MARRIOTT VACATIONS WORLDWIDE Corp (VAC) FY 2022 MD&A

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

You should read the following discussion of our results of operations and financial condition together with our audited historical consolidated financial statements and accompanying notes in Part II, “Item 8. Financial Statements and Supplementary Data,” and Part I, “Item 1. Business,” of this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on our current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those we discuss in the sections of this Annual Report entitled “Risk Factors” and “Special Note About Forward-Looking Statements.”

Our consolidated financial statements, which we discuss below, reflect our historical financial condition, results of operations and cash flows. The financial information discussed below and included in this Annual Report may not, however, necessarily reflect what our financial condition, results of operations and cash flows may be in the future.

Our discussion and analysis of fiscal year 2022 to fiscal year 2021 is included herein. Our discussion and analysis of fiscal year 2021 to fiscal year 2020 has been omitted from this Form 10-K and can be found in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the Securities and Exchange Commission on March 1, 2022.

Business Overview

We are a leading global vacation company that offers vacation ownership, exchange, rental, and resort and property management, along with related businesses, products and services. Our business operates in two reportable segments: Vacation Ownership and Exchange & Third-Party Management.

Our Vacation Ownership segment includes a diverse portfolio of resorts that includes some of the world’s most iconic brands licensed under exclusive long-term relationships. We are the exclusive worldwide developer, marketer, seller and manager of vacation ownership and related products under the Marriott Vacation Club, Grand Residences by Marriott, Sheraton Vacation Club, Westin Vacation Club, and Hyatt Residence Club brands, as well as under Marriott Vacation Club Pulse, an extension to the Marriott Vacation Club brand. We are also the exclusive worldwide developer, marketer and seller of vacation ownership and related products under The Ritz-Carlton Destination Club brand, we have the non-exclusive right to develop, market and sell whole ownership residential products under The Ritz-Carlton Residences brand and we have a license to use the St. Regis brand for specified fractional ownership resorts.

Our Vacation Ownership segment generates most of its revenues from four primary sources: selling vacation ownership products; managing vacation ownership resorts, clubs and owners’ associations; financing consumer purchases of vacation ownership products; and renting vacation ownership inventory.

Our Exchange & Third-Party Management segment includes exchange networks and membership programs, as well as the provision of management services to other resorts and lodging properties. As of May 2022, we provided these services through our Interval International and Aqua-Aston businesses. Exchange & Third-Party Management revenue generally is fee-based and derived from membership, exchange and rental transactions, property and association management, and other related products and services. In April 2022, we disposed of VRI Americas after determining that the business was not a core component of our future growth strategy and operating model. This business was a component of our Exchange and Third-Party Management segment through the date of the sale. See Footnote 3 “Acquisitions and Dispositions” to our Financial Statements for further information regarding this disposition.

Corporate and other represents that portion of our results that are not allocable to our segments, including those relating to Consolidated Property Owners’ Associations.

Integration of Marriott-, Sheraton- and Westin- Branded Vacation Ownership Products

Part of the rationale for our acquisition of ILG in 2018 was to achieve operating efficiencies and business growth by leveraging the brands licensed by Marriott International and its subsidiaries to us and to ILG. In 2016, Marriott International purchased Starwood Hotels and Resorts Worldwide, Inc., which at the time exclusively licensed the Sheraton and Westin vacation ownership brands to Legacy-ILG. In August 2022, we launched Abound by Marriott Vacations, a new owner benefit and exchange program which affiliates the Marriott, Sheraton and Westin vacation ownership brands to offer similar benefits to owners of our products under these brands. Under this program, owners of Marriott-, Sheraton- and Westin-branded VOIs can access over 90 resorts under the Marriott Vacation Club, Sheraton Vacation Club and Westin Vacation Club brands using

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a common currency. The program also harmonizes fee structures and owner benefit levels and allows us to transition most of our Legacy-ILG sales galleries to sell our Marriott Vacation Club Destinations product. Further, in late 2022, we added certain Sheraton- and Westin- branded VOIs to the Marriott Vacation Club Destinations product.

Acquisition of Welk

On April 1, 2021, we completed the Welk Acquisition, after which Welk became our indirect wholly-owned subsidiary. In April 2022, we introduced the Hyatt Vacation Club and rebranded Legacy-Welk’s vacation ownership program as the Hyatt Vacation Club Platinum Program, enabling Legacy-Welk sales centers to sell a Hyatt-branded vacation ownership product. Most Legacy-Welk resorts are now available for rental stays through Hyatt.com.

Significant Accounting Policies Used in Describing Results of Operations

Sale of Vacation Ownership Products

We recognize revenues from the sale of vacation ownership products (also referred to as “VOIs”) when control of the vacation ownership product is transferred to the customer and the transaction price is deemed collectible. Based upon the different terms of our contracts with the customer and business practices, control of the vacation ownership product has historically transferred to the customer at different points in time for each brand of VOIs. In the third quarter of 2022, we aligned our business practices and contract terms, resulting in the prospective change in the timing of the transfer of control to the customer for Marriott-branded VOIs. Prior to these changes, control transfer occurred at closing for Marriott-branded vacation ownership products. Subsequent to this alignment, transfer of control of Marriott-branded vacation ownership products occurs at expiration of the statutory rescission period, consistent with the historical timing of Sheraton-, Westin- and Hyatt- branded transactions. Marriott-branded VOI sales contracts executed prior to these modifications have been accounted for with transfer of control of the VOI occurring at closing. Control transfer for Legacy-Welk VOIs continues to occur at closing.

Sales of vacation ownership products may be made for cash or we may provide financing. In addition, we recognize settlement fees associated with the transfer of vacation ownership products and commission revenues from sales of vacation ownership products on behalf of third parties, which we refer to as “resales revenue.”

We also provide sales incentives to certain purchasers. These sales incentives typically include Marriott Bonvoy points, World of Hyatt points or an alternative sales incentive that we refer to as “plus points.” Plus points are redeemable for stays at our resorts or for use in other third-party offerings, generally up to two years from the date of issuance. Typically, sales incentives are only awarded if the sale is closed.

Finally, as more fully described in “Financing” below, we record the difference between the contract receivable or vacation ownership note receivable and the consideration to which we expect to be entitled (also known as a vacation ownership notes receivable reserve or a sales reserve) as a reduction of revenues from the sale of vacation ownership products at the time we recognize revenues from a sale.

We report, on a supplemental basis, contract sales for our Vacation Ownership segment. Contract sales consist of the total amount of vacation ownership product sales under contract signed during the period where we have generally received a down payment of at least ten percent of the contract price, reduced by actual rescissions during the period, inclusive of contracts associated with sales of vacation ownership products on behalf of third-parties, which we refer to as “resales contract sales.” In circumstances where a customer applies any or all of their existing ownership interests as part of the purchase price for additional interests, we include only the incremental value purchased as contract sales. Contract sales differ from revenues from the sale of vacation ownership products that we report on our income statements due to the requirements for revenue recognition described above. We consider contract sales to be an important operating measure because it reflects the pace of sales in our business.

Cost of vacation ownership products includes costs to acquire, develop and construct our projects (also known as real estate inventory costs), other non-capitalizable costs associated with the overall project development process and settlement expenses associated with the closing process. For each project, we expense real estate inventory costs in the same proportion as the revenue recognized. Consistent with the applicable accounting guidance, to the extent there is a change in the estimated sales revenues or inventory costs for the project in a period, a non-cash adjustment is recorded on our income statements to true-up costs in that period to those that would have been recorded historically if the revised estimates had been used. These true-ups, which we refer to as product cost true-up activity, can have a positive or negative impact on our income statements.

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We refer to revenues from the sale of vacation ownership products less the cost of vacation ownership products and marketing and sales costs as Development profit. Development profit margin is calculated by dividing Development profit by revenues from the Sale of vacation ownership products. We previously used the term Development margin to refer to revenues from the Sale of vacation ownership products less the Cost of vacation ownership products and marketing and sales costs.

Management and Exchange

Our management and exchange revenues include revenues generated from fees we earn for managing each of our vacation ownership resorts, providing property management, owners’ association management and related services and fees we earn for providing rental services and related hotel, condominium resort, and owners’ association management services to vacation property owners.

In addition, we earn revenue from ancillary offerings, including food and beverage outlets, golf courses and other retail and service outlets located at our Vacation Ownership resorts. We also receive annual membership fees, club dues and certain transaction-based fees from members, owners and other third parties.

Management and exchange expenses include costs to operate the food and beverage outlets and other ancillary operations and to provide overall customer support services, including reservations, and certain transaction-based expenses relating to external exchange service providers.

In our Vacation Ownership segment and Consolidated Property Owners’ Associations, we refer to these activities as “Resort Management and Other Services.”

Financing

We offer financing to qualified customers for the purchase of most types of our vacation ownership products. The average FICO score of customers who were U.S. citizens or residents who financed a vacation ownership purchase was as follows:

The typical financing agreement provides for monthly payments of principal and interest with the principal balance of the loan fully amortizing over the term of the related vacation ownership note receivable, which is generally ten to fifteen years. While we adjust interest rates on our financing programs from time to time, such changes are typically not made in lockstep with the timing and magnitude of changes in broader market rates. We may use incentives to encourage our customers to choose our financing. Included within our vacation ownership notes receivable are originated vacation ownership notes receivable and vacation ownership notes receivable acquired in connection with the ILG Acquisition and the Welk Acquisition.

The interest income earned from our vacation ownership financing arrangements is earned on an accrual basis on the principal balance outstanding over the contractual life of the arrangement and is recorded as Financing revenues on our Income Statements. Financing revenues also include fees earned from servicing the existing vacation ownership notes receivable portfolio. The amount of interest income earned in a period depends on the amount of outstanding vacation ownership notes receivable, which is impacted positively by the origination of new vacation ownership notes receivable and negatively by principal collections. We calculate financing propensity as contract sales volume of financed contracts originated in the period divided by contract sales volume of all contracts originated in the period. We do not include resales contract sales in the financing propensity calculation. Financing propensity was 54% in 2022 and 53% in 2021. We expect to continue offering financing incentive programs in 2023. Growing sales to first-time buyers, who are more likely to finance their purchases, remains an integral part of our overall marketing and sales strategy.

Acquired vacation ownership notes receivable are accounted for using the purchased credit deteriorated assets provision of the current expected credit loss model. The estimates of the reserve for credit losses on the acquired vacation ownership notes receivable are based on default rates that are an output of our static pool analyses and the estimated value of collateral securing the acquired vacation ownership notes receivable. See Footnote 6 “Vacation Ownership Notes Receivable” to our Financial Statements for further information regarding the accounting for acquired vacation ownership notes receivable.

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In the event of a default, we generally have the right to foreclose on or revoke the underlying VOI. We return VOIs that we reacquire through foreclosure or revocation back to inventory. As discussed above, for originated vacation ownership notes receivable, we record a reserve at the time of sale and classify the reserve as a reduction to revenues from the sale of vacation ownership products on our Income Statements. Revisions to estimates of variable consideration from the sale of vacation ownership products impact the reserve on originated vacation ownership notes receivable and can increase or decrease revenues. In contrast, for acquired vacation ownership notes receivable, we record changes to the reserve as an adjustment to Financing expenses on our Income Statements.

Historical default rates, which represent defaults as a percentage of each year’s beginning gross vacation ownership notes receivable balance, were as follows:

The increased default rates in 2020 were predominantly due to the impact of the COVID-19 pandemic on the performance of our vacation ownership notes receivable portfolio. In 2021 and 2022, default rates decreased compared to 2020 and the performance of our notes receivable portfolio returned to pre-pandemic levels. As a result of the unification of our Marriott-, Sheraton- and Westin- branded vacation ownership products under the Abound by Marriott Vacations program and stabilization of the default rates, in the third quarter of 2022, we combined and aligned our reserve methodology for vacation ownership notes receivable for our Marriott, Sheraton and Westin brands. See Footnote 6 “Vacation Ownership Notes Receivable” to our Financial Statements for further information.

Financing expenses include consumer financing interest expense, which represents interest expense associated with the securitization of our vacation ownership notes receivable, costs to support the financing, servicing and securitization processes and changes in expected credit losses related to acquired vacation ownership notes receivable. We distinguish consumer financing interest expense from all other interest expense because the debt associated with the consumer financing interest expense is secured by vacation ownership notes receivable that have been sold to bankruptcy remote special purpose entities and is generally non-recourse to us.

Rental

In our Vacation Ownership segment, we operate a rental business to provide owner flexibility and to help mitigate carrying costs associated with our inventory. We generate revenue from rentals of inventory that we hold for sale as interests in our vacation ownership programs, inventory that we control because our owners have elected alternative usage options permitted under our vacation ownership programs and rentals of unregistered inventory and owned-hotel properties. We also recognize rental revenue from the utilization of plus points under our points-based products when the points are redeemed for rental stays at one of our resorts or other third-party offerings, or upon expiration of the points. We obtain rental inventory from unsold inventory and inventory we control because owners have elected alternative usage options offered through our vacation ownership programs. For rental revenues associated with vacation ownership products which we own and which are registered and held for sale, to the extent that the revenues from rental are less than costs, revenues are reported net in accordance with Accounting Standards Codification (“ASC”) Topic 978, “Real Estate - Time-Sharing Activities” (“ASC 978”). The rental activity associated with discounted vacation packages requiring a tour (“preview stays”) is not included in transient rental metrics, and because the majority of these preview stays are sourced directly or indirectly from unsold inventory, the associated revenues and expenses are reported net in Marketing and sales expense.

In our Exchange & Third-Party Management segment, we offer vacation rental opportunities at managed properties through our Aqua-Aston business, and for the period prior to its disposition in the second quarter of 2022, VRI Americas. We also offer vacation rental offers known as Getaways to members of the Interval International network and certain other membership programs. Getaways allows us to monetize excess availability of resort accommodations within the applicable exchange network, as well as provide additional vacation opportunities to members. Resort accommodations typically become available as Getaways as a result of seasonal oversupply or underutilized space in the applicable exchange program. We also source resort accommodations specifically for the Getaways program. Rental revenues associated with Getaways are reported net of related expenses.

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Rental expenses include:

•Maintenance and other fees on unsold inventory;

•Costs to provide alternative usage options, including Marriott Bonvoy points, World of Hyatt points, and offerings available as part of third-party offerings, for owners who elect to exchange their inventory; and

•Marketing costs and direct operating and related expenses in connection with the rental business (such as housekeeping, labor costs, credit card expenses, and reservation services).

Rental metrics, including the average daily transient rate or the number of transient keys rented, may not be comparable between periods given fluctuation in available occupancy by location, unit size (such as two bedroom, one bedroom or studio unit), owner use and exchange behavior, unsold inventory on hand and keys allocated for preview stays. In addition, rental metrics may not correlate with rental revenues due to the requirement to report certain rental revenues net of rental expenses in accordance with ASC 978 (as discussed above). Further, as our ability to rent certain luxury and other inventory is often limited on a site-by-site basis, rental operations may not generate adequate rental revenues to cover associated costs. Our Vacation Ownership segment units are either “full villas” or “lock-off” villas. Lock-off villas are units that can be separated into a primary unit and a guest room. Full villas are “non-lock-off” villas because they cannot be separated. A “key” is the lowest increment for reporting occupancy statistics based upon the mix of non-lock-off and lock-off villas. Lock-off villas represent two keys and non-lock-off villas represent one key. The “transient keys” metric represents the blended mix of inventory available for rent and includes all of the combined inventory configurations available in our resort system.

Cost Reimbursements

Cost reimbursements include direct and indirect costs that are reimbursed to us by owners’ associations and customers under management contracts. All costs reimbursed to us by owners’ associations and customers, with the exception of taxes assessed by a governmental authority, are reported on a gross basis. We recognize cost reimbursements when we incur the related reimbursable costs. Cost reimbursements consist of actual expenses with no added margin.

Interest Expense

Interest expense consists of all interest expense other than consumer financing interest expense, which is included within Financing expense.

Transaction and Integration Costs

Transaction and integration costs primarily include fees paid to change-management consultants, technology-related costs associated with the integration of ILG and Welk and charges for employee retention, severance and other termination-related benefits. Transaction and integration costs also include costs related to the ILG and Welk Acquisitions, primarily for financial advisory, legal, and other professional service fees, as well as certain tax-related accruals.

Other Items

We measure operating performance using the key metrics described below:

•Contract sales from the sale of vacation ownership products:

•Total contract sales include contract sales from the sale of vacation ownership products including joint ventures. and

•Consolidated contract sales exclude contracts sales from the sale of vacation ownership products for non-consolidated joint ventures.

We consider contract sales to be an important operating measure because it reflects the pace of sales in our business.

•Development profit margin;

•Volume per guest (“VPG”), is calculated by dividing consolidated vacation ownership contract sales, excluding fractional sales, telesales, resales, and other sales that are not attributed to a tour at a sales location, by the number of tours at sales locations in a given period. We believe that this operating metric is valuable in evaluating the effectiveness of the sales process as it combines the impact of average contract price with the number of touring guests who make a purchase.

•Total active members is the number of Interval International network active members at the end of the applicable period. We consider active members to be an important metric because it represents the population of owners eligible to book transactions using the Interval International network.

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•Average revenue per member is calculated by dividing membership fee revenue, transaction revenue, rental revenue, and other member revenue for the Interval International network by the monthly weighted average number of Interval International network active members during the applicable period. We believe this metric is valuable in measuring the overall engagement of our Interval International network active members.

•Segment financial results attributable to common shareholders represents revenues less expenses directly attributable to each applicable reportable business segment (Vacation Ownership and Exchange & Third-Party Management). We consider this measure to be important in evaluating the performance of our reportable business segments. See Footnote 20 “Business Segments” to our Financial Statements for further information on our reportable business segments.

NM = Not meaningful.

CONSOLIDATED RESULTS

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Operating Statistics

Revenues

Earnings Before Interest Expense, Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA

EBITDA, a financial measure that is not prescribed by GAAP, is defined as earnings, or net income or loss attributable to common shareholders, before interest expense (excluding consumer financing interest expense associated with term securitization transactions), income taxes, depreciation and amortization. Adjusted EBITDA reflects additional adjustments for certain items and excludes share-based compensation expense to address considerable variability among companies in recording compensation expense because companies use share-based payment awards differently, both in the type and quantity of awards granted. For purposes of our EBITDA and Adjusted EBITDA calculations, we do not adjust for consumer financing interest expense associated with term securitization transactions because we consider it to be an operating expense of our business. We consider Adjusted EBITDA to be an indicator of operating performance, which we use to measure our ability to service debt, fund capital expenditures, expand our business, and return cash to shareholders. We also use Adjusted EBITDA, as do analysts, lenders, investors, and others, because this measure excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company’s capital structure, debt levels and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provisions for income taxes can vary considerably among companies. EBITDA and Adjusted EBITDA also exclude depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies. We believe Adjusted EBITDA is useful as an indicator of operating performance because it allows for period-over-period comparisons of our on-going core operations before the impact of the excluded items. Adjusted EBITDA also facilitates comparison by us, analysts, investors, and others, of results from our on-going core operations before the impact of these items with results from other companies.

EBITDA and Adjusted EBITDA have limitations and should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. In addition, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do or may not calculate them at all, limiting their usefulness as comparative measures. The table below shows our EBITDA and Adjusted EBITDA calculation and reconciles these measures with Net income (loss) attributable to common shareholders, which is the most directly comparable GAAP financial measure.

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In the third quarter of 2022, in connection with the unification of the our Marriott-, Westin-, and Sheraton- branded vacation ownership products under the Abound by Marriott Vacations program, we aligned our business practices and contract terms for the sale of vacation ownership products (the “Contract alignment”), resulting in the prospective acceleration of revenue for the sale of Marriott-branded VOIs. The Contract alignment increased Net income attributable to common shareholders and Adjusted EBITDA by $34 million and $46 million in 2022, respectively. In addition, we combined and aligned our reserve methodology for vacation ownership notes receivable for these brands (the “Reserve alignment”), resulting in a $4 million increase in Net income attributable to common shareholders and a $5 million increase in Adjusted EBITDA. Together, these changes are hereinafter referred to as the “Alignment.” See Footnote 6 “Vacation Ownership Notes Receivable” to our Financial Statements for further information on the Reserve Alignment.

The table below details the components of Certain items for 2022 and 2021.

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Segment Adjusted EBITDA

The following tables present segment financial results for our reportable segments reconciled to Adjusted EBITDA.

Vacation Ownership

We recognized an additional $51 million of Adjusted EBITDA in the Vacation Ownership segment during 2022 as a result of the Alignment. The table below details the components of Certain items for the Vacation Ownership segment financial results for 2022 and 2021.

Exchange & Third-Party Management

Certain items for the Exchange & Third-Party Management segment for 2022 consisted of $17 million of gains and other income related to the strategic disposition of our VRI Americas business and $2 million of revenue associated with an early termination of a VRI management contract, offset by $2 million of foreign currency translation losses.

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Certain items for the Exchange & Third-Party Management segment for 2021 consisted of $1 million of COVID-19 related restructuring costs.

BUSINESS SEGMENTS

Our business is grouped into two reportable business segments: Vacation Ownership and Exchange & Third-Party Management. See Footnote 20 “Business Segments” to our Financial Statements for further information on our segments.

VACATION OWNERSHIP

Contract Sales

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Sale of Vacation Ownership Products

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(1)Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue and other adjustments to Sale of vacation ownership products revenue.

2022 Compared to 2021

The higher contract sales performance reflects the continued ramp-up of the business following the initial impact of the COVID-19 pandemic and $24 million of Legacy-Welk contract sales in the first quarter of 2022 (Legacy-Welk was acquired in the second quarter of 2021). The Contract alignment resulted in an increase in reportability of $58 million in 2022.

The increase in the sales reserve as a percentage of Consolidated contract sales, net of resales is attributed to the Reserve alignment ($19 million or 110bps) recorded in the third quarter of 2022, the increase in reportability (40bps), an increase attributed to higher Legacy-Welk contract sales which carry a higher reserve rate (30bps), and an increase in financing propensity (20bps). The Reserve alignment was offset by a corresponding decrease in the acquired reserve for vacation ownership notes receivable recorded as a reduction of Financing expenses. Excluding the impact of the Alignment, Sale of vacation ownership products increased $426 million or 37%.

Development Profit

2022 Compared to 2021

Cost of vacation ownership products included favorable product cost true ups of $24 million and $10 million during 2022 and 2021, respectively. Marketing and sales in 2022 was reduced by $6 million of lower marketing and sales associated with expired or forfeited deposits on pre-acquisition preview packages. Excluding the impact of the Alignment, Development profit increased $204 million and Development profit margin increased to 31.0%. We expect future development profit margins to remain above pre-pandemic levels and in line with recent results.

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Resort Management and Other Services Revenues, Expenses and Profit

_________________________

(1)Resort occupancy represents all transient, preview, and owner keys divided by total keys available, net of keys out of service.

2022 Compared to 2021

Resort management and other services revenues reflect $50 million of higher ancillary revenues, including revenues from food and beverage and golf offerings, as a result of an increase in occupied keys (0.9 million keys or 13%) at resorts with ancillary business and a 14% increase in revenue per occupied key, $6 million of revenues relating to the Welk Acquisition, which we acquired in the second quarter of 2021, $5 million of increased commissions on third-party offerings and higher management fees, and $3 million attributed to higher annual club dues.

The increase in resort management and other services profit reflects $10 million of higher ancillary profit and higher management fee revenues, partially offset by higher customer services expenses due to wage increases and improvements in service levels. Ancillary profit margin remained in line with the prior year because we raised pricing and optimized our food and beverage offerings to offset wage pressures. We expect future ancillary profit margins to remain in line with recent results.

Rental Revenues, Expenses and Margin

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(1)Transient keys rented exclude those obtained through the use of plus points and preview stays.

(2)Rental occupancy represents transient and preview keys divided by keys available to rent, which is total available keys excluding owner usage.

2022 Compared to 2021

Rental profit for transient keys associated with our vacation ownership operations improved by $45 million (97%) in 2022 while rental profit for our owned hotels improved by $12 million (231%). The improvement in rental profit resulted from an increase in transient keys rented and a higher average transient rate due to the continued ramp-up of the business following the waning impact of the COVID-19 pandemic starting late in the prior year first quarter net of higher associated tidy and variable costs, a $17 million increase in allocations of rental costs to marketing and sales expense for marketing purposes and

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$5 million from higher plus point revenue. These increases were partially offset by $36 million of higher costs associated with higher owner utilization of third-party vacation and other offerings, and excess inventory on hand compared to 2021. In addition to these variances, there was a $52 million higher net down of rental revenues and expense in 2022 associated with unsold VOIs that are registered and held for sale.

Financing Revenues, Expenses and Margin

2022 Compared to 2021

Financing revenues reflect $23 million of higher interest income (including $10 million attributed to the lack of comparability due to the Welk Acquisition in the second quarter of 2021 and $13 million as a result of a higher average vacation ownership notes receivable balance and a slightly higher average interest rate driven by mix of customers and brands) and $2 million of lower plus point financing incentive costs year-over-year. We plan to continue offering financing incentives to certain customers in the future.

Financing expenses decreased $19 million due to the Reserve alignment, which reduced the reserve related to our acquired vacation ownership notes receivable (recorded as a reduction of Financing expenses), partially offset by higher other expenses and an increase to our reserve for originated vacation ownership notes receivable (which is recorded as a reduction of Sales of vacation ownership products), partially offset by $1 million lower lien fee income. The increase in consumer financing interest expense is attributable to the higher average securitized debt at a higher average interest rate for the more recent term securitization transactions. We expect consumer financing interest expense to continue to remain elevated over our average outstanding interest rates on existing securitization transactions as a result of rising interest rates and we expect originations of vacation ownership notes receivable to outpace payoffs. We do not adjust interest rates, on consumer financing offerings at the same pace as, or in lock-step with, broader market interest rates; thus we expect our financing profit margin to decrease in 2023, as we repay existing securitization transactions with historically low interest rates and enter into new securitization transactions with higher interest rates.

Depreciation and Amortization

2022 Compared to 2021

The increase in depreciation and amortization expense is attributed to an additional $2 million of depreciation expense associated with completed VOIs that are classified as a component of Property and equipment, net until the time at which they are available and legally registered for sale as vacation ownership products and $1 million attributed to the inclusion of expense associated with assets acquired in the Welk Acquisition for an additional quarter in 2022 compared to 2021.

Litigation Charges

2022 Compared to 2021

During 2022 and 2021, the litigation charges relate primarily to our business in Europe.

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Royalty Fee

2022 Compared to 2021

The increase in royalty fee expense included $6 million from an increase in the dollar volume of closings, $3 million from a contractual increase in the fixed portion of the royalty fee owed to Marriott International, and $1 million relating to the commencement of variable royalty fees for Hyatt in the fourth quarter of 2022, partially offset by $2 million from an increase in sales of pre-owned inventory, which carry a lower royalty fee as compared to initial sales of our inventory (one percent versus two percent).

Gains and Other Income

During 2022, we recorded gains and other income of $33 million related to the strategic decision to dispose of our hotel in Puerto Vallarta, Mexico, $3 million related to receipt of business interruption insurance proceeds, and $1 million related to property insurance proceeds.

Transaction and Integration Costs

In 2022, we incurred $2 million of transaction costs associated with our capital efficient inventory arrangement in Waikiki and $1 million for costs incurred to identify required upgrades of acquired properties to meet brand standards.

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EXCHANGE & THIRD-PARTY MANAGEMENT

Our Exchange & Third-Party Management segment offers access to vacation accommodations and other travel-related transactions and services to leisure travelers by providing vacation exchange and management services, including vacation rentals and other services. We provide these services through our Interval International and Aqua-Aston businesses. Our results include those of VRI Americas for the period prior to its disposition in the second quarter of 2022.

Management and Exchange Profit

2022 Compared to 2021

The decrease in management and exchange revenue reflects $18 million of lower revenue due to the disposition of our VRI Americas business during the second quarter of 2022, partially offset by $10 million and $1 million of higher management fees and ancillary revenues, respectively, at Aqua-Aston managed properties due to the continued ramp-up of business in Hawaii subsequent to the initial impact of the COVID-19 pandemic.

For Interval International, revenue was in line with the prior year period while average revenue per member decreased 12% over the prior year comparable period. This decline was due, in part, to recently added affiliations, for which we expect exchange activity to ramp up over time and lower inventory levels in the first half of 2022. The increase in management and exchange profit primarily reflected $10 million of higher profit at Aqua-Aston, partially offset by $6 million of lower profit

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due to the disposition of our VRI Americas business during the second quarter of 2022. Management and exchange profit and profit margin excluding the impact of the disposition of VRI Americas would have increased by $10 million and 11%, respectively, during 2022.

Rental Revenues, Expenses and Margin

2022 Compared to 2021

Results reflect a $1 million increase in gross Getaways revenues, driven by an 8% increase in the average Getaways fee, partially offset by a 6% decline in transactions and a $1 million increase in revenue from other rental operations. Rental inventory procurement costs, which are recorded net within Rental revenues, were in line with the prior year. The decline in Getaways transactions reflects fewer owner deposits in 2022 as more members chose to occupy their home resorts rather than exchange for usage through Interval International, which put pressure on the inventory available for Getaways.

Depreciation and Amortization

2022 Compared to 2021

The decrease in depreciation and amortization expense in 2022 relates to a true-up made to accelerate depreciation on a technology asset in 2021 of $12 million.

Losses and Other Expense

2022 Compared to 2021

During 2022, we recorded a $17 million gain related to the sale of our VRI Americas business, partially offset by $2 million of foreign currency translation. See Footnote 3 “Acquisitions and Dispositions” for more information on the disposition of VRI Americas.

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CORPORATE AND OTHER

Corporate and Other consists of results that are not allocable to our segments, including company-wide general and administrative costs, corporate interest expense, transaction and integration costs, and income taxes. In addition, Corporate and Other includes the revenues and expenses from the Consolidated Property Owners’ Associations.

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Consolidated Property Owners’ Associations

The following table illustrates the impact of certain Consolidated Property Owners’ Associations under the relevant accounting guidance, which represents the portion related to third-party VOI owners.

Pursuant to a change in control of certain Consolidated Property Owners’ Associations, we no longer consolidate these owners’ associations and we recorded a non-cash loss of $3 million in Gains (losses) and other income (expense), net on our Income Statement for the year ended December 31, 2022. We continue to act as manager for these owners’ associations pursuant to existing management contracts and we retain membership interests in these owners’ associations via our ownership of VOIs.

General and Administrative

2022 Compared to 2021

During 2022, General and administrative expenses increased $22 million, attributed to transformation initiative spending, including procurement and artificial intelligence capabilities, business travel related expenses and other miscellaneous costs. Compensation related costs remained relatively flat due to an increase in wages and benefits of $14 million, offset by $12 million and $4 million of lower stock compensation expense and bonus expense, respectively.

Losses and Other Expense

2022

In 2022, we recorded $8 million of foreign currency translation losses, $3 million of non-cash losses pursuant to a change in control of certain Consolidated Property Owners’ Associations, $3 million of non-income tax related adjustments to the receivable for the indemnification we expect to receive from Marriott International, partially offset by $2 million of proceeds from corporate owned life insurance.

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2021

In 2021, we recorded $55 million of expense related to the early redemption of senior unsecured notes, and $4 million of non-cash losses pursuant to a change in control of certain Consolidated Property Owners’ Associations, partially offset by $7 million related to a true-up of a Marriott International indemnification receivable upon settlement (the true-up to the offsetting accrual is included in the Provision for income taxes line).

Interest Expense

2022 Compared to 2021

The decrease in interest expense is attributable to redemption of higher coupon debt in 2021, which was refinanced at lower rates, and the adoption in 2022 of new accounting guidance related to convertible debt (see Footnote 2 “Summary of Significant Accounting Policies” to our Financial Statements). The decrease in interest expense was partially offset by increases in borrowings under our revolving credit facilities.

Transaction and Integration Costs

2022 Compared to 2021

During 2022, Transaction and integration costs included $82 million of ILG integration-related costs, $16 million of other integration costs, $14 million of Welk Acquisition and integration-related costs, and $10 million of other transaction and integration-related costs.

During 2021, Transaction and integration costs included $93 million of ILG integration-related costs, and $16 million of Welk Acquisition and integration-related costs, partially offset by $1 million of other transaction and integration-related costs.

ILG Acquisition and integration costs primarily relate to the integration of the Sheraton, Westin and Marriott vacation ownership platforms and brands, including upgrading and combining information technology systems in order to create integrated servicing capabilities across brands. These costs, which primarily relate to the implementation of multiple software applications and other enabling technologies, were expensed as incurred and do not include costs to maintain the applications and systems once they are in productive use. As part of the integration of the ILG business, we have been working towards improving the customer experience via enhancing self-service tools and streamlining our business processes through technology. While this effort is in process and we have experienced some servicing delays and website outages, as phases of the effort are completed, we expect these changes will provide enhanced owner and member experiences.

In addition, in April 2021, similar integration opportunities were introduced, albeit it on a smaller scale, when we completed the Welk Acquisition. The ILG and Welk acquisitions presented the opportunity for us to transform our business by integrating the acquired platforms with our existing platforms.

Income Tax

2022 Compared to 2021

The change in the (Provision for) benefit from income taxes is predominately attributable to an increase in pre-tax income for fiscal year 2022.

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Liquidity and Capital Resources

Typically, our capital needs are supported by cash on hand, cash generated from operations, our ability to raise capital through securitizations in the ABS market, our ability to issue new, and refinance existing, debt, and, to the extent necessary, our ability to access funds under the Warehouse Credit Facility and the Revolving Corporate Credit Facility. We believe these sources of capital will be adequate to meet our short-term and long-term liquidity requirements, finance our long-term growth plans, satisfy debt service requirements, fulfill other cash requirements, and return capital to shareholders. We continuously monitor the capital markets to evaluate the effect that changes in market conditions may have on our ability to fund our liquidity needs.

Excluding the impact of the Alignment, our corporate debt, net of cash and equivalents, to Adjusted EBITDA ratio was 2.8 at December 31, 2022, which is within our targeted leverage range of 2.5x to 3.0x. Excluding the redemption of the 2025 Notes subsequent to the end of 2022, we have no material maturities of corporate debt until 2025.

As of December 31, 2022, our corporate debt, excluding finance leases and including the impact of interest rate hedges, had a weighted average interest rate of 3.7%, and 92% of such corporate debt accrued interest at a fixed rate.

Sources of Liquidity

Cash from Operations

Our primary sources of funds from operations are (1) cash sales and down payments on financed sales, (2) cash from our financing operations, including principal and interest payments received on outstanding vacation ownership notes receivable, (3) cash from fee-based membership, exchange and rental transactions, and (4) net cash generated from our rental and resort management and other services operations.

Vacation Ownership Notes Receivable Securitizations

We periodically securitize, without recourse, through bankruptcy remote special purpose entities, the majority of the notes receivable originated in connection with the sale of vacation ownership products to institutional investors in the ABS term securitization market. These vacation ownership notes receivable securitizations provide liquidity for general corporate purposes. In a vacation ownership notes receivable term securitization, several classes of debt securities issued by a special purpose entity are generally collateralized by a single tranche of transferred assets, which consist of vacation ownership notes receivable. In connection with each vacation ownership notes receivable securitization, we may retain a portion of the securities, subordinated tranches, interest-only strips, subordinated interests in accrued interest and fees on the securitized vacation ownership notes receivable or, in some cases, over-collateralization and cash reserve accounts. Typically, we receive cash at inception of the term securitization transaction for the amount of notes issued less fees and monies held in reserve and we receive cash during the life of the transaction in amounts reflecting the excess spread of interest received on the related vacation ownership notes receivable less the interest payable on the ABS securities, less administrative fees and amounts from related vacation ownership notes receivable that default. We completed two term securitization transactions in 2022 resulting in net proceeds of $621 million.

Each of the securitized vacation ownership notes receivable transactions contains various triggers relating to the performance of the underlying vacation ownership notes receivable. If a pool of securitized vacation ownership notes receivable fails to perform within the pool’s parameters (default or delinquency thresholds vary by transaction), transaction provisions effectively redirect the monthly excess spread of interest accruing on the related vacation ownership notes receivable less the interest accruing on the ABS securities and fees we would otherwise receive from that pool (attributable to the interests we retained) to accelerate the principal payments to investors (taking into account the subordination of the different tranches to the extent there are multiple tranches) until the performance trigger is cured. During 2022, and as of December 31, 2022, we had 14 term securitization transactions outstanding, all of which were in compliance with their respective required parameters. Since 2000, we have issued approximately $8.1 billion of debt securities in securitization transactions in the term ABS market, excluding amounts securitized through warehouse credit facilities or private bank transactions.

On an ongoing basis, we have the ability to use our Warehouse Credit Facility to securitize, on a revolving non-recourse basis, eligible consumer loans derived from certain vacation ownership sales. Those loans may later be transferred to term securitization transactions in the ABS market, which typically occur at least once per year. Our Warehouse Credit Facility, as amended during the third quarter of 2022, provides for up to $425 million of aggregate borrowings through July 28, 2024.

As of December 31, 2022, $72 million of gross vacation ownership notes receivable were eligible for securitization.

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Revolving Corporate Credit Facility

Our Revolving Corporate Credit Facility provides for up to $750 million of aggregate borrowings for general corporate needs, including working capital, capital expenditures, letters of credit, and acquisitions, and expires on March 31, 2027. At December 31, 2022, no borrowings were outstanding on our Revolving Corporate Credit Facility and $1 million of letters of credit were outstanding. See Footnote 16 “Debt” to our Financial Statements for more information on interest rates pertaining to this facility.

Issuance of Senior Notes and Convertible Debt

Our ability to access the public debt markets through the issuance of senior notes and convertible debt remained strong during the COVID-19 pandemic. We accessed the public debt markets every year between 2017 and 2022, including a $500 million senior note issuance during the height of the COVID-19 pandemic in May 2020.

Uses of Cash

We minimize our working capital needs through cash management, strict credit-granting policies, and disciplined collection efforts. Our working capital needs fluctuate throughout the year given the timing of annual maintenance fees on unsold inventory we pay to owners’ associations and certain annual compensation-related outflows. In addition, our cash from operations varies due to the timing of repayment by owners of vacation ownership notes receivable, the closing or recording of sales contracts for vacation ownership products, financing propensity, and cash outlays for inventory acquisitions and development.

Cash and cash equivalents on hand at December 31, 2022 totaled $524 million, an increase of $182 million from December 31, 2021, primarily reflecting $653 million associated with net cash and cash equivalents provided by operating activities, $331 million of proceeds from the issuance of convertible notes in excess of repayments (net of the temporary refinancing of the 2022 Convertible Notes on our Revolving Corporate Credit Facility), $86 million of new securitized debt borrowings in excess of repayments, investing cash inflow related to the disposition of subsidiaries of $94 million, $43 million of proceeds from the issuance of warrants, and $7 million other net proceeds, partially offset by the repurchase of common stock of $701 million, $107 million for the purchase of convertible note hedges, payment of dividends of $99 million, capital expenditures for property and equipment (excluding inventory) of $65 million, $19 million of debt issuance costs and payments on finance leases, $23 million for payment of withholding taxes on vesting of restricted stock units and $18 million in purchases of company owned life insurance.

Seasonality

Our cash flow from operations fluctuates during the year due to the timing of certain receipts and contractual and compensation-related payments. Significant changes in cash flow can result from the timing of our collection of maintenance fees, club dues, and other customer payments, which typically occur in either the fourth quarter or the first quarter of each year. Cash outflows related to our payment of maintenance fees associated with unsold inventory occurs in the fourth quarter for our points products, and in the first quarter for our weeks-based products. In addition, significant compensation-related cash outflows occur in the first quarter of each year associated with payment of annual bonuses.

Operations

In addition to net income or loss and adjustments for non-cash items, the following are key drivers of our cash flow from operating activities:

Inventory Spending Less Than (In Excess of) Cost of Sales

While we have significant excess inventory on hand, we will continue to selectively pursue growth opportunities by targeting high-quality inventory that allows us to add desirable new destinations to our system with new on-site sales locations through transactions that limit our up-front capital investment and allow us to purchase finished inventory closer to the time it is needed for sale. These capital efficient vacation ownership transaction structures may consist of the development of new inventory, or the conversion of previously built units, by third parties, that we may purchase just prior to the time we need the

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inventory to support future sales. In addition, we may develop inventory in key markets where opportunities generate acceptable risk adjusted returns.

Through our existing VOI repurchase program, we proactively acquire previously sold VOIs from owners’ associations and individual owners at lower costs than would be required to develop new inventory. Among other reasons, by repurchasing inventory, we expect to be able to help stabilize the future cost of our vacation ownership products.

Our spending for real estate inventory in 2022 was lower than cost of sales and was primarily related to our VOI repurchase program. We acquired a higher amount of previously sold VOIs in 2022 due to the reinstatement of our VOI repurchase programs that were suspended as part of the cash preservation measures implemented in response to the COVID-19 pandemic. We expect inventory spending to be less than cost of sales for 2023.

Vacation Ownership Notes Receivable Collections (Less Than) In Excess of Originations

The increase in sales of vacation ownership products subsequent to the COVID-19 pandemic combined with an increase in financing propensity (54% in 2022 compared to 53% in 2021) outpaced collections of vacation ownership notes receivable.

Repurchase of Common Stock

The following table summarizes share repurchase activity under our current share repurchase program:

See Footnote 17 “Shareholders' Equity” to our Financial Statements for further information related to our current share repurchase program, including the additional share repurchase authorization and extension approved by our Board of Directors during 2022.

Payment of Dividends to Common Shareholders

We distributed cash dividends to holders of common stock during the year ended December 31, 2022 as follows:

On December 1, 2022, our Board of Directors declared a quarterly dividend of $0.72 per share that was paid subsequent to the end of 2022, on January 5, 2023, to shareholders of record as of December 22, 2022.

Subsequent to the end of 2022, on February 16, 2023, our Board of Directors declared a quarterly dividend of $0.72 per share to be paid on March 16, 2023 to shareholders of record as of March 2, 2023.

We currently expect to pay quarterly dividends in the future, but any future dividend payments will be subject to Board of Directors approval, which will depend on our financial condition, results of operations and capital requirements, as well as applicable law, regulatory constraints, industry practice, and other business considerations that our Board of Directors considers relevant. In addition, our Corporate Credit Facility and the indentures governing our senior notes contain restrictions on our ability to pay dividends, and the terms of agreements governing debt that we may incur in the future may

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also limit or prohibit the payment of dividends. The payment of certain cash dividends may also result in an adjustment to the conversion rate of our convertible notes in a manner adverse to us. Accordingly, there can be no assurance that we will pay dividends in the future at any particular rate or at all.

Material Cash Requirements

The following table summarizes our future material cash requirements from known contractual or other obligations as of December 31, 2022:

_________________________

(1)Includes principal as well as interest payments and excludes unamortized debt discount and issuance costs.

(2)Payments based on estimated timing of cash flow associated with securitized notes receivable.

(3)Arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure, and approximate timing of the transaction. Amounts reflected herein represent expected funding under such contracts. Amounts reflected on the consolidated balance sheet as accounts payable and accrued liabilities are excluded from the table above.

(4)Includes interest.

(5)Primarily relates to future guaranteed purchases of rental inventory of $7 million, and our commitment to an owners’ association that we manage to pay for any shortfall between the actual expenses incurred by the owners’ association and the income received by the owners’ association, in lieu of maintenance fees, of $10 million.

In the normal course of our resort management business, we enter into purchase commitments on behalf of owners’ associations to manage the daily operating needs of our resorts. Since we are reimbursed for these commitments from the cash flows of the resorts, these obligations have minimal impact on our net income and cash flow. These purchase commitments are excluded from the table above.

Leases That Have Not Yet Commenced

During 2020, we entered into a finance lease arrangement, that was amended in 2021, for our new global headquarters office building in Orlando, Florida. The new global headquarters office building is expected to be substantially complete in the first half of 2023, at which time the lease term will commence and a right-of-use asset and corresponding lease liability will be recorded on our balance sheet. Total payments for the initial lease term (approximately 16 years) plus, at our option, two five-year renewal terms, is $249 million. Also see Footnote 14 “Leases” to our Financial Statements.

Supplemental Guarantor Information

The 2028 Notes are guaranteed by MVWC, Marriott Ownership Resorts, Inc. (“MORI”), and certain other subsidiaries whose voting securities are wholly owned directly or indirectly by MORI (such subsidiaries collectively, the “Senior Notes Guarantors”). These guarantees are full and unconditional and joint and several. The guarantees of the Senior Notes Guarantors are subject to release in limited circumstances only upon the occurrence of certain customary conditions.

The following tables present consolidating financial information as of December 31, 2022, and for the fiscal year ended December 31, 2022, for MVWC and MORI on a stand-alone basis (collectively, the “Issuers”), the Senior Notes Guarantors, the combined non-guarantor subsidiaries of MVWC, and MVW on a consolidated basis.

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Condensed Consolidating Balance Sheet

Condensed Consolidating Statement of Income

Recent Accounting Pronouncements

See Footnote 2 “Summary of Significant Accounting Policies” to our Financial Statements for information regarding accounting standards adopted in 2022 and other new accounting standards that were issued but not effective as of December 31, 2022.

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Critical Accounting Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. Management considers an accounting estimate to be critical if: (1) it requires assumptions to be made that are uncertain at the time the estimate is made; and (2) changes in the estimate, or different estimates that could have been selected, could have a material effect on our results of operations or financial condition.

While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information presently available. Actual results may differ significantly. Additionally, changes in our assumptions, estimates or assessments as a result of unforeseen events or otherwise could have a material impact on our consolidated financial position or results of operations.

See Footnote 2 “Summary of Significant Accounting Policies” to our Financial Statements for further information related to our critical accounting policies and estimates, which are as follows:

•Revenue recognition, including how we recognize revenue under ASC Topic 606 “Revenue from Contracts with Customers” for the sale of vacation ownership products, including our estimates of variable consideration. Revisions to estimates of variable consideration from the sale of vacation ownership products impact the reserve on originated vacation ownership notes receivable and can increase or decrease revenue. See Footnote 6 “Vacation Ownership Notes Receivable” to our Financial Statements for further information on our assessments of our originated vacation ownership notes receivable reserve.

•Purchase price allocations of business combinations, which is also discussed in Footnote 3 “Acquisitions and Dispositions” to our Financial Statements. Determining the fair value of the assets acquired and liabilities assumed as part of a business acquisition requires management to make significant judgements and estimates. On April 1, 2021, we acquired Welk (see Footnote 3 “Acquisitions and Dispositions” to our Financial Statements for further information).

•Inventories and cost of vacation ownership products, which requires estimation of future revenues and product costs to apply a relative sales value method specific to the vacation ownership industry and how we evaluate the fair value of our vacation ownership inventory.

•Valuation of goodwill and other intangible assets, including how we determine the fair value of goodwill and our other intangible assets and reporting units, and how we determine when an impairment loss should be recorded. During the fourth quarter of 2022, we conducted our annual goodwill impairment test and did not record any impairment charges. The estimated fair values of our reporting units exceeded their carrying amounts at the date of their most recent estimated fair value determination. During 2022, we evaluated our other intangible assets for impairment and did not record any impairment charges.

•Accounting for acquired vacation ownership notes receivable, where estimates of future cash flows are based largely on the customer class and the results of our static pool analysis. In addition, the valuation of acquired vacation ownership notes receivable includes a material estimate of the fair value of the underlying collateral which would be retained in the event of customer default. See further discussion included in Footnote 6 “Vacation Ownership Notes Receivable” to our Financial Statements.

•Loss contingencies, including information on how we account for loss contingencies. Accruals for contingent liabilities are recorded when it is probable that a liability has been incurred, or an asset impaired, and the amount of the loss can be reasonably estimated. Liabilities accrued for legal matters require judgments regarding projected outcomes and range of loss based on historical litigation and settlement experience, recommendations of legal counsel and, if applicable, other experts.

•Income taxes, including the accounting related to uncertain tax positions and the determination of valuation allowances on our deferred tax assets. The recognition and measurement of uncertain tax positions involves consideration of the amounts and probabilities of various outcomes that could be realized upon ultimate resolution. Tax valuation allowances are established to reduce deferred tax assets, such as tax loss carryforwards, to net realizable value. Factors considered in estimating net realizable value include historical results by tax jurisdiction, carryforward periods, income tax strategies and forecasted taxable income.

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