UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2017

or

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

For the transition period from_________ to ________

Commission file number 001-37794

Hilton Grand Vacations Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	81-2545345
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

6355 MetroWest Boulevard, Suite 180,
Orlando, Florida	32835
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code (407) 613-3100

(Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days.    Yes  ☒No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-Accelerated Filer	☒ (Do not check if a smaller reporting company)	Smaller Reporting Company	☐
Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

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

The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, as of October 27, 2017 was 99,088,973.

HILTON GRAND VACATIONS INC.

FORM 10-Q TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
Item 1.		Financial Statements	2
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.		Controls and Procedures	34
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings		35
Item 1A.	Risk Factors		35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		37
Item 3.	Defaults Upon Senior Securities		37
Item 4.	Mine Safety Disclosures		37
Item 5.	Other Information		37
Item 6.	Exhibits		38
	Signatures

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PART I FINANCIAL INFORMATION

Item 1. Financial Statements

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

	September 30,		December 31,
	2017		2016
	(unaudited)
ASSETS
Cash and cash equivalents	$	226	$	48
Restricted cash		58		103
Accounts receivable, net of allowance for doubtful accounts of $10 and $6		104		123
Timeshare financing receivables, net		1,055		1,025
Inventory		475		513
Property and equipment, net		266		256
Investment in unconsolidated affiliate		41		—
Intangible assets, net		72		70
Other assets		51		42
TOTAL ASSETS (variable interest entities - $500 and $258)	$	2,348	$	2,180
LIABILITIES AND EQUITY
Liabilities:
Accounts payable, accrued expenses and other	$	324	$	231
Advanced deposits		102		103
Debt		484		490
Non-recourse debt		612		694
Deferred revenues		119		106
Deferred income tax liabilities		374		389
Total liabilities (variable interest entities - $484 and $245)		2,015		2,013
Commitments and contingencies - see Note 15
Equity:
Preferred stock, $0.01 par value; 300,000,000 authorized shares, none issued or    outstanding as of September 30, 2017 and December 31, 2016		—		—
Common stock, $0.01 par value; 3,000,000,000 authorized shares, 99,088,973    issued and outstanding as of September 30, 2017 and 98,802,597 issued and    outstanding as of December 31, 2016		1		1
Additional paid-in capital		160		138
Accumulated retained earnings		172		28
Total equity		333		167
TOTAL LIABILITIES AND EQUITY	$	2,348	$	2,180

See notes to unaudited condensed consolidated financial statements.

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HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in millions, except per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenues
Sales of VOIs, net	$	145		$	130		$	406		$	359
Sales, marketing, brand and other fees		127			136			401			382
Financing		38			34			109			100
Resort and club management		37			33			108			98
Rental and ancillary services		45			41			138			135
Cost reimbursements		34			33			102			94
Total revenues		426			407			1,264			1,168
Expenses
Cost of VOI sales		40			44			107			110
Sales and marketing		171			157			492			443
Financing		11			8			32			24
Resort and club management		12			9			32			25
Rental and ancillary services		30			30			88			86
General and administrative		23			24			75			61
Depreciation and amortization		7			6			21			17
License fee expense		22			22			65			61
Cost reimbursements		34			33			102			94
Total operating expenses		350			333			1,014			921
Gain on foreign currency transactions		1			1			1			2
Allocated Parent interest expense		—			(7	)		—			(20	)
Interest expense		(7	)		—			(21	)		—
Equity in earnings from unconsolidated affiliate		1			—			1			—
Other loss, net		—			—			—			(1	)
Income before income taxes		71			68			231			228
Income tax expense		(28	)		(33	)		(87	)		(98	)
Net income	$	43		$	35		$	144		$	130
Earnings per share:(1)
Basic	$	0.43		$	0.35		$	1.45		$	1.31
Diluted	$	0.43		$	0.35		$	1.44		$	1.31

⁽¹⁾ For the three and nine months ended September 30, 2016, basic and diluted earnings per share was calculated based on shares distributed to Hilton Grand Vacations’ stockholders on January 3, 2017. See Note 12: Earnings Per Share for additional information.

See notes to unaudited condensed consolidated financial statements.

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HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in millions)

	Nine Months Ended September 30,
	2017			2016
Operating Activities
Net income	$	144		$	130
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		21			17
Amortization of deferred financing costs and other		4			3
Provision for loan losses		45			37
Other loss, net		—			1
Gain on foreign currency transactions		(1	)		(2	)
Share-based compensation		13			—
Deferred income (benefit) taxes		(5	)		12
Equity in earnings from unconsolidated affiliate		(1	)		—
Net changes in assets and liabilities:
Accounts receivables, net		19			(28	)
Timeshare financing receivables, net		(75	)		(52	)
Inventory		38			(10	)
Other assets		(11	)		(7	)
Accounts payable, accrued expenses and other		96			17
Advanced deposits		(1	)		6
Deferred revenues		13			10
Other		—			(1	)
Net cash provided by operating activities		299			133
Investing Activities
Capital expenditures for property and equipment		(25	)		(16	)
Software capitalization costs		(12	)		(5	)
Investment in unconsolidated affiliate		(40	)		—
Net cash used in investing activities		(77	)		(21	)
Financing Activities
Issuance of non-recourse debt		350			—
Repayment of non-recourse debt		(428	)		(85	)
Repayment of debt		(7	)		—
Debt issuance costs		(5	)		(6	)
Allocated Parent debt activity		—			111
Net transfers to Parent		—			(114	)
Proceeds from stock option exercises		1			—
Net cash used in financing activities		(89	)		(94	)
Net increase in cash, cash equivalents and restricted cash		133			18
Cash, cash equivalents and restricted cash, beginning of period		151			79
Cash, cash equivalents and restricted cash, end of period	$	284		$	97

See notes to unaudited condensed consolidated financial statements.

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HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(in millions)

					Additional		Accumulated
	Common Stock				Paid-in		Retained		Total
	Shares		Amount		Capital		Earnings		Equity
Balance as of December 31, 2016		99	$	1	$	138	$	28	$	167
Net income		—		—		—		144		144
Deferred intercompany transaction (1)		—		—		9		—		9
Activity related to share-based compensation		—		—		11		—		11
Other		—		—		2		—		2
Balance as of September 30, 2017		99	$	1	$	160	$	172	$	333

⁽¹⁾ Refer to Note 10: Income Taxes for further discussion.

See notes to unaudited condensed consolidated financial statements.

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HILTON GRAND VACATIONS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Organization and Basis of Presentation

Our Spin-off from Hilton Worldwide Holdings Inc.

On January 3, 2017, the previously announced spin-off was completed by way of a pro rata distribution of Hilton Grand Vacations Inc.’s (“Hilton Grand Vacations,” “we,” “us,” “our,” “HGV” or the “Company”) common stock to Hilton Worldwide Holdings Inc. (“Hilton”) stockholders. Each Hilton stockholder received one share of our common stock for every ten shares of Hilton common stock. As a result of the spin-off, we became a separate publicly-traded company on the New York Stock Exchange under the ticker symbol “HGV,” and 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 brand. The unaudited condensed consolidated financial statements reflect the effect of these agreements. For the three months ended September 30, 2017 and 2016, we incurred $39 million and $46 million, respectively, and for the nine months ended September 30, 2017 and 2016, we incurred $137 million and $150 million, respectively, in costs relating to the agreements entered with Hilton. See Key Agreements Related to the Spin-Off section in Part I - Item 1. Business of our Annual Report on Form 10-K for the year ended December 31, 2016 for further information.

Prior to the spin-off, Hilton maintained a share-based compensation plan for the benefit of its officers, directors and employees which was presented as a component of Net transfers (to) from Parent, a financing activity, on the condensed consolidated statements of cash flows. Subsequent to the spin-off, share-based compensation expense is presented as a component of operating activities on the condensed consolidated statements of cash flows.

Our Business

Hilton Grand Vacations 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 September 30, 2017, we had 48 timeshare properties, comprised of 8,101 units, located in the United States (“U.S.”) and Europe.

Basis of Presentation

The unaudited condensed consolidated financial statements presented herein 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 unaudited condensed consolidated financial statements presented herein were prepared on a stand-alone basis and were derived from the unaudited consolidated financial statements and accounting records of Hilton.

The unaudited condensed consolidated financial statements reflect our financial position, results of operations and cash flows as prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Although we believe the disclosures made are adequate to prevent information presented from being misleading, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto as of and for the year ended December 31, 2016, included in our Annual Report on Form 10-K filed with the SEC on March 2, 2017.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and, accordingly, ultimate results could differ from those estimates. Interim results are not necessarily indicative of full year performance.

The accompanying unaudited condensed consolidated financial statements, in our opinion, reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods. All material intercompany transactions and balances have been eliminated in consolidation.

We review our estimate of the expected redemption of expired prepaid discounted vacation packages (“packages”) on an ongoing basis. We only reduce the liability for expired packages when a package is redeemed or the likelihood of redemption is remote. This review considers factors such as historical experience, current business practices for pursuing individuals to redeem

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expired packages and the sufficiency and reliability of data available following a change in those redemption business practices. Previously, we concluded that redemption of an expired package was remote once a package had been expired for six months and therefore retained the liability until six months after expiration. During the review in the second quarter of 2017, we determined we then had sufficiently reliable updated information under current business practices to revise our estimate of expired packages that we expect to redeem. As a result during the second quarter of 2017, we changed our accounting estimate for expected redemptions of expired packages to relieve a portion of the remaining liability post expiration and recorded an $11 million reduction to the Advanced Deposits liability, with corresponding increases to Sales, marketing, brand and other fees revenue of $10 million and Accounts payable, accrued expenses and other for the related sales tax liability of $1 million. As a result, for the nine months ended September 30, 2017, our net income increased by $10 million and basic and diluted earnings per share increased by $0.10.

Note 2: Significant Accounting Policies

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.

Recently Issued Accounting Pronouncements

Adopted Accounting Standards

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09 (“ASU 2016-09”), Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 includes provisions intended to simplify several aspects of the accounting and presentation of share-based payments. These provisions include the recognition of the income tax effects of awards in the consolidated statement of operations when the awards vest or are settled, permitting an employer to withhold shares in an amount up to the employee’s maximum individual tax rate without resulting in liability classification of the award, permitting entities to make a policy election to account for forfeitures as they occur, and changes to the classification of tax-related cash flows resulting from share-based payments and cash payments made to taxing authorities on the employee’s behalf on the statement of cash flows. This ASU 2016-09 was effective for reporting periods beginning after December 15, 2016. We adopted ASU 2016-09 retrospectively as of January 1, 2017 and have applied to all periods herein with no material impact to our unaudited condensed consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, (“ASU 2016-18”) Statement of Cash Flows (Topic 230): Restricted Cash. This ASU is intended to provide guidance on the presentation of restricted cash or restricted cash equivalents and reduce the diversity in practice. This ASU requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts on the statement of cash flows. We elected, as permitted by the standard, to early adopt ASU 2016-18 retrospectively as of January 1, 2017 and have applied it to all periods presented herein. The adoption of ASU 2016-18 did not have a material impact to our unaudited condensed consolidated financial statements. The effect of the adoption of ASU 2016-18 on our condensed consolidated statements of cash flows was to include restricted cash balances in the beginning and end of period balances of cash and cash equivalent and restricted cash. The change in restricted cash was previously disclosed in operating activities and financing activities in the condensed consolidated statements of cash flows.

In January 2017, the FASB issued ASU No. 2017-01 (“ASU 2017-01”), Business Combinations (Topic 804): Clarifying the Definition of a Business. This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. We elected, as permitted by the standard, to early adopt ASU 2017-01 prospectively as of January 1, 2017. The adoption of ASU 2017-01 did not have a material impact to our unaudited condensed consolidated financial statements.

Accounting Standards Not Yet Adopted

In May 2014, the FASB issued ASU No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers (Topic 606). This ASU supersedes the revenue recognition requirements in Revenue Recognition (Topic 605), and requires entities to recognize revenue

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in a way that depicts the transfer of promised goods orservices to customers in an amount that reflects the consideration to which the entity expects to be entitled inexchange for those goods or services. Subsequent to ASU 2014-09, the FASB has issued several related ASUs amending the original ASU.

The provisions of this ASU are to be applied retrospectively or using a modified retrospective approach for reporting periods beginning after December 15, 2017.   A determination as to whether we will apply the retrospective or modified retrospective adoption method will be made once our quantitative evaluation is complete and we commence quantifying the expected impacts later this year.

   We are currently evaluating the effect that this ASU will have on our consolidated financial statements by analyzing both transactional and analytical data for each of our revenue streams. The following is a status of our evaluation of impacts by significant revenue stream:

• Sales of VOIs, net – We expect to recognize Sales of VOI, net when control of the VOI passes to the customer, which generally occurs shortly after the expiration of the purchaser’s period to cancel for a refund. We do not expect that this timing change will have a material impact on our accounting for Sales of VOIs, net. We expect our accounting for uncollectible timeshare financing receivables to remain unchanged.

We are still evaluating the impact on revenue recognition for sales of VOIs that are under construction.

• Sales, marketing, brand and other fees - We expect changes to the gross versus net presentation of certain sales incentives as sales incentives provided where we are acting as the agent (e.g., Hilton Honors) will be recognized on a net basis in Sales, marketing, brand and other fees. We expect this classification change to reduce Sales, marketing, brand and other fees and the related expenses by $29.7 million for the year ended December 31, 2016.

We plan to recognize the expected breakage on prepaid discounted vacation packages (“packages”) as revenue proportionately when our customers redeem their packages rather than when the likelihood of redemption is remote as we are entitled to the breakage amount. We are currently in the process of assessing the impact of this expected change.

We do not expect material changes to our accounting for our commissions, brand and other fees under fee-for-service arrangements.

• Financing - We do not expect material changes to our accounting for financing revenues, as these revenues are out of the scope of Topic 606.

• Resort and club management - We do not expect material changes to our accounting for ongoing management fees from our homeowners’ association management agreements and the fees earned from our Club members.

• Rental and ancillary services - We do not expect significant changes to our revenue recognition of transient guest transactions, including rental and ancillary services.

• Cost reimbursements - While we do not expect significant changes to the timing of recognition of cost reimbursements, we are still evaluating potential impacts to changes in presentation.

We expect immaterial impacts from changes to (i) timing of service fees charged on packages and (ii) classification of contract acquisition costs paid to fee-for-service customers.

We will continue to evaluate and disclose expected impacts that ASU 2014-09 will have on our unaudited condensed consolidated financial statements as more information becomes available.

In August 2016, the FASB issued ASU No. 2016-15 (“ASU 2016-15”), Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The provisions of this ASU are effective for reporting periods beginning after December 15, 2017; early adoption is permitted. 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

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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.

Note 3: Restricted Cash

Restricted cash was as follows:

	September 30,		December 31,
($ in millions)	2017		2016
Escrow deposits on VOI sales	$	36	$	81
Reserves related to non-recourse debt(1)		22		22
	$	58	$	103

⁽¹⁾ See Note 8: Debt & Non-recourse debt for further discussion.

Note 4: Timeshare Financing Receivables

Timeshare financing receivables were as follows:

	September 30, 2017
($ in millions)	Securitized and Pledged			Unsecuritized			Total
Timeshare financing receivables	$	506		$	687		$	1,193
Less: allowance for loan loss		(29	)		(109	)		(138	)
	$	477		$	578		$	1,055

	December 31, 2016
($ in millions)	Securitized and Pledged			Unsecuritized			Total
Timeshare financing receivables	$	253		$	892		$	1,145
Less: allowance for loan loss		(9	)		(111	)		(120	)
	$	244		$	781		$	1,025

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 September 30, 2017, our timeshare financing receivables had interest rates ranging from 5.3 percent to 20.5 percent, a weighted average interest rate of 12.1 percent, a weighted average remaining term of 7.7 years and maturities through 2028.

We pledge a portion of our timeshare financing receivables as collateral to secure a non-recourse revolving timeshare receivable credit facility (“Timeshare Facility”) with a borrowing capacity of $450 million. As of September 30, 2017 and December 31, 2016, we had $143 million and $509 million, respectively, of gross timeshare financing receivables securing the Timeshare Facility. We recognize interest income on our timeshare financing receivables as earned. We record an estimate of uncollectibility as a reduction of revenue from VOI sales at the time revenue is recognized on a VOI sale.

In March 2017, we completed a securitization of approximately $357 million of gross timeshare financing receivables and issued approximately $291 million of 2.66 percent notes and approximately $59 million of 2.96 percent notes, which have a stated maturity date of December 2028. The securitization transactions 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”). See Note 8: Debt & Non-recourse debt for further discussion.

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Our timeshare financing receivables as of September 30, 2017 mature as follows:

($ in millions)	Securitized and Pledged			Unsecuritized			Total
Year
2017 (remaining)	$	19		$	28		$	47
2018		76			56			132
2019		75			60			135
2020		72			65			137
2021		67			70			137
Thereafter		197			408			605
		506			687			1,193
Less: allowance for loan loss		(29	)		(109	)		(138	)
	$	477		$	578		$	1,055

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 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.

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

	September 30,		December 31,
($ in millions)	2017		2016
FICO score
700+	$	763	$	725
600-699		224		211
<600		28		28
No score(1)		178		181
	$	1,193	$	1,145

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

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 September 30, 2017 and December 31, 2016, we had ceased accruing interest on timeshare financing receivables with an aggregate principal balance of $47 million and $38 million, respectively. The following tables detail an aged analysis of our gross timeshare financing receivables balance:

	September 30, 2017
($ in millions)	Securitized and Pledged		Unsecuritized		Total
Current	$	498	$	635	$	1,133
31 - 90 days past due		5		8		13
91 - 120 days past due		2		2		4
121 days and greater past due		1		42		43
	$	506	$	687	$	1,193

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	December 31, 2016
($ in millions)	Securitized and Pledged		Unsecuritized		Total
Current	$	248	$	847	$	1,095
31 - 90 days past due		3		9		12
91 - 120 days past due		1		4		5
121 days and greater past due		1		32		33
	$	253	$	892	$	1,145

The changes in our allowance for loan loss were as follows:

	September 30, 2017
($ in millions)	Securitized and Pledged			Unsecuritized			Total
Balance as of December 31, 2016	$	9		$	111		$	120
Write-offs		—			(27	)		(27	)
Securitization		28			(28	)		—
Provision for loan loss(1)		(8	)		53			45
Balance as of September 30, 2017	$	29		$	109		$	138

	September 30, 2016
($ in millions)	Securitized and Pledged			Unsecuritized			Total
Balance as of December 31, 2015	$	17		$	89		$	106
Write-offs		—			(27	)		(27	)
Provision for loan loss(1)		(6	)		43			37
Balance as of September 30, 2016	$	11		$	105		$	116

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

Note 5: Inventory

Inventory was as follows:

	September 30,		December 31,
($ in millions)	2017		2016
Completed unsold VOIs	$	206	$	233
Construction in process		11		20
Land, infrastructure and other		258		260
	$	475	$	513

We benefited from $4 million in costs of sales true-ups relating to VOI products for the nine months ended September 30, 2017, which resulted in a $4 million increase to the carrying value of inventory as of September 30, 2017. We benefited from $10 million in costs of sales true-ups relating to VOI products for the year ended December 31, 2016, which resulted in a $10 million increase to the carrying value of inventory as of December 31, 2016. Shown below are expenses incurred, recorded in Cost of VOI sales, related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects.

	Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)	2017		2016		2017		2016
Cost of VOI sales related to fee-for-service upgrades	$	8	$	18	$	28	$	42

Note 6: Consolidated Variable Interest Entities

As of September 30, 2017 and December 31, 2016, we consolidated three and two variable interest entities (“VIEs”), respectively, that issued Securitized Debt, backed by pledged assets consisting primarily of a pool of timeshare financing receivables, which is without recourse to us. We are the primary beneficiaries of these VIEs as we have the power to direct the activities that most

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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 assets of our VIEs are available to settle the obligations of the respective entities.

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

	September 30,		December 31,
($ in millions)	2017		2016
Restricted cash	$	19	$	10
Timeshare financing receivables, net		477		244
Non-recourse debt(1)		484		244

⁽¹⁾ Net of deferred financing costs.

During the nine months ended September 30, 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.

Note7: Investment in Unconsolidated Affiliate

On July 18, 2017, we entered into an agreement with BRE Ace Holdings LLC, a Delaware limited liability company (“BRE Ace Holdings”), an affiliate of The Blackstone Group L.P. (“Blackstone”) and formed BRE Ace LLC. 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.  Our investment interest in and equity earned from BRE Ace LLC are included in the condensed consolidated balance sheets as Investment in unconsolidated affiliate and in the condensed consolidated statements of operations as Equity in earnings from unconsolidated affiliate, respectively.  

BRE Ace LLC had debt of $207 million and non-recourse debt of $235 million as of September 30, 2017.  The debt and non-recourse debt are secured by its assets and are without recourse to us.  Our maximum exposure to loss as a result of our investment interest in BRE Ace LLC is primarily limited to the carrying amount of the investment which totals $41 million as of September 30, 2017, as well as receivables for commission and other fees earned under a fee-for-service arrangement.  See Note 13:  Related Party Transactions for additional information.  

Note 8: Debt & Non-recourse debt

Debt

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

	September 30,			December 31,
($ in millions)	2017			2016
Debt(1)
Senior secured credit facilities:
Term loan with an average rate of 3.48%, due 2021	$	193		$	200
Senior notes with a rate of 6.125%, due 2024		300			300
		493			500
Less: unamortized deferred financing costs and discount(2)(3)		(9	)		(10	)
	$	484		$	490

⁽¹⁾ For the nine months ended September 30, 2017 and year ended December 31, 2016, weighted average interest rates were 5.092 percent and 4.851 percent, respectively.

⁽²⁾ Amount includes deferred financing costs of $2 million and $7 million as of September 30, 2017 and $2 million and $8 million as of December 31, 2016, relating to our term loan and senior notes, respectively.

⁽³⁾ Amount does not include deferred financing costs of $2 million as of September 30, 2017 and December 31, 2016, relating to our revolving facility included in Other Assets in our condensed consolidated balance sheets.

We were in compliance with all applicable financial covenants as of September 30, 2017.

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Non-recourse Debt

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

	September 30,			December 31,
($ in millions)	2017			2016
Non-recourse debt(1)
Timeshare Facility with an average rate of 2.54%, due 2019	$	129		$	450
Securitized Debt with an average rate of 2.43%, due 2028		489			246
		618			696
Less: unamortized deferred financing costs(2)		(6	)		(2	)
	$	612		$	694

⁽¹⁾ For the nine months ended September 30, 2017 and year ended December 31, 2016, weighted average interest rates were 2.453 percent and 1.946 percent, respectively.

⁽²⁾ Amount relates to Securitized Debt only and does not include deferred financing costs of $2 million as of September 30, 2017 and $3 million as of December 31, 2016, relating to our Timeshare Facility included in Other Assets in our condensed consolidated balance sheets.

The Timeshare Facility is a non-recourse obligation and is payable solely from the pool of timeshare financing receivables pledged as collateral and related assets.

In March 2017, we completed a securitization of approximately $357 million of gross timeshare financing receivables and issued approximately $291 million of 2.66 percent notes and $59 million of 2.96 percent notes due December 2028. The Securitized Debt is backed by pledged assets, consisting primarily of a pool of timeshare financing receivables secured by first mortgages or deeds of trust on timeshare interests. The Securitized Debt is a non-recourse obligation and is payable solely from the pool of timeshare financing receivables pledged as collateral to the debt.

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 $22 million as of September 30, 2017 and December 31, 2016, and were included in Restricted cash in our condensed consolidated balance sheets.

Debt Maturities

The contractual maturities of our debt and non-recourse debt as of September 30, 2017 were as follows:

($ in millions)	Debt		Non-recourse Debt		Total
Year
2017 (remaining)	$	3	$	30	$	33
2018		10		134		144
2019		10