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Marriott Vacations Worldwide Reports Fourth Quarter and Full Year 2017 Financial Results and Provides 2018 Outlook

Announces Completion of Amendments to Certain Agreements with Marriott International

ORLANDO, Fla., Feb. 27, 2018 /PRNewswire/ -- Marriott Vacations Worldwide Corporation (NYSE: VAC) today reported fourth quarter and full year 2017 financial results and provided guidance for the full year 2018.

Due to the change in the company's financial reporting calendar in 2017, financial results for the fourth quarter of 2017 were negatively impacted by twenty fewer days of operations than the prior year fourth quarter. Prior year results have not been restated for the change in the reporting calendar.

Marriott Vacations Worldwide Corporation. (PRNewsFoto/Marriott Vacations Worldwide)

Full Year and Fourth Quarter 2017 Results:

  • Full year net income was $227 million, compared to $137 million in 2016, an increase of 65 percent. Fully diluted earnings per share ("EPS") was $8.18, compared to $4.83 in 2016, an increase of 69 percent. Net income in the fourth quarter of 2017 was $108 million, or $3.95 fully diluted EPS.
  • Full year adjusted net income was $160 million, compared to $134 million in 2016, an increase of 19 percent. Adjusted fully diluted EPS was $5.78 compared to $4.73 in 2016, an increase of 22 percent. Adjusted net income in the fourth quarter of 2017 was $43 million, or $1.56 adjusted fully diluted EPS.
  • Full year adjusted EBITDA totaled $280 million, an increase of $19 million, or 7 percent, year-over-year. Adjusted EBITDA in the fourth quarter of 2017 totaled $66 million.
  • Total full year company contract sales were $803 million, an increase of $79 million, or 11 percent, compared to the prior year. Contract sales in the company's key North America segment were $729 million, an increase of $83 million, or 13 percent, compared to the prior year. The company estimates Hurricane Irma and Hurricane Maria (the "2017 Hurricanes") negatively impacted contract sales by approximately $20 million in 2017. Excluding that impact, total company and North America contract sales would have increased 14 percent and 16 percent, respectively.
    • Total company and North America contract sales in the fourth quarter of 2017 were $201 million and $181 million, respectively.  The company estimates the 2017 Hurricanes negatively impacted contract sales by approximately $8 million in the fourth quarter of 2017. Adjusting for that impact, as well as the impact of the change in the company's financial reporting calendar, total company and North America contract sales would have increased 9 percent and 11 percent, respectively, compared to the prior year period.
  • Full year North America VPG totaled $3,565, a 3 percent increase from 2016. Tours increased 12 percent year-over-year. North America VPG in the fourth quarter of 2017 totaled $3,518.
  • The company generated net cash provided by operating activities of $142 million and adjusted free cash flow of $253 million, nearly $30 million above the high end of the company's previous guidance range.
  • During 2017, the company returned $126 million to its shareholders through the repurchase of 0.8 million shares for $88 million and $38 million in dividends paid.
  • The company recorded a benefit in its provision for income taxes of $65 million in the fourth quarter of 2017 related to the impact of the Tax Cuts and Jobs Act of 2017.
  • The company entered into a capital efficient arrangement with a third party to purchase an operating property located in San Francisco, California that the company expects to re-brand as a Marriott Vacation Club Pulse property in 2019.
  • In February 2018, the company amended certain agreements with Marriott International. The company expects these amendments to provide immediate annualized financial benefits of $3 million resulting from a reduced annual royalty fee plus $15 million to $17 million of benefits from increased annual co-marketing funds associated with Marriott International's new credit card arrangements and reduced costs of Marriott Rewards points under the company's existing agreements with Marriott International from planned system-wide reductions in the rates Marriott International charges its loyalty program partners. Finally, the amendments provide for significantly expanded marketing opportunities with Marriott International.
  • Effective January 1, 2018, the company adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606"), which supersedes most existing revenue recognition guidance.

Non-GAAP financial measures, such as adjusted net income, adjusted EBITDA, adjusted fully diluted earnings per share, adjusted free cash flow, and adjusted development margin are reconciled and adjustments are shown and described in further detail on pages A-1 through A-17 of the Financial Schedules that follow.

"I am very pleased with how we closed out 2017, with contract sales and adjusted EBITDA in line with our previous guidance, and adjusted free cash flow of $253 million," said Stephen P. Weisz, president and chief executive officer. "I am even more excited about what lies ahead for Marriott Vacations Worldwide as we continue to expand our portfolio of resorts.  We are also very optimistic about recent enhancements to some of our agreements with Marriott International, which expanded our great partnership with Marriott and provide immediate benefits to our financial results and significantly enhanced rights to expand our call transfer, digital marketing, and linkage arrangements with Marriott. We expect that these expanded opportunities will provide significant contributions to our growth going forward."

Balance Sheet and Liquidity

On December 31, 2017, cash and cash equivalents totaled $409 million. Since the beginning of the year, real estate inventory balances increased by $3 million to $712 million, including $379 million of finished goods, $2 million of work-in-progress, and $330 million of land and infrastructure. The company had $1,095 million in debt outstanding, net of unamortized debt issue costs, at the end of the fourth quarter, an increase of $358 million from year-end 2016, consisting primarily of $835 million of debt related to our securitized notes receivable and $193 million of convertible notes.

As of December 31, 2017, the company had approximately $245 million in available capacity under its revolving credit facility after taking into account outstanding letters of credit, and approximately $151 million of gross vacation ownership notes receivable eligible for securitization under its warehouse credit facility.

Fiscal Year Change

The table below shows the number of days for each reporting period in 2017 and 2016:

 

2017

 

2016

First Quarter

91 days

 

84 days

Second Quarter

91 days

 

84 days

Third Quarter

92 days

 

84 days

Fourth Quarter

92 days

 

112 days

Full Year

366 days

 

364 days

       

Impact of Amended Agreements with Marriott International

In February 2018, the company and Marriott International amended several of the agreements governing their ongoing relationship, including the agreements relating to the company's license arrangements with Marriott International and The Ritz-Carlton Hotel Company and its participation in the Marriott Rewards program. The company agreed to a limited exception to its exclusive rights with respect to access to the Marriott Rewards program and member lists and Marriott International's reservation system and marriott.com website in exchange for the following:

  • $3 million reduction in its annual royalty fee;
  • $15 million to $17 million of benefits from increased annual co-marketing funds associated with Marriott International's new credit card arrangements and reduced costs of Marriott Rewards points under the company's existing agreements with Marriott International resulting from planned system-wide reductions in the rates Marriott International charges its loyalty program partners;
  • the exclusive right to market the company's products (e.g., linkage opportunities) at 14 full service Marriott International and former Starwood hotel brands, subject to a limited exception for the St. Regis, Westin, and Sheraton brands;
  • the exclusive right to be the timeshare partner for call transfer activities for all Marriott and, beginning in the second quarter of 2018, all former Starwood reservation call centers, as well as an extension of the term of our long-term call transfer arrangement with the potential for further extension;
  • the exclusive right to be the timeshare partner for certain digital marketing programs with respect to Marriott International's digital lodging platforms, including marriott.com;
  • the ability to market to Marriott International's combined loyalty program members upon consolidation of the Marriott and Starwood loyalty programs.

Impact of Tax Cuts and Jobs Act of 2017

The Tax Cuts and Jobs Act, enacted on December 22, 2017, includes a number of complex provisions, which the company is currently reviewing.  However, the company expects future earnings to be positively impacted largely due to the reduction of the U.S. federal corporate income tax rate from 35% to 21%. This rate reduction had a significant impact on the company's income taxes for 2017, including an estimated $65 million one-time impact from the revaluation of certain deferred tax assets and liabilities to reflect the new lower rate.

Impact of Accounting Changes

The company adopted ASC 606, on a retrospective basis, at the beginning of 2018. The core principle of ASC 606 is that an entity shall recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also contains significant new disclosure requirements regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

Following the adoption of ASC 606, recognition of revenue from the sale of vacation ownership products that is deemed collectible will be deferred from the point in time at which the statutory rescission period expires to closing, when control of the vacation ownership product is transferred to the customer. In addition, the company will align its assessment of collectibility of the transaction price for sales of vacation ownership products with its credit granting policies. The company has elected the practical expedient to expense all marketing and sales costs as they are incurred. Its consolidated cost reimbursements revenues and cost reimbursements expenses will increase significantly, as all costs reimbursed to it by property owners' associations will be reported on a gross basis. In connection with the adoption of ASC 606, the company will also reclassify certain revenues and expenses.

Summary Estimated Financial Impact of the Adoption of ASC 606 on 2017 Financial Results

$ in millions, except per share amounts

2017
As Reported

 

Adjustments

 

2017
As Adjusted

Net income

$227

 

$9

 

$235

Fully diluted EPS

$8.18

 

$0.31

 

$8.49

Net cash provided by operating activities

$142

 

-

 

$142

Adjusted net income

$160

 

$9

 

$169

Adjusted fully diluted EPS

$5.78

 

$0.31

 

$6.09

Adjusted EBITDA

$280

 

$14

 

$294

Adjusted free cash flow

$253

 

-

 

$253

Contract sales growth

11%

 

-

 

11%

           

Summary Estimated Financial Impact of the Adoption of ASC 606, amendments to certain agreements with Marriott International, and the Tax Cuts and Jobs Act of 2017 (included in the company's 2018 Outlook below)

$ in millions, except per share amounts

ASC 606 Adjustments

 

Amended Agreements
and Other Changes in
Marriott International
Arrangements

 

Tax Cuts and
Jobs Act of 2017 1

Net income

($4)

 

to

 

($3)

 

$9

 

to

 

$10

 

$29

 

to

 

$32

Net cash provided by operating activities

$—

 

to

 

$—

 

$9

 

to

 

$10

 

$47

 

to

 

$51

Adjusted net income

($4)

 

to

 

($3)

 

$9

 

to

 

$10

 

$29

 

to

 

$32

Adjusted EBITDA

($5)

 

to

 

($4)

 

$11

 

to

 

$12

 

$—

 

to

 

$—

Adjusted free cash flow

$—

 

to

 

$—

 

$9

 

to

 

$10

 

$47

 

to

 

$51

 

1  While a portion of the benefit to net cash provided by operating activities and adjusted free cash flow in 2018 from the Tax Cuts and Jobs Act of 2017 will be realized after 2018, roughly half of the total 2018 benefit relates to the timing of taking advantage of certain tax credits.

 

2018 Outlook

Pages A-1 through A-17 of the Financial Schedules reconcile the non-GAAP financial measures set forth below to the following full year 2018 expected GAAP results: 

Net income

$182 million

to

$193 million

Fully diluted EPS

$6.61

to

$7.01

Net cash provided by operating activities

$180 million

to

$205 million

Adjusted net income

$184 million

to

$195 million

Adjusted fully diluted EPS

$6.69

to

$7.09

Adjusted EBITDA

$310 million

to

$325 million

Adjusted free cash flow

$185 million

to

$215 million

Contract sales growth

7%

to

12%

       

Fourth Quarter 2017 Earnings Conference Call

The company will hold a conference call at 10:00 a.m. ET today to discuss these results and the guidance for full year 2018. Participants may access the call by dialing 877-407-8289 or 201-689-8341 for international callers. A live webcast of the call will also be available in the Investor Relations section of the company's website at www.marriottvacationsworldwide.com.

An audio replay of the conference call will be available for seven days and can be accessed at 877-660-6853 or 201-612-7415 for international callers. The conference ID for the recording is 13676613. The webcast will also be available on the company's website.

About Marriott Vacations Worldwide Corporation
Marriott Vacations Worldwide Corporation is a leading global pure-play vacation ownership company, offering a diverse portfolio of quality products, programs and management expertise with over 65 resorts. Its brands include Marriott Vacation Club, The Ritz-Carlton Destination Club and Grand Residences by Marriott. Since entering the industry in 1984 as part of Marriott International, Inc., the company earned its position as a leader and innovator in vacation ownership products. The company preserves high standards of excellence in serving its customers, investors and associates while maintaining a long-term relationship with Marriott International. For more information, please visit www.marriottvacationsworldwide.com.

Note on forward-looking statements: This press release and accompanying schedules contain "forward-looking statements" within the meaning of federal securities laws, including statements about the impact of The Tax Cuts and Jobs Act, the amendments to the agreements with Marriott International and the adoption of ASC 606, future operating results, estimates, and assumptions, and similar statements concerning anticipated future events and expectations that are not historical facts. The company cautions you that these statements are not guarantees of future performance and are subject to numerous risks and uncertainties, including volatility in the economy and the credit markets, supply and demand changes for vacation ownership and residential products, competitive conditions, the availability of capital to finance growth, and other matters referred to under the heading "Risk Factors" contained in the company's most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the "SEC") and in subsequent SEC filings, any of which could cause actual results to differ materially from those expressed in or implied in this press release. These statements are made as of February 27, 2018 and the company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

Financial Schedules Follow

MARRIOTT VACATIONS WORLDWIDE CORPORATION

FINANCIAL SCHEDULES

QUARTER 4, 2017 1

 

TABLE OF CONTENTS

 

Consolidated Statements of Income

A-1

Adjusted Net Income, Adjusted Earnings Per Share - Diluted, EBITDA and Adjusted EBITDA

A-2

North America Segment Financial Results

A-3

Asia Pacific Segment Financial Results

A-4

Europe Segment Financial Results

A-5

Corporate and Other Financial Results

A-6

Consolidated Contract Sales to Sale of Vacation Ownership Products and Adjusted Development Margin (Adjusted Sale of Vacation Ownership Products Net of Expenses)

A-7

North America Contract Sales to Sale of Vacation Ownership Products and Adjusted Development Margin (Adjusted Sale of Vacation Ownership Products Net of Expenses)

A-8

Cash Flow and Adjusted Free Cash Flow

A-9

2018 Outlook - Adjusted Net Income, Adjusted Earnings Per Share - Diluted, Adjusted EBITDA and Adjusted Free Cash Flow

A-10

ASC 606 Adjustments

A-11

Non-GAAP Financial Measures

A-14

Consolidated Balance Sheets

A-16

Consolidated Statements of Cash Flows

A-17

   

1

Due to the change in the company's financial reporting calendar beginning in 2017, the 2017 fourth quarter included the period from October 1, 2017 through December 31, 2017 (92 days), compared to the 2016 fourth quarter, which included the period from September 10, 2016 to December 30, 2016 (112 days), and the 2017 full year included the period from December 31, 2016 through December 31, 2017 (366 days), compared to the 2016 full year, which included the period from January 2, 2016 to December 30, 2016 (364 days). Prior year results have not been restated for the change in fiscal calendar.

 

A-1

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

 
 

Quarter Ended

 

Fiscal Year Ended

 

December 31,
2017

 

December 30,
2016

 

December 31,
2017

 

December 30,
2016

 

(92 days)

 

(112 days)

 

(366 days)

 

(364 days)

REVENUES

             

Sale of vacation ownership products

$

184,253

   

$

221,672

   

$

727,940

   

$

637,503

 

Resort management and other services

77,192

   

92,772

   

306,196

   

300,821

 

Financing

35,580

   

39,182

   

134,906

   

126,126

 

Rental

72,281

   

82,938

   

322,902

   

312,071

 

Cost reimbursements

111,910

   

127,992

   

460,001

   

431,965

 

TOTAL REVENUES

481,216

   

564,556

   

1,951,945

   

1,808,486

 

EXPENSES

             

Cost of vacation ownership products

46,224

   

50,944

   

177,813

   

155,093

 

Marketing and sales

103,498

   

116,947

   

408,715

   

353,295

 

Resort management and other services

41,788

   

50,616

   

172,137

   

174,311

 

Financing

5,423

   

6,849

   

17,951

   

18,631

 

Rental

69,709

   

69,094

   

281,352

   

260,752

 

General and administrative

26,486

   

31,962

   

110,225

   

104,833

 

Litigation settlement

2,015

   

   

4,231

   

(303)

 

Consumer financing interest

7,127

   

7,845

   

25,217

   

23,685

 

Royalty fee

15,424

   

18,946

   

63,021

   

60,953

 

Cost reimbursements

111,910

   

127,992

   

460,001

   

431,965

 

TOTAL EXPENSES

429,604

   

481,195

   

1,720,663

   

1,583,215

 

(Losses) gains and other (expense) income, net

(980)

   

72

   

5,772

   

11,201

 

Interest expense

(4,392)

   

(2,581)

   

(9,572)

   

(8,912)

 

Other

(1,234)

   

(104)

   

(1,599)

   

(4,632)

 

INCOME BEFORE INCOME TAXES

45,006

   

80,748

   

225,883

   

222,928

 

Benefit (provision) for income taxes

63,034

   

(30,924)

   

895

   

(85,580)

 

NET INCOME

$

108,040

   

$

49,824

   

$

226,778

   

$

137,348

 
               

Earnings per share - Basic

$

4.05

   

$

1.83

   

$

8.38

   

$

4.93

 

Earnings per share - Diluted

$

3.95

   

$

1.80

   

$

8.18

   

$

4.83

 

Basic Shares

26,656

   

27,152

   

27,078

   

27,882

 

Diluted Shares

27,342

   

27,742

   

27,733

   

28,422

 
 

Quarter Ended

 

Fiscal Year Ended

 

December 31,
2017

 

December 30,
2016

 

December 31,
2017

 

December 30,
2016

 

(92 days)

 

(112 days)

 

(366 days)

 

(364 days)

Contract sales

$

200,704

   

$

234,317

   

$

802,890

   

$

723,634

 
 

NOTE: Earnings per share - Basic and Earnings per share - Diluted are calculated using whole dollars. We have reclassified certain prior year amounts to conform to our current period presentation.

 

 

A-2

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

(In thousands, except per share amounts)

 

ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE - DILUTED

 
   

Quarter Ended

 

Fiscal Year Ended

   

December 31,
2017

 

December 30,
2016

 

December 31,
2017

 

December 30,
2016

   

(92 days)

 

(112 days)

 

(366 days)

 

(364 days)

Net income

 

$

108,040

   

$

49,824

   

$

226,778

   

$

137,348

 

Less certain items:

               

Acquisition costs

 

1,251

   

168

   

1,806

   

4,881

 

Variable compensation expense related to the impact of the hurricanes

 

2,867

   

1,442

   

6,540

   

1,442

 

Operating results from the sold portion of the Surfers Paradise, Australia property

 

   

   

   

(275)

 

Litigation settlement

 

2,015

   

   

4,231

   

(303)

 

Losses (gains) and other expense (income), net

 

980

   

(72)

   

(5,772)

   

(11,201)

 

Certain items before depreciation and income taxes 1

 

7,113

   

1,538

   

6,805

   

(5,456)

 

Depreciation on the sold portion of the Surfers Paradise, Australia property

 

   

   

   

469

 

Income tax benefit from the 2017 Tax Cuts and Jobs Act

 

(65,179)

   

   

(65,179)

   

 

Benefit from change in France income tax rate

 

(5,304)

   

   

(5,304)

   

 

Income tax effect from certain items

 

(1,940)

   

(606)

   

(2,785)

   

1,962

 

Adjusted net income **

 

$

42,730

   

$

50,756

   

$

160,315

   

$

134,323

 

Earnings per share - Diluted

 

$

3.95

   

$

1.80

   

$

8.18

   

$

4.83

 

Adjusted earnings per share - Diluted **

 

$

1.56

   

$

1.83

   

$

5.78

   

$

4.73

 

Diluted Shares

 

27,342

   

27,742

   

27,733

   

28,422

 
 

EBITDA AND ADJUSTED EBITDA

 
   

Quarter Ended

 

Fiscal Year Ended

   

December 31,
2017

 

December 30,
2016

 

December 31,
2017

 

December 30,
2016

   

(92 days)

 

(112 days)

 

(366 days)

 

(364 days)

Net income

 

$

108,040

   

$

49,824

   

$

226,778

   

$

137,348

 

Interest expense 2

 

4,392

   

2,581

   

9,572

   

8,912

 

Tax (benefit) provision

 

(63,034)

   

30,924

   

(895)

   

85,580

 

Depreciation and amortization

 

5,692

   

6,188

   

21,494

   

21,044

 

EBITDA **

 

55,090

   

89,517

   

256,949

   

252,884

 

Non-cash share-based compensation

 

3,937

   

3,954

   

16,286

   

13,949

 

Certain items before depreciation and income
taxes 1

 

7,113

   

1,538

   

6,805

   

(5,456)

 

Adjusted EBITDA **

 

$

66,140

   

$

95,009

   

$

280,040

   

$

261,377

 
   

**

Denotes non-GAAP financial measures. Please see pages A-14 and A-15 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

1

Please see pages A-14 and A-15 for additional information regarding these items. The certain items adjustments for the Adjusted EBITDA reconciliations exclude depreciation and income taxes on certain items included in the Adjusted Net Income reconciliations.

2

Interest expense excludes consumer financing interest expense.

 

A-3

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

NORTH AMERICA SEGMENT

(In thousands)

 
 

Quarter Ended

 

Fiscal Year Ended

 

December 31,
2017

 

December 30,
2016

 

December 31,
2017

 

December 30,
2016

 

(92 days)

 

(112 days)

 

(366 days)

 

(364 days)

REVENUES

             

Sale of vacation ownership products

$

166,466

   

$

198,964

   

$

662,424

   

$

572,305

 

Resort management and other services

69,613

   

83,700

   

276,443

   

266,365

 

Financing

33,674

   

36,947

   

127,486

   

118,646

 

Rental

64,858

   

74,484

   

289,446

   

276,008

 

Cost reimbursements

101,304

   

116,402

   

421,546

   

394,592

 

TOTAL REVENUES

435,915

   

510,497

   

1,777,345

   

1,627,916

 

EXPENSES

             

Cost of vacation ownership products

40,742

   

44,203

   

157,457

   

134,079

 

Marketing and sales

89,244

   

101,211

   

356,206

   

304,099

 

Resort management and other services

35,352

   

43,714

   

147,016

   

145,036

 

Rental

62,803

   

60,601

   

249,944

   

225,281

 

Litigation settlement

1,700

   

   

3,733

   

(303)

 

Royalty fee

2,076

   

3,114

   

9,760

   

9,867

 

Cost reimbursements

101,304

   

116,402

   

421,546

   

394,592

 

TOTAL EXPENSES

333,221

   

369,245

   

1,345,662

   

1,212,651

 

(Losses) gains and other (expense) income, net

(826)

   

(37)

   

(2,776)

   

12,260

 

Other

(1,205)

   

(123)

   

(1,034)

   

(4,191)

 

SEGMENT FINANCIAL RESULTS

$

100,663

   

$

141,092

   

$

427,873

   

$

423,334

 
               

SEGMENT FINANCIAL RESULTS

$

100,663

   

$

141,092

   

$

427,873

   

$

423,334

 

Less certain items:

             

Acquisition costs

1,251

   

189

   

1,279

   

4,449

 

Variable compensation expense related to the impact of the hurricanes

1,160

   

   

2,914

   

 

Litigation settlement

1,700

   

   

3,733

   

(303)

 

Losses (gains) and other expense (income), net

826

   

37

   

2,776

   

(12,260)

 

Certain items

4,937

   

226

   

10,702

   

(8,114)

 

ADJUSTED SEGMENT FINANCIAL RESULTS **

$

105,600

   

$

141,318

   

$

438,575

   

$

415,220

 
               
 

Quarter Ended

 

Fiscal Year Ended

 

December 31, 2017

 

December 30,
2016

 

December 31,
2017

 

December 30,
2016

 

(92 days)

 

(112 days)

 

(366 days)

 

(364 days)

Contract sales

$

181,166

   

$

209,063

   

$

728,712

   

$

645,277

 
   

**

Denotes non-GAAP financial measures. Please see pages A-14 and A-15 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

NOTE: We have reclassified certain prior year amounts to conform to our current period presentation.

 

A-4

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

ASIA PACIFIC SEGMENT

(In thousands)

 
 

Quarter Ended

 

Fiscal Year Ended

 

December 31,
2017

 

December 30,
2016

 

December 31,
2017

 

December 30,
2016

 

(92 days)

 

(112 days)

 

(366 days)

 

(364 days)

REVENUES

             

Sale of vacation ownership products

$

10,299

   

$

14,019

   

$

42,677

   

$

40,664

 

Resort management and other services

1,156

   

1,572

   

4,211

   

10,166

 

Financing

1,154

   

1,281

   

4,504

   

4,187

 

Rental

3,439

   

3,698

   

12,554

   

16,471

 

Cost reimbursements

1,243

   

1,211

   

3,827

   

3,461

 

TOTAL REVENUES

17,291

   

21,781

   

67,773

   

74,949

 

EXPENSES

             

Cost of vacation ownership products

1,871

   

2,588

   

8,513

   

7,606

 

Marketing and sales

9,196

   

9,982

   

34,868

   

30,054

 

Resort management and other services

1,332

   

1,509

   

4,629

   

10,055

 

Rental

3,729

   

4,579

   

15,865

   

20,463

 

Royalty fee

307

   

360

   

981

   

924

 

Cost reimbursements

1,243

   

1,211

   

3,827

   

3,461

 

TOTAL EXPENSES

17,678

   

20,229

   

68,683

   

72,563

 

Gains (losses) and other income (expense), net

   

130

   

(20)

   

(878)

 

Other

(29)

   

19

   

(38)

   

(230)

 

SEGMENT FINANCIAL RESULTS

$

(416)

   

$

1,701

   

$

(968)

   

$

1,278

 
               

SEGMENT FINANCIAL RESULTS

$

(416)

   

$

1,701

   

$

(968)

   

$

1,278

 

Less certain items:

             

Acquisition costs

   

(21)

   

   

221

 

Operating results from the sold portion of the Surfers Paradise, Australia property

   

   

   

194

 

(Gains) losses and other (income) expense, net

   

(130)

   

20

   

878

 

Certain items

   

(151)

   

20

   

1,293

 

ADJUSTED SEGMENT FINANCIAL RESULTS **

$

(416)

   

$

1,550

   

$

(948)

   

$

2,571

 
               
 

Quarter Ended

 

Fiscal Year Ended

 

December 31,
2017

 

December 30,
2016

 

December 31,
2017

 

December 30,
2016

 

(92 days)

 

(112 days)

 

(366 days)

 

(364 days)

Contract sales

$

12,896

   

$

16,134

   

$

49,027

   

$

47,183

 
   

**

Denotes non-GAAP financial measures. Please see pages A-14 and A-15 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

NOTE: We have reclassified certain prior year amounts to conform to our current period presentation.

 

A-5

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

EUROPE SEGMENT

(In thousands)

 
 

Quarter Ended

 

Fiscal Year Ended

 

December 31,
2017

 

December 30,
2016

 

December 31,
2017

 

December 30,
2016

 

(92 days)

 

(112 days)

 

(366 days)

 

(364 days)

REVENUES

             

Sale of vacation ownership products

$

7,488

   

$

8,689

   

$

22,839

   

$

24,534

 

Resort management and other services

6,423

   

7,500

   

25,542

   

24,290

 

Financing

752

   

954

   

2,916

   

3,293

 

Rental

3,984

   

4,756

   

20,902

   

19,592

 

Cost reimbursements

9,363

   

10,379

   

34,628

   

33,912

 

TOTAL REVENUES

28,010

   

32,278

   

106,827

   

105,621

 

EXPENSES

             

Cost of vacation ownership products

1,434

   

1,731

   

3,515

   

5,889

 

Marketing and sales

5,058

   

5,754

   

17,641

   

19,142

 

Resort management and other services

5,104

   

5,393

   

20,492

   

19,220

 

Rental

3,177

   

3,914

   

15,543

   

15,008

 

Royalty fee

72

   

119

   

267

   

383

 

Cost reimbursements

9,363

   

10,379

   

34,628

   

33,912

 

TOTAL EXPENSES

24,208

   

27,290

   

92,086

   

93,554

 

Losses and other expense, net

(63)

   

   

(63)

   

 

SEGMENT FINANCIAL RESULTS

$

3,739

   

$

4,988

   

$

14,678

   

$

12,067

 
               

SEGMENT FINANCIAL RESULTS

$

3,739

   

$

4,988

   

$

14,678

   

$

12,067

 

Less certain items:

             

Losses and other expense, net

63

   

   

63

   

 

Certain items

63

   

   

63

   

 

ADJUSTED SEGMENT FINANCIAL RESULTS **

$

3,802

   

$

4,988

   

$

14,741

   

$

12,067

 
               
 

Quarter Ended

 

Fiscal Year Ended

 

December 31,
2017

 

December 30,
2016

 

December 31,
2017

 

December 30,
2016

 

(92 days)

 

(112 days)

 

(366 days)

 

(364 days)

Contract sales

$

6,642

   

$

9,120

   

$

25,151

   

$

31,174

 
   

**

Denotes non-GAAP financial measures. Please see pages A-14 and A-15 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

NOTE: We have reclassified certain prior year amounts to conform to our current period presentation.

 

 

A-6

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CORPORATE AND OTHER

(In thousands)

 
 

Quarter Ended

 

Fiscal Year Ended

 

December 31,
2017

 

December 30,
2016

 

December 31,
2017

 

December 30,
2016

 

(92 days)

 

(112 days)

 

(366 days)

 

(364 days)

EXPENSES

             

Cost of vacation ownership products

$

2,177

   

$

2,422

   

$

8,328

   

$

7,519

 

Financing

5,423

   

6,849

   

17,951

   

18,631

 

General and administrative

26,486

   

31,962

   

110,225

   

104,833

 

Litigation settlement

315

   

   

498

   

 

Consumer financing interest

7,127

   

7,845

   

25,217

   

23,685

 

Royalty fee

12,969

   

15,353

   

52,013

   

49,779

 

TOTAL EXPENSES

54,497

   

64,431

   

214,232

   

204,447

 

(Losses) gains and other (expense) income, net

(91)

   

(21)

   

8,631

   

(181)

 

Interest expense

(4,392)

   

(2,581)

   

(9,572)

   

(8,912)

 

Other

   

   

(527)

   

(211)

 

TOTAL FINANCIAL RESULTS

$

(58,980)

   

$

(67,033)

   

$

(215,700)

   

$

(213,751)

 
               

TOTAL FINANCIAL RESULTS

$

(58,980)

   

$

(67,033)

   

$

(215,700)

   

$

(213,751)

 

Less certain items:

             

Acquisition costs

   

   

527

   

211

 

Variable compensation expense related to the impact of the hurricanes

1,707

   

1,442

   

3,626

   

1,442

 

Litigation settlement

315

   

   

498

   

 

Losses (gains) and other expense (income), net

91

   

21

   

(8,631)

   

181

 

Certain items

2,113

   

1,463

   

(3,980)

   

1,834

 

ADJUSTED FINANCIAL RESULTS **

$

(56,867)

   

$

(65,570)

   

$

(219,680)

   

$

(211,917)

 
   

**

Denotes non-GAAP financial measures. Please see pages A-14 and A-15 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

NOTE: We have reclassified certain prior year amounts to conform to our current period presentation.

 

 

A-7

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED CONTRACT SALES TO SALE OF VACATION OWNERSHIP PRODUCTS

(In thousands)

 
   

Quarter Ended

 

Fiscal Year Ended

   

December 31,
2017

 

December 30,
2016

 

December 31,
2017

 

December 30,
2016

   

(92 days)

 

(112 days)

 

(366 days)

 

(364 days)

Contract sales

 

$

200,704

   

$

234,317

   

$

802,890

   

$

723,634

 

Revenue recognition adjustments:

               

Reportability 1

 

2,484

   

9,482

   

3,634

   

(7,547)

 

Sales reserve 2

 

(11,323)

   

(14,827)

   

(49,920)

   

(48,274)

 

Other 3

 

(7,612)

   

(7,300)

   

(28,664)

   

(30,310)

 

Sale of vacation ownership products

 

$

184,253

   

$

221,672

   

$

727,940

   

$

637,503

 
   

1

Adjustment for lack of required downpayment or contract sales in rescission period.

2

Represents allowance for bad debts for our financed vacation ownership product sales, which we also refer to as sales reserve.

3

Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.

   
   

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED ADJUSTED DEVELOPMENT MARGIN

(ADJUSTED SALE OF VACATION OWNERSHIP PRODUCTS NET OF EXPENSES)

(In thousands)

 
   

Quarter Ended

 

Fiscal Year Ended

   

December 31,
2017

 

December 30,
2016

 

December 31,
2017

 

December 30,
2016

   

(92 days)

 

(112 days)

 

(366 days)

 

(364 days)

Sale of vacation ownership products

 

$

184,253

   

$

221,672

   

$

727,940

   

$

637,503

 

Less:

               

Cost of vacation ownership products

 

46,224

   

50,944

   

177,813

   

155,093

 

Marketing and sales

 

103,498

   

116,947

   

408,715

   

353,295

 

Development margin

 

34,531

   

53,781

   

141,412

   

129,115

 

Revenue recognition reportability adjustment

 

(1,722)

   

(6,429)

   

(2,434)

   

4,614

 

Variable compensation expense related to the impact of the hurricanes

 

1,160

   

   

2,914

   

 

Adjusted development margin **

 

$

33,969

   

$

47,352

   

$

141,892

   

$

133,729

 

Development margin percentage 1

 

18.7

%

 

24.3

%

 

19.4

%

 

20.3

%

Adjusted development margin percentage

 

18.7

%

 

22.3

%

 

19.6

%

 

20.7

%

   

**

Denotes non-GAAP financial measures. Please see pages A-14 and A-15 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

1

Development margin percentage represents Development margin divided by Sale of vacation ownership products.

 

 

A-8

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

NORTH AMERICA CONTRACT SALES TO SALE OF VACATION OWNERSHIP PRODUCTS

(In thousands)

 
   

Quarter Ended

 

Fiscal Year Ended

   

December 31,
2017

 

December 30,
2016

 

December 31,
2017

 

December 30,
2016

   

(92 days)

 

(112 days)

 

(366 days)

 

(364 days)

Contract sales

 

$

181,166

   

$

209,063

   

$

728,712

   

$

645,277

 

Revenue recognition adjustments:

               

Reportability 1

 

1,745

   

9,529

   

3,632

   

(3,453)

 

Sales reserve 2

 

(10,001)

   

(12,338)

   

(43,091)

   

(39,298)

 

Other 3

 

(6,444)

   

(7,290)

   

(26,829)

   

(30,221)

 

Sale of vacation ownership products

 

$

166,466

   

$

198,964

   

$

662,424

   

$

572,305

 
   

1

Adjustment for lack of required downpayment or contract sales in rescission period.

2

Represents allowance for bad debts for our financed vacation ownership product sales, which we also refer to as sales reserve.

3

Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.

   
   

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

NORTH AMERICA ADJUSTED DEVELOPMENT MARGIN

(ADJUSTED SALE OF VACATION OWNERSHIP PRODUCTS NET OF EXPENSES)

(In thousands)

 
   

Quarter Ended

 

Fiscal Year Ended

   

December 31,
2017

 

December 30,
2016

 

December 31,
2017

 

December 30,
2016

   

(92 days)

 

(112 days)

 

(366 days)

 

(364 days)

Sale of vacation ownership products

 

$

166,466

   

$

198,964

   

$

662,424

   

$

572,305

 

Less:

               

Cost of vacation ownership products

 

40,742

   

44,203

   

157,457

   

134,079

 

Marketing and sales

 

89,244

   

101,211

   

356,206

   

304,099

 

Development margin

 

36,480

   

53,550

   

148,761

   

134,127

 

Revenue recognition reportability adjustment

 

(1,170)

   

(6,476)

   

(2,430)

   

1,887

 

Variable compensation expense related to the impact of the hurricanes

 

1,160

   

   

2,914

   

 

Adjusted development margin **

 

$

36,470

   

$

47,074

   

$

149,245

   

$

136,014

 

Development margin percentage 1

 

21.9

%

 

26.9

%

 

22.5

%

 

23.4

%

Adjusted development margin percentage

 

22.1

%

 

24.8

%

 

22.7

%

 

23.6

%

   

**

Denotes non-GAAP financial measures. Please see pages A-14 and A-15 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

1

Development margin percentage represents Development margin divided by Sale of vacation ownership products.

 

 

A-9

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CASH FLOW AND ADJUSTED FREE CASH FLOW

(In thousands)

 
   

2017

Cash Flow

   

Cash, cash equivalents and restricted cash provided by (used in):

   

Operating activities

 

$

142,172

 

Investing activities

 

(38,364)

 

Financing activities

 

170,737

 

Effect of change in exchange rates on cash, cash equivalents and restricted cash

 

2,965

 

Net change in cash, cash equivalents and restricted cash

 

$

277,510

 
     

Adjusted Free Cash Flow

   

Net cash, cash equivalents and restricted cash provided by operating activities

 

$

142,172

 

Capital expenditures for property and equipment (excluding inventory)

 

(26,297)

 

Borrowings from securitization transactions

 

400,260

 

Repayment of debt related to securitizations

 

(293,491)

 

Free cash flow **

 

222,644

 

Adjustment

   

Net change in borrowings available from the securitization of eligible vacation ownership notes receivable through the warehouse credit facility 1

 

45,339

 

Increase in restricted cash

 

(15,018)

 

Adjusted free cash flow **

 

$

252,965

 
   

**

Denotes non-GAAP financial measures. Please see pages A-14 and A-15 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

1

Represents the net change in borrowings available from the securitization of eligible vacation ownership notes receivable through the warehouse credit facility between the 2016 and 2017 year ends.

 

 

A-10

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

(In millions, except per share amounts)

2018 ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE - DILUTED OUTLOOK

 
   

Fiscal Year
2018 (low)

 

Fiscal Year
2018 (high)

Net income

 

$

182

   

$

193

 

Adjustments to reconcile Net income to Adjusted net income

       

Certain items 1

 

3

   

3

 

Provision for income taxes on adjustments to net income

 

(1)

   

(1)

 

Adjusted net income **

 

$

184

   

$

195

 

Earnings per share - Diluted 2

 

$

6.61

   

$

7.01

 

Adjusted earnings per share - Diluted **, 2

 

$

6.69

   

$

7.09

 

Diluted shares 2

 

27.5

   

27.5

 
   

1

Certain items adjustment includes $3 million of acquisition costs.

2

Earnings per share - Diluted, Adjusted earnings per share - Diluted, and Diluted shares outlook includes the impact of share repurchase activity only through February 23, 2018.

 

 
 

2018 ADJUSTED EBITDA OUTLOOK

 
   

Fiscal Year
2018 (low)

 

Fiscal Year
2018 (high)

Net income

 

$

182

   

$

193

 

Interest expense 1

 

17

   

17

 

Tax provision

 

65

   

69

 

Depreciation and amortization

 

26

   

26

 

EBITDA **

 

290

   

305

 

Non-cash share-based compensation

 

17

   

17

 

Certain items 2

 

3

   

3

 

Adjusted EBITDA **

 

$

310

   

$

325

 
   

1

Interest expense excludes consumer financing interest expense.

2

Certain items adjustment includes $3 million of acquisition costs.

 

 
 

2018 ADJUSTED FREE CASH FLOW OUTLOOK

 
   

Fiscal Year
2018 (low)

 

Fiscal Year
2018 (high)

Net cash provided by operating activities

 

$

180

   

$

205

 

Capital expenditures for property and equipment (excluding inventory):

       

New sales centers 1

 

(10)

   

(10)

 

Other

 

(27)

   

(32)

 

Borrowings from securitization transactions

 

360

   

380

 

Repayment of debt related to securitizations

 

(280)

   

(290)

 

Free cash flow **

 

223

   

253

 

Adjustments:

       

Net change in borrowings available from the securitization of eligible vacation ownership notes receivable through the warehouse credit facility 2

 

   

(2)

 

Inventory / other payments associated with capital efficient inventory arrangements.

 

(38)

   

(40)

 

Change in restricted cash

 

   

4

 

Adjusted free cash flow **

 

$

185

   

$

215

 
   

1

Represents the incremental investment in new sales centers.

2

Represents the net change in borrowings available from the securitization of eligible vacation ownership notes receivable through the warehouse credit facility between the 2017 and 2018 year ends.

**

Denotes non-GAAP financial measures. Please see pages A-14 and A-15 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

 

A-11

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

(In thousands)

ASC 606 ADJUSTMENTS - 2017

 
 

2017
As Reported

 

Adjustments

 

2017
As Adjusted

 

REVENUES

           

Sale of vacation ownership products

$

727,940

   

$

29,498

   

$

757,438

   

Resort management and other services

306,196

   

(27,358)

   

278,838

   

Financing

134,906

   

   

134,906

   

Rental

322,902

   

(60,863)

   

262,039

   

Cost reimbursements

460,001

   

289,601

   

749,602

   

TOTAL REVENUES

1,951,945

   

230,878

   

2,182,823

   

EXPENSES

           

Cost of vacation ownership products

177,813

   

17,034

   

194,847

   

Marketing and sales

408,715

   

(13,825)

   

394,890

   

Resort management and other services

172,137

   

(17,913)

   

154,224

   

Financing

17,951

   

   

17,951

   

Rental

281,352

   

(57,970)

   

223,382

   

General and administrative

110,225

   

   

110,225

   

Litigation settlement

4,231

   

   

4,231

   

Consumer financing interest

25,217

   

   

25,217

   

Royalty fee

63,021

   

   

63,021

   

Cost reimbursements

460,001

   

289,601

   

749,602

   

TOTAL EXPENSES

1,720,663

   

216,927

   

1,937,590

   

Gains and other income, net

5,772

   

   

5,772

   

Interest expense

(9,572)

   

   

(9,572)

   

Other

(1,599)

   

   

(1,599)

   

INCOME BEFORE INCOME TAXES

225,883

   

13,951

   

239,834

   

Benefit (provision) for income taxes

895

   

(5,405)

   

(4,510)

   

NET INCOME

$

226,778

   

$

8,546

   

$

235,324

   
             

NET INCOME

$

226,778

   

$

8,546

   

$

235,324

   

Interest expense 1

9,572

   

   

9,572

   

Tax (benefit) provision

(895)

   

5,405

   

4,510

   

Depreciation and amortization

21,494

   

   

21,494

   

EBITDA **

256,949

   

13,951

   

270,900

   

Non-cash share-based compensation

16,286

   

   

16,286

   

Certain items before depreciation and income taxes 2

6,805

   

   

6,805

   

Adjusted EBITDA **

$

280,040

   

$

13,951

   

$

293,991

   
   

**

Denotes non-GAAP financial measures. Please see pages A-14 and A-15 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

1

Interest expense excludes consumer financing interest expense.

2

Please see pages A-14 and A-15 for additional information regarding these items. The certain items adjustments for the Adjusted EBITDA reconciliations exclude depreciation and income taxes on certain items included in the Adjusted Net Income reconciliations.

 

 

 

A-12

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

(In thousands)