co., Ltd

On March 13, 2018, we and HNA Tourism Group Co., Ltd. (“HNA”) and HNA HLT Holdco I LLC (the
“Selling Stockholder”), an affiliate of HNA, entered into a Master Amendment and Option Agreement (the
“Master Amendment and Option Agreement”) to make certain amendments to the Stockholders Agreement,
dated October 24, 2016, between us and HNA (the “Stockholders Agreement”) and the Registration Rights
Agreement, dated October 24, 2016, between us and HNA (the “Registration Rights Agreement”), among other
things, (i) to permit the sale of up to all 24,750,000 shares of our common stock owned by the Selling
Stockholder prior to the expiration of the two-year restricted period originally contained in the Stockholders
Agreement, (ii) grant us a right to repurchase up to 4,340,000 shares of our common stock held by the Selling
Stockholder, (iii) provide that HNA has customary “demand” registration rights effective March 13, 2018,
(iv) require HNA to pay all expenses incurred under the Registration Rights Agreement for registrations or
offerings occurring prior to a certain date and (v) eliminate HNA’s right to designate a certain number of
directors to our board of directors. We exercised the repurchase option from the Selling Stockholder with respect
to 2,500,000 shares at a price of approximately $44.75 per share.

On March 14, 2018, HGV and HNA entered into an underwriting agreement with several underwriters,
pursuant to which the underwriters agreed to purchase from the Selling Stockholder 22,250,000 shares of
common stock, $0.01 par value per share, of the Company at a price of approximately $44.75 per share. The sale
was completed on March 19, 2018; consequently, HNA ceased to be a related party. We did not receive any
proceeds from the sale.

On March 19, 2018, the repurchase was completed and the shares were retired.

The Blackstone Group

In September 2017, Blackstone completed a sale of substantially all of our common stock held by them to

several institutional investors and ceased to be a related party to HGV.

The following table summarizes amounts included in our consolidated statements of operations related to a

fee-for-service arrangement with Blackstone affiliates to sell VOIs on their behalf through September 30, 2017:

($ in millions)

Commission and other fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

September 30, December 31,

2017

$135

2016

$177

Also related to the fee-for-service agreement, as of September 30, 2017, we had outstanding receivables of

$8 million.

Relationship between HGV and Hilton Before and After Spin-Off

On January 3, 2017, when the spin-off was completed, Hilton and Park Hotels & Resorts Inc. ceased to be
related parties of HGV. In connection with the spin-off, we entered into certain agreements with Hilton (who at
the time was a related party) and other third parties. See Key Agreements Related to Spin-Off section in Part I—
Item 1. Business for additional information.

114

Prior to the spin-off, we had a number of existing arrangements whereby Hilton and others provided
services to us. The following tables summarize amounts included in our consolidated financial statements related
to the arrangements with Hilton:

($ in millions)

Consolidated Statements of Operations
Expenses:

General and administrative

Year Ended
December 31,

2016

Allocated general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shared services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Defined contribution plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
License fee expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense

Related party interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$27
12
7
2
80

2

Shared Services and Corporate allocations

Our consolidated financial statements include costs for services provided to us by Hilton including, but not
limited to, information technology support, financial services, human resources and other shared services.
Historically, these costs were charged to us on a basis determined by Hilton to reflect a reasonable allocation of
actual costs incurred to perform the services. Additionally, Hilton allocated indirect general and administrative
costs to us for certain functions and services provided to us, including, but not limited to, executive office,
finance and other administrative support.

Insurance

Hilton provided us with insurance coverage for general liability, group health insurance, property, business
interruption and other risks with respect to business operations and charges us a fee based on estimates of claims.

Hilton Grand Vacations Brand

We licensed the Hilton Grand Vacations brand from Hilton and paid them an annual fee based on a

percentage of revenue for rights to operate under this brand.

Defined Contribution Plan

Hilton administered and maintained a defined contribution plan for the benefit of Hilton employees meeting
certain eligibility requirements who elect to participate in the plan. Contributions are determined based on a
specified percentage of salary deferrals by participating employees.

Hilton Honors Program

We participate in Hilton’s guest loyalty program, Hilton Honors. Club members can exchange Club points
for Hilton Honors points, which we purchase from Hilton. Hilton maintains and administers the program. We pay
Hilton in advance based on an estimated cost per point for the costs of future club exchanges. The associated
expense is included in respective operating expenses line item based on the revenue stream in our consolidated
statement of operations. For the year ended December 31, 2016, we paid Hilton $58 million for Hilton Honors
points. Our prepaid expenses, included in Other assets in our consolidated balance sheets, include the amount of
Hilton Honors points purchased from Hilton for future redemptions. The prepaid expense is amortized into
earnings evenly through the year.

115

Net Parent Transfers

The components of Net transfers to Parent in the consolidated statements of stockholders’ equity (deficit)

were as follows:

($ in millions)

Cash pooling and general financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net transfers to Parent

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2016

$(715)
53
95

$(567)

We paid rental fees and fees for other amenities to certain Hilton wholly-owned hotels. During the year

ended December 31, 2016 we paid fees of $27 million, included in our consolidated statements of operations.

Note 21: Business Segments

We operate our business through the following two segments:

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

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

The performance of our operating segments is evaluated primarily based on adjusted earnings before interest
expense (excluding non-recourse debt), taxes, depreciation and amortization (“EBITDA”). We define Adjusted
EBITDA as EBITDA which has been further adjusted to exclude certain items, including, but not limited to,
gains, losses and expenses in connection with: (i) asset dispositions; (ii) foreign currency transactions; (iii) debt
restructurings/retirements; (iv) non-cash impairment losses; (v) reorganization costs, including severance and
relocation costs; (vi) share-based and other compensation expenses; (vii) costs related to the spin-off; and
(viii) other items.

We do not include equity in earnings (losses) from unconsolidated affiliate in our measures of segment
revenues. The following table presents revenues for our reportable segments reconciled to consolidated amounts:

($ in millions)

Revenues:

Year Ended December 31,

2018

2017

2016

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate sales and financing(1)
Resort operations and club management(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,462
422

$1,239
367

$1,143
339

Total segment revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intersegment eliminations(1)(2)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,884
147
(32)

1,606
135
(30)

1,482
126
(25)

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,999

$1,711

$1,583

116

(1)

(2)

(3)

Includes charges to the resort operations and club management segment for billing and collection services provided by
the real estate sales and financing segment. These charges totaled $2 million for the year ended December 31, 2016.
There were no charges for the years ended December 31, 2018 and 2017.
Includes charges to the real estate sales and financing segment from the resort operations and club management segment
for discounted stays at properties resulting from marketing packages. These charges totaled $31 million, $29 million and
$23 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Includes charges to the real estate sales and financing segment from the resort operations and club management segment
for the rental of model units to show prospective buyers. These charges totaled $1 million for the years ended
December 31, 2018 and 2017. There were no charges for the year ended December 31, 2016.

The following table presents Adjusted EBITDA for our reportable segments reconciled to net income:

($ in millions)

Adjusted EBITDA:

Year Ended December 31,

2018

2017

2016

Real estate sales and financing(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort operations and club management(1)

$ 447
245

$ 359
204

$ 336
189

Segment Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
License fee expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allocated Parent interest expense(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other loss, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings from unconsolidated affiliates(4) . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit (expense)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other adjustment items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

692
(117)
(36)
(98)
(30)
—
(1)
—
(105)
(7)

563
(104)
(29)
(87)
(27)
—
—
1
16
(6)

525
(92)
(24)
(80)
(3)
(26)
(1)
—
(125)
(6)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 298

$ 327

$ 168

(1)

(2)

Includes intersegment eliminations. Refer to our table presenting revenues by reportable segment above for additional
discussion.
This amount represents interest expense on an unconditional obligation to guarantee certain Hilton allocated debt
balances which were released in November 2016.

(3) On December 22, 2017, the United States enacted tax reform legislation, the Act, resulting in significant modifications to
existing law which resulted in a reduction in income tax expense for the year ended December 31, 2017. See Note 17:
Income Taxes for additional information.
This amount primarily represents our 25 percent interest in BRE Ace LLC and our 50 percent interest in 1776 Holdings,
LLC. See Note 9: Investment in Unconsolidated Affiliates for additional information.

(4)

The following table presents total assets for our reportable segments, reconciled to consolidated amounts:

($ in millions)

Real estate sales and financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort operations and club management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total segment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2018

2017

$2,501
172

2,673
80

$2,255
78

2,333
51

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,753

$2,384

117

The following table presents capital expenditures for property and equipment for our reportable segments,

reconciled to consolidated amounts:

($ in millions)

Real estate sales and financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort operations and club management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total segment capital expenditures for property and equipment . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2018

2017

2016

$36
—

36
8

$28
2

30
5

$19
1

20
6

Total capital expenditures for property and equipment . . . . . . . . . . . . . . . . . . . . . . . . .

$44

$35

$26

Note 22: 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 December 31, 2018, we were committed to purchase approximately $607 million of
inventory and land over a period of six years. 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. During the years ended December 31, 2018 and 2017, we purchased $18 million and $12 million,
respectively, of VOI inventory as required under our commitments. As of December 31, 2018, our remaining
obligation pursuant to these arrangements was expected to be incurred as follows:

($ in millions)

Year
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Purchase
Obligations

$237
160
78
51
47
34

$607

We are involved in litigation arising from the normal course of business, some of which include claims for
substantial sums. Management has also identified certain other legal matters where we believe an unfavorable
outcome is reasonably possible and/or for which no estimate of possible losses can be made. 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 December 31, 2018 will not have a material effect on our
consolidated results of operations, financial position or cash flows.

Note 23: Supplemental Disclosures of Cash Flow Information

Cash paid for interest during the years ended December 31, 2018, 2017 and 2016, was $49 million,
$42 million and $37 million, respectively. Cash paid for income taxes during the year ended December 31, 2018
and 2017 was $153 million and $57 million, respectively. Prior to 2017, we were part of Hilton’s consolidated
income tax return.

The following non-cash activities were excluded from the consolidated statements of cash flows:

•

In 2018, we recorded a cumulative non-cash adjustment of $38 million related to the adoption of ASC
606. See Note 3: Revenue from Contracts with Customers for more information.

118

•

•

•

•

•

In 2018, we recorded a $3 million non-cash operating activity transfer from Property and Equipment,
net to Inventory.

In 2018, we recorded a $3 million non-cash financing activity adjustment to equity related to the
write-off of expenses due to Hilton prior to the spin-off

In 2017, we recorded a $40 million non-cash operating activity transfer from Property and Equipment,
net to Inventory.

In 2016, Hilton transferred to us $72 million of net inventory and $138 million of net Property and
Equipment, net for conversion into timeshare units.

In 2016, we had $300 million of a non-cash financing activity related to the issuance of our Senior
Unsecured Notes and $8 million of related non-cash deferred financing costs.

Note 24: Condensed Consolidating Guarantor Financial Information

During 2016, Hilton completed an internal reorganization to contribute to HGV its U.S. and non-U.S.
timeshare subsidiaries including HRC. HGV is a Delaware corporation formed on May 2, 2016. HRC is
considered our predecessor entity for periods prior to the formation of HGV. However, for the condensed
consolidating information below, HRC is included in the Guarantors column to more faithfully represent the
historical combined financial position and results of operations and cash flows of the subsidiaries currently
serving as the guarantors of the debt. See Note 1: Organization for additional information. In November 2016,
Hilton Grand Vacations Borrower LLC and Hilton Grand Vacations Borrower Inc. (the “Subsidiary Issuers”),
entities formed in October 2016 which are 100 percent owned by HGV (the “Parent”), issued the Senior
Unsecured Notes. The obligations of the Subsidiary Issuers are fully and unconditionally guaranteed jointly and
severally on a senior unsecured basis by the Parent, and certain of the Parent’s 100 percent owned domestic
subsidiaries (the “Guarantors”). The indenture that governs the Senior Unsecured Notes provides that any
subsidiary of the Company that provides a guarantee of the senior secured credit facilities will guarantee the
Senior Unsecured Notes. Neither of our foreign subsidiaries nor certain of our special purpose subsidiaries
formed in connection with our Timeshare Facility and Securitized Timeshare Debt guarantee the Senior
Unsecured Notes (collectively, the “Non-Guarantors”).

119

The following schedules present the condensed consolidating financial information as of December 31,
2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016, for the Parent, Subsidiary Issuers,
Guarantors and Non-Guarantors.

($ in millions)

ASSETS

Parent

Issuers Guarantors

Guarantors Eliminations

Total

December 31, 2018

Non-

Cash and cash equivalents . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . .
Timeshare financing receivables, net . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . .
Investments in unconsolidated affiliates . . .
Intangible assets, net . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in subsidiaries . . . . . . . . . . . . .

$

4
—
—
—
—
—
—
—
—
612

$ — $
—
—
—
—
—
—
—
6
1,210

89
45
157
209
502
553
38
81
41
277

$

15
27
17
911
25
6
—
—
48
—

$ — $ 108
72
153
1,120
527
559
38
81
95
—

—
(21)
—
—
—
—
—
—
(2,099)

TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . .

$616

$1,216

$1,992

$1,049

$(2,120)

$2,753

LIABILITIES AND EQUITY

Accounts payable, accrued expenses and

other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advance deposits . . . . . . . . . . . . . . . . . . . .
Debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Non-recourse debt, net
Deferred revenues . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . .

$ — $ — $ 332
101
—
—
604
—
—
95
—
254
—
1,210
612

—
—
—
—
—
616

$

13
—
—
759
—
—
277

$

(21)
—
—
—
—
—
(2,099)

$ 324
101
604
759
95
254
616

TOTAL LIABILITIES AND EQUITY . . . . .

$616

$1,216

$1,992

$1,049

$(2,120)

$2,753

120

($ in millions)

ASSETS

Parent

Issuers Guarantors

Guarantors Eliminations

Total

December 31, 2017

Non-

Cash and cash equivalents . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . .
Timeshare financing receivables, net . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . .
Investment in unconsolidated affiliate . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in subsidiaries . . . . . . . . . . . . .

$ — $ — $ 230
29
—
113
—
457
—
509
—
232
—
41
—
72
—
36
2
81
999

—
—
—
—
—
—
—
—
518

TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . .

$518

$1,001

$1,800

LIABILITIES AND EQUITY

Accounts payable, accrued . . . . . . . . . . . . .
expenses and other . . . . . . . . . . . . . . . . . . .
Advance deposits . . . . . . . . . . . . . . . . . . . .
Debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Non-recourse debt, net
Deferred revenues . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . .

$ — $
—
—
—
—
—
518

1
—
482
—
—
—
518

TOTAL LIABILITIES AND EQUITY . . . . .

$518

$1,001

$ 338
104
—
—
109
250
999

$1,800

$ 16
22
5
614
—
6
—
—
7
—

$670

$

7
—
—
583
—
(1)
81

$ — $ 246
51
112
1,071
509
238
41
72
44
—

—
(6)
—
—
—
—
—
(1)
(1,598)

$(1,605)

$2,384

$

(7)
—
—
—
—
—
(1,598)

$ 339
104
482
583
109
249
518

$670

$(1,605)

$2,384

121

($ in millions)

Revenues

For the Year Ended December 31, 2018

Non-

Parent

Issuers Guarantors

Guarantors Eliminations

Total

Sales of VOI’s, net . . . . . . . . . . . . . . . . . . . .
Sales, marketing, license and other fees . . .
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort and club management . . . . . . . . . . . .
Rental and ancillary service . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . .

$ — $ — $ 716
578
—
70
—
172
—
216
—
143
—

—
—
—
—
—

Total revenues . . . . . . . . . . . . . . . . . . .

Expenses

Cost of VOI sales . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . .
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort and club management . . . . . . . . . . . .
Rental and ancillary service . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . .
License fee expense . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . .

Total operating expenses . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Other loss, net

Income (loss) before income taxes . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . .

Income (loss) before equity in earnings (loss)

—

—
—
—
—
—
—
—
—
—

—
—
—

—
—

—

—
—
—
—
—
—
—
—
—

—
(30)
—

(30)
—

1,895

208
725
19
47
130
116
36
98
143

1,522
—
(1)

372
(105)

from subsidiaries . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings from subsidiaries . . . . . .

—
298

(30)
328

267
61

$ 18
4
95
—
2
4

123

2
15
37
—
3
1
—
—
4

62
—
—

61
—

61
—

$ —
(12)
(7)
—
—
—

(19)

$ 734
570
158
172
218
147

1,999

—
(12)
(7)
—
—
—
—
—
—

(19)
—
—

—
—

210
728
49
47
133
117
36
98
147

1,565
(30)
(1)

403
(105)

—
(687)

298
—

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$298

$298

$ 328

$ 61

$(687)

$ 298

122

($ in millions)

Revenues

For the Year Ended December 31, 2017

Non-

Parent

Issuers Guarantors

Guarantors Eliminations

Total

Sales of VOI’s, net . . . . . . . . . . . . . . . . . . . .
Sales, marketing, license and other fees . . .
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort and club management . . . . . . . . . . . .
Rental and ancillary service . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . .

$ — $ — $ 518
545
—
71
—
156
—
177
—
131
—

—
—
—
—
—

Total revenues . . . . . . . . . . . . . . . . . . .

Expenses

Cost of VOI sales . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . .
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort and club management . . . . . . . . . . . .
Rental and ancillary service . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . .
License fee expense . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . .

Total operating expenses . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings from unconsolidated

affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income (loss) before income taxes . . . . . . . . . .
Income tax benefit (expense) . . . . . . . . . . . .

Income (loss) before equity in earnings (loss)

—

—
—
—
—
—
—
—
—
—

—
—

—

—
—

—

—
—
—
—
—
—
—
—
—

—
(27)

—

(27)
—

from subsidiaries . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings from subsidiaries . . . . . .

—
327

(27)
354

1,598

145
650
19
41
120
101
29
87
131

1,323
—

1

276
18

294
60

$ 30
3
83
2
2
4

124

$ —
(4)
(7)
—
—
—

(11)

$ 548
544
147
158
179
135

1,711

3
17
31
2
2
3
—
—
4

62
—

—

62
(2)

60
—

—
(4)
(7)
—
—
—
—
—
—

(11)
—

—

—
—

—
(741)

148
663
43
43
122
104
29
87
135

1,374
(27)

1

311
16

327
—

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$327

$327

$ 354

$ 60

$(741)

$ 327

123

($ in millions)

Revenues

For the Year Ended December 31, 2016

Non-

Parent

Issuers Guarantors

Guarantors Eliminations

Total

Sales of VOI’s, net . . . . . . . . . . . . . . . . . . . .
Sales, marketing, license and other fees . . .
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort and club management . . . . . . . . . . . .
Rental and ancillary service . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . .

$ — $ — $ 495
501
—
73
—
143
—
171
—
123
—

—
—
—
—
—

Total revenues . . . . . . . . . . . . . . . . . . .

Expenses

Cost of VOI sales . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . .
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort and club management . . . . . . . . . . . .
Rental and ancillary service . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . .
License fee expense . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . .

Total operating expenses . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . .
Allocated Parent interest expense . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Other loss, net

Income (loss) before income taxes . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . .

Income (loss) before equity in earnings (loss)

—

—
—
—
—
—
—
—
—
—

—
—
(17)
—

(17)
—

—

—
—
—
—
—
1
—
—
—

1
(3)
—
—

(4)
—

1,506

150
605
18
36
108
91
24
80
123

1,235
—
(9)
(1)

261
(125)

from subsidiaries . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings from subsidiaries . . . . . .

(17)
185

(4)
189

136
53

$13
2
66
—
2
3

86

2
4
19
—
5
—
—
—
3

33
—
—
—

53
—

53
—

$ —
(4)
(5)
—
—
—

(9)

—
(4)
(5)
—
—
—
—
—
—

(9)
—
—
—

—
—

$ 508
499
134
143
173
126

1,583

152
605
32
36
113
92
24
80
126

1,260
(3)
(26)
(1)

293
(125)

—
(427)

168
—

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$168

$185

$ 189

$53

$(427)

$ 168

124

($ in millions)

Parent

Issuers Guarantors

Guarantors Eliminations

Total

For the Year Ended December 31, 2018

Non-

Operating Activities
Net cash provided by (used in) operating

activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$— $ (28)

$ 163

$(291)

$ (3)

$(159)

Investing Activities

Capital expenditures for property and

equipment

. . . . . . . . . . . . . . . . . . . . . . . . . —
Software capitalization costs . . . . . . . . . . . . . —
Return of investment from unconsolidated

affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Investment in unconsolidated affiliates . . . . . —

Net cash used in investing activities . . . . . . . . . . . —

Financing Activities

Issuance of debt . . . . . . . . . . . . . . . . . . . . . . . —
Issuance of non-recourse debt . . . . . . . . . . . . —
Repurchase and retirement of common

—
—

—
—

—

530
—

stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (183)
Repayment of debt . . . . . . . . . . . . . . . . . . . . . — (408)
—
Repayment of non-recourse debt . . . . . . . . . . —
Debt issuance costs . . . . . . . . . . . . . . . . . . . . —
(7)
Payment of withholding taxes on vesting of

restricted stock units . . . . . . . . . . . . . . . . . —
Capital contributions . . . . . . . . . . . . . . . . . . . —
4
Intercompany transfers . . . . . . . . . . . . . . . . .

Net cash provided by (used in) financing

activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net increase in cash, cash equivalents and

restricted cash . . . . . . . . . . . . . . . . . . . . . . . . .

Cash, cash equivalents and restricted cash,

4

4

beginning of period . . . . . . . . . . . . . . . . . . . . . —

(4)
3
97

28

—

—

(37)
(19)

11
(10)

(55)

—
—

—
—
—
—

—
—
(233)

(233)

(125)

259

(7)
—

—
—

(7)

—
663

—
—
(485)
(5)

—
—
129

302

4

38

—
—

—
—

—

—
—

—
—
—
—

—
—
3

3

—

—

(44)
(19)

11
(10)

(62)

530
663

(183)
(408)
(485)
(12)

(4)
3
—

104

(117)

297

Cash, cash equivalents and restricted cash, end
of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 4

$ — $ 134

$ 42

$—

$ 180

125

($ in millions)

Parent

Issuers Guarantors

Guarantors Eliminations

Total

For the Year Ended December 31, 2017

Non-

Operating Activities
Net cash provided by (used in) operating

activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$— $(27)

$156

$ 235

$ (8)

$ 356

Investing Activities

Capital expenditures for property and

equipment

. . . . . . . . . . . . . . . . . . . . . . . . . —
Software capitalization costs . . . . . . . . . . . . . —
Investment in unconsolidated affiliate . . . . . . —

Net cash used in investing activities . . . . . . . . . . . —

Financing Activities

Issuance of non-recourse debt . . . . . . . . . . . . —
Repayment of debt . . . . . . . . . . . . . . . . . . . . . —
Repayment of non-recourse debt . . . . . . . . . . —
Debt issuance costs . . . . . . . . . . . . . . . . . . . . —
Proceeds from stock option exercises . . . . . . —
Intercompany transfers . . . . . . . . . . . . . . . . . —

Net cash provided by (used in) financing

activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —

Net increase in cash, cash equivalents and

restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . —

Cash, cash equivalents and restricted cash,

beginning of period . . . . . . . . . . . . . . . . . . . . . —

—
—
—

—

—
(10)
—
—
—
37

27

—

—

(33)
(12)
(40)

(85)

—
—
—
—
1
59

60

131

128

(2)
—
—

(2)

350
—
(459)
(5)
—
(104)

(218)

15

23

—
—
—

—

—
—
—
—
—
8

8

—

—

(35)
(12)
(40)

(87)

350
(10)
(459)
(5)
1
—

(123)

146

151

Cash, cash equivalents and restricted cash, end
of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$— $ —

$259

$ 38

$—

$ 297

126

($ in millions)

Parent

Issuers Guarantors

Guarantors Eliminations

Total

For the Year Ended December 31, 2016

Non-

$ — $

4

$ 432

$(187)

$(67)

$ 182

Operating Activities
Net cash provided by operating activities . . . . . . .

Investing Activities

Capital expenditures for property and

equipment

. . . . . . . . . . . . . . . . . . . . . . . . .
Software capitalization costs . . . . . . . . . . . . .

Net cash used in investing activities . . . . . . . . . . .

Financing Activities

—
—

—

—
—

—

Issuance of debt . . . . . . . . . . . . . . . . . . . . . . .
Issuance of non-recourse debt . . . . . . . . . . . .
Repayment of non-recourse debt . . . . . . . . . .
Debt issuance costs . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Allocated debt activity(1)
Net transfers to Parent(1)
. . . . . . . . . . . . . . . .
Intercompany transfers . . . . . . . . . . . . . . . . .

— 200
—
—
—
—
(4)
—
—
111
—
(567)
(200)
456

(26)
(8)

(34)

—
—
—
(3)
—
—
(329)

—
—

—

—
300
(110)
(3)
—
—
6

Net cash provided by (used in) financing

activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net increase in cash, cash equivalents and

restricted cash . . . . . . . . . . . . . . . . . . . . . . . . .

Cash, cash equivalents and restricted cash,

beginning of period . . . . . . . . . . . . . . . . . . . . .

Cash, cash equivalents and restricted cash, end
of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1) Amounts represent activities with Hilton.

—

—

—

(4)

(332)

193

—

—

66

62

6

17

$ — $ — $ 128

$ 23

$ —

$ 151

—
—

—

—
—
—
—
—
—
67

67

—

—

(26)
(8)

(34)

200
300
(110)
(10)
111
(567)
—

(76)

72

79

Note 25: Selected Quarterly Financial Information (unaudited)

The following table sets forth the historical unaudited quarterly financial data for the periods indicated. The
information for each of these periods has been prepared on the same basis as the audited consolidated financial
statements and, in our opinion, reflects all adjustments necessary to present fairly our financial results. Operating
results for previous periods do not necessarily indicate results that may be achieved in any future period.

2018

First

Fourth
Quarter Quarter Quarter Quarter

Second

Third

($ in millions, except per share data)
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 367
320
40
30
$0.31
$0.30

$ 563
408
146
107
$1.10
$1.10

$ 427
364
56
41
$0.42
$0.42

$ 642
473
161
120
$1.25
$1.24

127

Year

$1,999
1,565
403
298
$ 3.07
$ 3.05

2017

First

Fourth
Quarter Quarter Quarter Quarter

Second

Third

($ in millions, except per share data)
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 399
316
76
50
$0.51
$0.51

$ 439
348
84
51
$0.51
$0.51

$ 426
350
71
43
$0.43
$0.43

$ 447
360
80
183
$1.85
$1.83

Year

$1,711
1,374
311
327
$ 3.30
$ 3.28

Note 26: Subsequent Events

In January 2019, we acquired land in Maui, Hawaii for future development into timeshare inventory. The
purchase was comprised of a $60 million cash payment and a $23 million promissory note, which will bear
contractual interest of $27 million. The combined principal and interest of the promissory note will be paid in
four equal annual installments beginning in January 2028.

In January 2019, we purchased timeshare inventory in Barbados for $9 million.

128

ITEM 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

There were no changes in or disagreements with our accountants on accounting and financial disclosure

matters.

ITEM 9A. Controls and Procedures

Evaluation of 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 annual
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 annual 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.

Management’s Report on Internal Control Over Financial Reporting

We have set forth management’s report on internal control over financial reporting and the attestation report
of our independent registered public accounting firm on the effectiveness of our internal control over financial
reporting in Item 8 of this Annual Report on Form 10-K. Management’s report on internal control over financial
reporting is incorporated in this Item 9A by reference.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the fourth quarter of 2018 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.

ITEM 9B. Other Information

None.

129

ITEM 10. Directors, Executive Officers and Corporate Governance

PART III

The information required by this item is incorporated by reference to our definitive proxy statement for the
2019 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended
December 31, 2018 (the “Proxy Statement”) under the following captions: “Proposal No. 1: Election of
Directors—Nominees for Election to the Board of Directors in 2019,” “Executive Officers of the Company,”
“Ownership of Securities—Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance
and Board Matters—Code of Conduct,” “—Director Nomination Process,” “—Communications with the Board,”
and “—Board Committees.”

ITEM 11. Executive Compensation

The information required by this item is incorporated by reference to the Proxy Statement under the
following captions: “Executive Compensation,” “Compensation Discussion and Analysis
(“CD&A”),”
“Compensation of Directors,” “Compensation Committee Interlocks and Insider Participation” and “Report of
the Compensation Committee.”

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters

The information required by this item is incorporated by reference to the Proxy Statement under the
following captions: “Executive Compensation—Securities Authorized for Issuance Under Equity Compensation
Plans” and “Ownership of Securities.”

ITEM 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated by reference to the Proxy Statement under the

following captions: “Transactions with Related Persons” and “Corporate Governance and Board Matters.”

ITEM 14. Principal Accountant Fees and Services

The information required by this item is incorporated by reference to the Proxy Statement under the
following captions: “Proposal No. 2: Ratification of the Appointment of Ernst & Young LLP as Independent
Auditors of the Company for the 2019 Fiscal Year—Audit and Non-Audit Fees.”

ITEM 15. Exhibits and Financial Statement Schedules

The following documents are filed as part of this Form 10-K:

PART IV

1. All financial statements. See Index to Consolidated Financial Statements on page 72 of this Form 10-K.

2.

Financial Statement Schedules. The financial statement schedule entitled “Schedule II—Valuation and
Qualifying Accounts” has been omitted since the information required is included in the consolidated
financial statements and notes thereto. Other schedules are omitted because they are not required.

3.

Exhibits. See Exhibit Index.

ITEM 16. Form 10-K Summary

None.

130

Exhibit No.

2.1

3.1

3.2

4.1(a)

4.1(b)

4.2

4.3

10.1

10.2

10.3

10.4

10.5

10.6

EXHIBIT INDEX

Description

Distribution Agreement among Hilton Worldwide Holdings Inc., Park Hotels & Resorts Inc. and
Hilton Grand Vacations Inc. (incorporated by reference to Exhibit 2.1 to the Registrant’s Current
Report on Form 8-K (File No. 001-37794) filed on January 4, 2017).

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

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

Indenture, dated as of October 24, 2016, among Hilton Grand Vacations Borrower LLC, as
the issuer, Hilton Grand Vacations Borrower Inc., as the co-issuer, the guarantors from time to
time party thereto, and Wilmington Trust, National Association, as trustee (incorporated by
reference to Exhibit 10.21 of the Registrant’s Registration Statement on Form 10-12B/A (File
No. 001-27794) filed on November 23, 2016.

Form of First Supplemental Indenture, dated as of November 29, 2016, among the subsidiary
guarantors party thereto and Wilmington Trust, National Association, as trustee (incorporated by
reference to Exhibit 10.23 to the Registrant’s Registration Statement on Form 10-12B/A (File
No. 001-37794) filed on November 23, 2016).

Form of 6.125% Senior Note due 2024 (included in Exhibit 4.1(a)).

Registration Rights Agreement dated as of November 29, 2016, among Hilton Grand Vacations
Inc.,
Borrower LLC, Hilton Grand Vacations Borrower
the Subsidiary Guarantors, as defined therein, and Goldman, Sachs & Co. as representative of
the several
initial purchasers (incorporated by reference to Exhibit 4.5 to the Registrant’s
Registration Statement on Form S-4 (File No. 333-221194-02) filed on October 27, 2017).

Inc., Hilton Grand Vacations

Employee Matters Agreement among Hilton Worldwide Holdings Inc., Park Hotels & Resorts Inc.
and Hilton Grand Vacations Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K (File No. 001-37794) filed on January 4, 2017).

Tax Matters Agreement among Hilton Worldwide Holdings Inc., Park Hotels & Resorts Inc. and
Hilton Grand Vacations Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current
Report on Form 8-K (File No. 001-37794) filed on January 4, 2017).

Master Transition Services Agreement between Hilton Worldwide Holdings Inc. and Hilton Grand
Vacations Inc. (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on
Form 8-K (File No. 001-37794) filed on January 4, 2017).

License Agreement, by and among Hilton Worldwide Holdings Inc. and Hilton Grand Vacations
Inc. (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K
(File No. 001-37794) filed on January 4, 2017).

Registration Rights Agreement, dated as of October 24, 2016, among Hilton Grand Vacations Inc.
and HNA Tourism Group Co., Ltd. (incorporated by reference to Exhibit 10.17 to the Registrant’s
Registration Statement on Form 10-12B/A (File No. 001-37794) filed on November 14, 2016).

Stockholders Agreement, dated as of October 24, 2016, by and among Hilton Grand Vacations,
Inc., HNA Tourism Group Co., Ltd. and HNA Group Co., Ltd. (incorporated by reference to
Exhibit 10.18 to the Registrant’s Registration Statement on Form 10-12B/A (File No. 001-37794)
filed on November 14, 2016).

131

Exhibit No.

10.7

10.8

10.9(a)

10.9(b)

10.9(c)

10.9(d)

10.9(e)

Description

Stockholders Agreement, dated as of January 2, 2017 by and among Hilton Worldwide Holdings
Inc., Hilton Grand Vacations Inc., and the Blackstone Holders (as defined therein) (incorporated
by reference to Exhibit 10.7 of the Registrant’s Current Report on Form 8-K (File No. 001-37794)
filed on January 4, 2017).

Master Amendment and Option Agreement, by and among the Company, HNA Tourism Group
Co., Ltd. and HNA HLT Holdco I, LLC, dated as of March 13, 2018 (incorporated by reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37794) filed on
March 13, 2018).

Receivables Loan Agreement, dated as of May 9, 2013, among Hilton Grand Vacations Trust I
LLC, as borrower, Wells Fargo Bank, National Association, as paying agent and securities
the financial
the persons from time to time party thereto as conduit lenders,
intermediary,
institutions from time to time party thereto as committed lenders, the financial institutions from
time to time party thereto as managing agents, and Deutsche Bank Securities,
Inc., as
administrative agent and structuring agent (incorporated by reference to Exhibit 10.7 to Hilton
Worldwide Holdings Inc.’s Registration Statement on Form S-1 (No. 333-191110) filed on
September 11, 2014).

Amendment No. 1 to Receivables Loan Agreement, effective as of July 25, 2013, among Hilton
Grand Vacations Trust I LLC, as borrower, Wells Fargo Bank, National Association, as paying
agent and securities intermediary, Deutsche Bank AG, New York Branch, as a committed lender
and a managing agent, Montage Funding, LLC, as a conduit lender, Deutsche Bank Securities,
Inc., as administrative agent, and Bank of America, N.A., as assignee (incorporated by reference
to Exhibit 10.8 to Hilton Worldwide Holdings Inc.’s Registration Statement on Form S-1
(No. 333-191110) filed on September 11, 2014).

Omnibus Amendment No. 2 to Receivables Loan Agreement, Amendment No. 1 to Sale and
Contribution Agreement and Consent to Custody Agreement, effective as of October 25, 2013,
among Hilton Grand Vacations Trust I LLC, as borrower, Grand Vacations Services LLC, as
servicer, Hilton Resorts Corporation, as seller, Wells Fargo Bank, National Association, as
custodian, the financial institutions signatory thereto, as managing agents, and Deutsche Bank
Securities, Inc., as administrative agent (incorporated by reference to Exhibit 10.9 to Hilton
Worldwide Holdings Inc.’s Registration Statement on Form S-1 (No. 333-191110) filed on
September 11, 2014).

Amendment No. 3 to Receivables Loan Agreement, effective as of December 5, 2014, among
Hilton Grand Vacations Trust I LLC, as borrower, Wells Fargo Bank, National Association, as
paying agent and securities intermediary, Deutsche Bank AG, New York Branch, as a committed
lender and a managing agent, Bank of America, N.A., as a committed lender and a managing
agent, and Deutsche Bank Securities, Inc., as administrative agent (incorporated by reference to
Exhibit 10.1 to Hilton Worldwide Holdings
Inc.’s Current Report on Form 8-K
(File No. 001-36243) filed on December 8, 2014).

Omnibus Amendment No. 4 to Receivables Loan Agreement and Amendment No. 2 to Sale and
Contribution Agreement, effective as of August 18, 2016, among Hilton Grand Vacations Trust I
LLC, as borrower, Wells Fargo Bank, National Association, as paying agent and securities
the financial
intermediary,
institutions signatory thereto as committed lenders and Deutsche Bank Securities, Inc., as
administrative agent (incorporated by reference to Exhibit 10.11 to the Registrant’s Registration
Statement on Form 10-12B/A (File No. 001-37794) filed on September 16, 2016).

institutions signatory thereto, as managing agents,

the financial

132

Exhibit No.

10.9(f)

10.9(g)

10.9(h)

10.9(i)

10.9(j)

10.9(k)*

10.10(a)†

10.10(b)†

Description

Amendment No. 5 to Receivables Loan Agreement, effective as of October 4, 2016, among Hilton
Grand Vacations Trust I LLC, as borrower, Wells Fargo Bank, National Association, as paying
agent and securities intermediary, Deutsche Bank AG, New York Branch, as a committed lender
and a managing agent, Bank of America, N.A., as a committed lender and a managing agent, and
Deutsche Bank Securities, Inc., as administrative agent (incorporated by reference to Exhibit 10.16
to the Registrant’s Registration Statement on Form 10-12B/A (File No. 001-37794) filed on
October 25, 2016).

Amendment No. 6 to Receivables Loan Agreement and Assignment and Acceptance, dated as of
December 14, 2016, among Hilton Grand Vacations Trust I LLC, as borrower, Wells Fargo Bank,
National Association, as paying agent and securities intermediary,
institutions
signatory thereto, as managing agents, the financial institutions signatory thereto as committed
lenders and Deutsche Bank Securities, Inc., as administrative agent (incorporated by reference to
Exhibit 10.37 to the Registrant’s amended Annual Report on Form 10-K/A (File No. 001-37794)
filed on March 13, 2018).

the financial

Amendment No. 7 to Receivables Loan Agreement, dated as of April 19, 2017, among Hilton
Grand Vacations Trust I LLC, as borrower, Wells Fargo Bank, National Association, as paying
agent and securities intermediary, the financial institutions signatory thereto, as managing agents,
the financial institutions signatory thereto as committed lenders and Deutsche Bank Securities,
Inc., as administrative agent (incorporated by reference to Exhibit 10.38 to the Registrant’s
amended Annual Report on Form 10-K/A (File No. 001-37794) filed on March 13, 2018).

Omnibus Amendment No. 8 to Receivables Loan Agreement and Amendment No. 3 to Sale and
Contribution Agreement Receivables Loan Agreement, effective as of March 9, 2018, by and
among Hilton Grand Vacations Trust I LLC, as borrower, Hilton Resorts Corporation, as seller,
Wells Fargo Bank, National Association, as paying agent and securities intermediary, the financial
institutions signatory hereto as managing agents, the financial institutions signatory hereto as
managing agents, the financial institutions signatory hereto as conduit lenders, the financial
institution signatory hereto as committed lenders, and Deutsche Bank Securities, Inc., as
administrative agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report
on Form 8-K (File No. 001-37794) filed on March 13, 2018).

Omnibus Amendment No. 9 to Receivables Loan Agreement, Amendment No. 4 to Sale And
Contribution Agreement effective as of May 14, 2018 by and among Hilton Grand Vacations Trust
I LLC, as borrower, Hilton Resorts Corporation, as seller, Wells Fargo Bank, National
Association, as paying agent and securities intermediary,
institutions signatory
thereto as managing agents, the financial institutions signatory thereto as conduit lenders, the
financial institutions signatory thereto as committed lenders, and Deutsche Bank Securities, Inc.,
as administrative agent (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly
Report on Form 10-Q (File No. 001-37794) filed on August 2, 2018).

the financial

Amendment No. 10 to Receivables Loan Agreement effective as of February 14, 2019 by and
among Hilton Grand Vacations Trust I LLC, as borrower, the financial institutions signatory
thereto as managing agents, the financial institutions signatory thereto as conduit lenders, the
financial institutions signatory thereto as committed lenders and Deutsche Bank Securities, Inc., as
administrative agent.

Hilton Grand Vacations Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit
10.8 to the Registrant’s Current Report on Form 8-K (File No. 001-37794) filed on January 4,
2017).

2017 Declaration of Amendment to Hilton Grand Vacations Inc. 2017 Omnibus Incentive Plan
(incorporated by reference to Appendix A of the Registrant’s Definitive Proxy Statement on
Schedule 14A (File No. 001-37794) filed on March 24, 2017).

133

Exhibit No.

10.11†

Hilton Grand Vacations Inc. 2017 Stock Plan for Non-Employee Directors (incorporated by
reference to Exhibit 10.9 to the Registrant’s Current Report on Form 8-K (File No. 001-37794)
filed on January 4, 2017).

Description

10.12(a)†

Hilton Resorts Corporation 2017 Executive Deferred Compensation Plan (incorporated by
reference to Exhibit 10.10 to the Registrant’s Current Report on Form 8-K (File No. 001-37794)
filed on January 4, 2017).

10.12(b)† Hilton Resorts Corporation 2017 Executive Deferred Compensation Plan, as amended and restated
effective as of September 1, 2018 (incorporated by reference to Exhibit 10.3 to the Registrant’s
Quarterly Report on Form 10-Q (File No. 001-37794) filed on November 1, 2018).

10.13(a)†

Offer Letter, dated July 6, 2016, with James E. Mikolaichik (incorporated by reference to
Exhibit 10.15 to the Registrant’s Registration Statement on Form 10-12B/A (File No. 001-37794)
filed on September 16, 2016).

10.13(b)†* Offer Letter, dated November 16, 2018, with Gordon S. Gurnik.

10.13(c)†* Offer Letter, dated November 23, 2018, with Daniel J. Mathewes.

10.14†

10.15(a)†

10.15(b)†

10.15(c)†

10.15(d)†

10.15(e)†

10.15(f)†

10.15(g)†

Employment Letter Agreement, dated April 17, 2017, between Mark D. Wang and Hilton Grand
Vacations Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K (File No. 001-37794) filed on April 17, 2017).

Severance Agreement, dated April 17, 2017, between Mark D. Wang and Hilton Grand Vacations
Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K
(File No. 001-37794) filed on April 17, 2017).

Severance Agreement, dated April 17, 2017, between James E. Mikolaichik and Hilton Grand
Vacations Inc. (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on
Form 8-K (File No. 001-37794) filed on April 17, 2017).

Severance Agreement, dated April 17, 2017, between Stan R. Soroka and Hilton Grand Vacations
Inc. (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K
(File No. 001-37794) filed on April 17, 2017).

Severance Agreement, dated April 17, 2017, between Barbara L. Hollkamp and Hilton Grand
Vacations Inc. (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on
Form 8-K (File No. 001-37794) filed on April 17, 2017).

Severance Agreement, dated April 17, 2017, between Charles R. Corbin and Hilton Grand
Vacations, Inc. (incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on
Form 10-Q (File No. 001-37794) filed on August 3, 2017).

Severance Agreement, dated November 30, 2017, between Dennis A. DeLorenzo and Hilton
Grand Vacations Inc. (incorporated by reference to Exhibit 10.23 to the Registrant’s Annual
Report on Form 10-K (File No. 001-37794) filed on March 1, 2018).

Severance Agreement, dated November 30, 2017, between Sherri A. Silver and Hilton Grand
Vacations Inc. (incorporated by reference to Exhibit 10.24 to the Registrant’s Annual Report on
Form 10-K (File No. 001-37794) filed on March 1, 2018).

10.15(h)†* Severance Agreement, dated effective as of November 28, 2018, between Daniel J. Mathewes and

Hilton Grand Vacations Inc.

10.15(i)†*

Severance Agreement, dated effective as of December 3, 2018, between Gordon S. Gurnik and
Hilton Grand Vacations Inc.

134

Exhibit No.

10.16†

10.17(a)

10.17(b)

10.18

10.19(a)†

10.19(b)†

10.19(c)†

10.19(d)†

10.19(e)†

10.19(f)†

10.20(a)†

10.20(b)†

Description

Form of Indemnification Agreement entered into between Hilton Grand Vacations Inc. and each of
its directors and executive officers (incorporated by reference to Exhibit 10.5 to the Registrant’s
Registration Statement on Form 10-12B/A (File No. 001-37794) filed on November 14, 2016).

Credit Agreement, dated as of December 28, 2016 among Hilton Grand Vacations Parent LLC, as
parent, Hilton Grand Vacations Borrower LLC, as the borrower, the other guarantors party thereto
from time to time, Deutsche Bank AG New York Branch, as administrative agent, collateral agent,
swing line lender and l/c issuer and the other lenders party thereto from time to time (incorporated
by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K (File No. 001-37794)
filed on January 4, 2017).

Amendment No. 1 to the Credit Agreement, dated as of November 28, 2018, by and among Hilton
Grand Vacations Borrower LLC, Hilton Grand Vacations Parent LLC, the other lender parties
thereto, the other guarantors thereto, and Bank of America, N.A., as successor administrative
agent, collateral agent, L/C issuer and swing line lender (incorporated by reference to Exhibit 10.1
to the Registrant’s Current Report on Form 8-K (File No. 001-37794) filed on November 29,
2018).

Hilton Grand Vacations Inc. Employee Stock Purchase Plan (incorporated by reference to
Exhibit 99.1 to the Registrant’s Registration Statement on Form S-8 (File No. 333-218056) filed
on May 17, 2017).

Form of Restricted Stock Unit Agreement under Hilton Grand Vacations Inc. 2017 Omnibus
Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K (File No. 001-37794) filed on March 15, 2017).

Form of Restricted Stock Unit Agreement (Converted Award – 2015 Grant) (Performance-Based)
under Hilton Grand Vacations Inc. 2017 Omnibus Incentive Plan (incorporated by reference to
Exhibit 10.13(d) to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37794) filed on
May 4, 2017).

Form of Restricted Stock Unit Agreement (Converted Award – 2015 Grant) (Time-Based) under
Hilton Grand Vacations Inc. 2017 Omnibus Incentive Plan (incorporated by reference to
Exhibit 10.13(e) to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37794) filed on
May 4, 2017).

Form of Restricted Stock Unit Agreement (Converted Award – 2016 Grant) (Performance-Based)
under Hilton Grand Vacations Inc. 2017 Omnibus Incentive Plan (incorporated by reference to
Exhibit 10.13(f) to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37794) filed on
May 4, 2017).

Form of Restricted Stock Unit Agreement (Converted Award – 2016 Grant) (Time-Based) under
Hilton Grand Vacations Inc. 2017 Omnibus Incentive Plan (incorporated by reference to
Exhibit 10.13(g) to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37794) filed on
May 4, 2017).

Form of Restricted Stock Unit Agreement for Mr. Mark Wang (incorporated by reference to
Exhibit 10.3 to the Registrant’s amended Current Report on Form 8-K/A (File No. 001-37794)
filed on May 16, 2018).

Form of Nonqualified Stock Option Agreement under Hilton Grand Vacations Inc. 2017 Omnibus
Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on
Form 8-K (File No. 001-37794) filed on March 15, 2017).

Form of Nonqualified Stock Option Agreement (Converted Award – 2014 Grant) under Hilton
Grand Vacations Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.14(b)
to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37794) filed on May 4, 2017).

135

Exhibit No.

10.20(c)†

10.20(d)†

10.20(e)†

10.21(a)†

10.21(b)†

10.22(a)†

10.22(b)†

10.22(c)†

10.22(d)†

10.23†

10.24

21.1*

23.1*

31.1*

31.2*

Description

Form of Nonqualified Stock Option Agreement (Converted Award – 2015 Grant) under Hilton
Grand Vacations Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.14(c)
to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37794) filed on May 4, 2017).

Form of Nonqualified Stock Option Agreement (Converted Award – 2016 Grant) under Hilton
Grand Vacations Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.14(d)
to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37794) filed on May 4, 2017).

Form of Nonqualified Stock Option Agreement for Mr. Mark Wang (incorporated by reference to
Exhibit 10.2 to the Registrant’s amended Current Report on Form 8-K/A (File No. 001-37794)
filed on May 16, 2018).

Form of Restricted Stock Agreement (Converted Award – 2015 Grant) under Hilton Grand
Vacations Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.15(a) to
the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37794) filed on May 4, 2017).

Form of Restricted Stock Agreement (Converted Award – 2016 Grant) under Hilton Grand
Vacations Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.15(b) to
the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37794) filed on May 4, 2017).

Form of Performance and Service Based Restricted Stock Unit Agreement (for use for all named
executive officers other than Mr. Mark Wang) (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K (File No. 001-37794) filed March 8, 2018).

Form of Amended and Restated Performance and Service Based Restricted Stock Unit Agreement
(for use for all named executive officers other than Mr. Mark Wang) (incorporated by reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37794) filed on
August 9, 2018).

Form of Performance and Service Based Restricted Stock Unit Agreement (for Mr. Mark Wang)
(incorporated by reference to Exhibit 10.4 to the Registrant’s amended Current Report on
Form 8-K/A (File No. 001-37794) filed on May 16, 2018).

Form of Amended and Restated Performance and Service Based Restricted Stock Unit Agreement
(for Mr. Mark Wang) (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report
on Form 8-K (File No. 001-37794) filed on August 9, 2018).

Form of Stock Award Agreement for Non-Employee Directors under Hilton Grand Vacations Inc.
2017 Stock Plan for Non-Employee Directors Plan (incorporated by reference to Exhibit 10.16 to
the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37794) filed on May 4, 2017).

Amended and Restated Limited Liability Company Agreement of BRE Ace LLC, a Delaware
limited liability company, dated as of July 18, 2017 (incorporated by reference to Exhibit 10.1 to
the Registrant’s Current Report on Form 8-K (File No. 001-37794) filed on July 21, 2017).

Subsidiaries of the Registrant.

Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.

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

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

32.1**

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

136

Exhibit No.

32.2**

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

Description

101.INS*** XBRL Instance Document

101.SCH*** XBRL Taxonomy Extension Schema Document.

101.CAL*** XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*** XBRL Taxonomy Extension Definitions Linkbase Document.

101.LAB*** XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*** XBRL Taxonomy Extension Presentation Linkbase Document.

*
Filed herewith.
** Furnished not filed.
*** These interactive data files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act
of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise
subject to liability under those sections.
Denotes management contract or compensatory plan or arrangement.

†

137

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 28th
day of February 2019.

HILTON GRAND VACATIONS INC.

By:

/s/ Mark D. Wang

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

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the

following persons on behalf of the Registrant and in the capacities indicated on this 28th day of February 2019.

Signature

/s/ Mark D. Wang

Mark D. Wang

/s/ Daniel J. Mathewes

Daniel J. Mathewes

/s/ Allen J. Klingsick

Allen J. Klingsick

/s/ Leonard A. Potter

Leonard A. Potter

/s/ Brenda J. Bacon

Brenda J. Bacon

/s/ David W. Johnson

David W. Johnson

/s/ Mark H. Lazarus

Mark H. Lazarus

/s/ Pamela H. Patsley
Pamela H. Patsley

/s/ Paul W. Whetsell

Paul W. Whetsell

Title

President and Chief Executive Officer
and Director (principal executive officer)

Executive Vice President and Chief Financial Officer
(principal financial officer)

Senior Vice President and Chief Accounting Officer
(principal accounting officer)

Chairman of the Board of Directors

Director

Director

Director

Director

Director

138

hgv.com