April 28, 2016

Marriott Vacations Worldwide Reports First Quarter Financial Results

ORLANDO, Fla., April 28, 2016 /PRNewswire/ -- Marriott Vacations Worldwide Corporation (NYSE: VAC) today reported first quarter financial results and reaffirmed its guidance for the full year 2016.

Marriott Vacations Worldwide Corporation.

"Our first quarter results were in-line with our expectations as we continue our journey to execute our long term growth strategies," said Stephen P. Weisz, president and chief executive officer. "First time buyer tours were up in the quarter, sales of new tour packages continue to grow ahead of expectations, and we have six new sales distributions coming on-line this year.  For these reasons and more, I remain confident in our overall strategy and in reaffirming our previously provided full year 2016 guidance."

First quarter 2016 highlights:

  • Adjusted fully diluted earnings per share (EPS) was $0.87, up 2.4 percent from $0.85 in the first quarter of 2015.
  • Adjusted EBITDA totaled $51.6 million, a decrease of $8.6 million year-over-year.
  • Company vacation ownership contract sales (which exclude residential sales) were $153.5 million, down 9.7 percent year-over-year. North America vacation ownership contract sales were $139.7 million, down 10.5 percent year-over-year. 
  • Financing revenues, net of expenses and consumer financing interest expense, were $19.2 million, a $1.1 million, or 6.1 percent, increase from the first quarter of 2015.
  • Adjusted resort management and other services revenues, net of expenses, totaled $23.6 million, a $1.6 million, or 7.4 percent, increase from the first quarter of 2015.
  • During the first quarter of 2016, the company repurchased over 1.3 million shares of its common stock for $73.2 million
  • The company completed the acquisition of an operating property located in the South Beach area of Miami Beach for $23.5 million for future use in its Marriott Vacation Club Destinations program.

First quarter 2016 net income was $24.4 million, or $0.82 diluted EPS, compared to net income of $34.1 million, or $1.03 diluted EPS, in the first quarter of 2015.

Non-GAAP financial measures, such as adjusted EBITDA, adjusted net income, adjusted earnings per share, adjusted development margin and adjusted free cash flow are reconciled and adjustments are shown and described in further detail on pages A-1 through A-12 of the Financial Schedules that follow.

First Quarter 2016 Results

Company Results

Total company vacation ownership contract sales were $153.5 million, $16.5 million lower than the first quarter of last year. The decrease was driven mainly by $15.9 million of lower contract sales to existing owners in the company's North America segment, as the prior year benefited from enhancements the company made to owner recognition levels. These enhancements helped drive a 7 percent increase in owner tours and a 1.4 point improvement in owner closing efficiency last year, resulting in contract sales growth of over 10 percent as compared to the first quarter of 2014. In addition, our Latin America sales channels were down roughly $2.5 million compared to the first quarter of last year, as the company continued to be impacted by a stronger U.S. dollar.

Adjusted development margin was $23.7 million, a $10.1 million decrease from the first quarter of 2015. Adjusted development margin percentage was 17.3 percent in the first quarter of 2016 compared to 21.6 percent in the first quarter of 2015 reflecting higher marketing and sales spending which included costs to drive future tour flow and start-up costs associated with the company's new sales distributions as well as the impact of lower contract sales volumes. Development margin was $24.3 million, a $14.6 million decrease from the first quarter of 2015. Development margin percentage was 17.6 percent in the first quarter of 2016 compared to 21.2 percent in the first quarter of 2015.

Excluding the results of operations for the portion of the Surfers Paradise, Australia property that the company intends to sell, adjusted rental revenues totaled $78.2 million, a $2.0 million increase from the first quarter of 2015. Results reflected $1.4 million of higher revenue from operating properties we intend to convert to timeshare inventory, and $0.4 million of higher plus points revenue. Rental revenues net of expenses were $15.6 million, a $0.4 million decrease from the first quarter of 2015.

Excluding the results of operations for the portion of the Surfers Paradise, Australia property that the company intends to sell, adjusted resort management and other services revenues totaled $67.9 million, a $3.5 million increase from the first quarter of 2015. Adjusted resort management and other services revenues, net of expenses, were $23.6 million, a $1.6 million increase, or 7.4 percent, over the first quarter of 2015. Resort management and other services revenues, net of expenses, totaled $23.8 million, a $1.8 million increase, or 8.3 percent, from the first quarter of 2015.

Financing revenues totaled $29.2 million, a $0.2 million increase from the first quarter of 2015. Financing revenues, net of expenses and consumer financing interest expense, were $19.2 million, a $1.1 million increase, or 6.1 percent, from the first quarter of 2015.

General and administrative expenses were $25.3 million in the first quarter of 2016, a $2.5 million increase from the first quarter of 2015, driven by nearly $2 million of higher spending related to enhancements to the company's owner facing technology as well as inflationary cost increases.

Adjusted EBITDA was $51.6 million in the first quarter of 2016, an $8.6 million, or 14.2 percent, decrease from $60.2 million in the first quarter of 2015.

Segment Results

North America

North America vacation ownership contract sales were $139.7 million in the first quarter of 2016, a decrease of $16.3 million, or 10.5 percent, from the prior year period. The decrease was driven mainly by $15.9 million of lower contract sales to existing owners, as the prior year benefited from enhancements the company made to owner recognition levels that helped drive a 7 percent increase in owner tours and a 1.4 point improvement in owner closing efficiency, resulting in contract sales growth of over 10 percent as compared to the first quarter of 2014. In addition, our Latin America sales channels were down roughly $2.5 million, as the company continued to be impacted by a stronger U.S. dollar.

Total tours in the first quarter of 2016 decreased 4.0 percent, driven by a decline in owner tours, which were down nearly 7 percent year-over-year. VPG decreased 3.9 percent to $3,496 in the first quarter of 2016 from $3,640 in the first quarter of 2015, driven by an 8 percent decline in owner VPG.  The overall decline in VPG in the quarter was driven by lower closing efficiency, offset partially by higher points purchased per contract and pricing. 

First quarter 2016 North America adjusted segment financial results were $91.5 million, a decrease of $5.2 million from the first quarter of 2015. The decrease was driven primarily by $6.5 million of lower development margin and $0.6 million of lower rental revenues net of expenses. These decreases were partially offset by $1.9 million of higher resort management and other services revenues net of expenses and $0.4 million of higher financing revenues. North America segment financial results were $89.5 million, an $8.2 million decrease from the first quarter of 2015.

Adjusted development margin was $25.7 million, an $8.7 million decrease from the prior year quarter. Adjusted development margin percentage was 20.6 percent in the first quarter of 2016 compared to 23.7 percent in the first quarter of 2015. Development margin was $25.7 million, a $6.5 million decrease from the first quarter of 2015. Development margin percentage was 20.6 percent in the first quarter of 2016 compared to 22.7 percent in the prior year quarter.

Asia Pacific

Total vacation ownership contract sales in the segment were $9.4 million, an increase of $0.8 million, or nearly 9 percent, from the first quarter of 2015. Adjusted segment financial results were $1.0 million, a $2.5 million decrease from the first quarter of 2015. Adjusted development margin was $2.2 million lower than the first quarter of last year, reflecting $0.8 million of higher marketing and sales costs related to start-up costs associated with the company's new sales distribution in Surfers Paradise, Australia and $1.1 million of positive product cost true-up activity in 2015. Segment financial results were $1.0 million, an $8.4 million decrease from the first quarter of 2015 also reflecting $5.9 million of development margin in the prior year quarter related to the sale of all 18 residential units at the company's former Macau location.

Europe

First quarter 2016 contract sales were $4.4 million, a decrease of $0.9 million from the first quarter of 2015. Segment financial results were $0.4 million, a $0.4 million increase from the first quarter of 2015 due primarily to higher development margin.

Share Repurchase Program and Dividends

During the first quarter of 2016, the company repurchased over 1.3 million shares of its common stock for a total of $73.2 million under its share repurchase program and paid two quarterly cash dividends totaling $17.6 million.

Balance Sheet and Liquidity

On March 25, 2016, cash and cash equivalents totaled $106.6 million. Since the beginning of the year, real estate inventory balances increased $46.0 million to $709.9 million, including $317.8 million of finished goods, $30.0 million of work-in-progress, and $362.1 million of land and infrastructure. The company had $699.3 million in gross debt outstanding at the end of the first quarter, an increase of $11.2 million from year-end 2015, consisting primarily of $688.0 million in gross non-recourse securitized notes. In addition, $40.0 million of gross mandatorily redeemable preferred stock of a subsidiary of the company was outstanding at the end of the first quarter of 2016.

As of March 25, 2016, the company had approximately $196.7 million in available capacity under its revolving credit facility after taking into account outstanding letters of credit and approximately $102.3 million of gross vacation ownership notes receivable eligible for securitization in its warehouse credit facility.

Outlook

The company is reaffirming the following guidance for the full year 2016:

Adjusted EBITDA

$261 million to $276 million


Adjusted fully diluted EPS

$4.31 to $4.66


Adjusted net income

$126 million to $136 million


Adjusted free cash flow

$135 million to $155 million


Company contract sales growth

4 percent to 8 percent


              

Pages A-1 through A-12 of the Financial Schedules reconcile the non-GAAP financial measures set forth above to the following full year 2016 expected GAAP results: net income of $123 million to $134 million; net cash provided by operating activities of $136 million to $146 million; and fully diluted EPS of $4.21 to $4.59, which increased from the previous guidance of $4.16 to $4.50 due entirely to a reduction in shares outstanding.

First Quarter 2016 Earnings Conference Call

The company will hold a conference call at 10:00 a.m. ET today to discuss these results and its guidance for full year 2016. 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 13633825. 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 60 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 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 April 28, 2016 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 1, 2016

TABLE OF CONTENTS



Consolidated Statements of Income - 12 Weeks Ended March 25, 2016 and March 27, 2015

 A-1



North America Segment Financial Results - 12 Weeks Ended March 25, 2016 and March 27, 2015

 A-2



Asia Pacific Segment Financial Results - 12 Weeks Ended March 25, 2016 and March 27, 2015

 A-3



Europe Segment Financial Results - 12 Weeks Ended March 25, 2016 and March 27, 2015

 A-4



Corporate and Other Financial Results - 12 Weeks Ended March 25, 2016 and March 27, 2015

 A-5



Consolidated Contract Sales to Sale of Vacation Ownership Products and Adjusted Development Margin


    (Adjusted Sale of Vacation Ownership Products Net of Expenses) - 12 Weeks Ended March 25, 2016 and March 27, 2015

 A-6



North America Contract Sales to Sale of Vacation Ownership Products and Adjusted Development Margin


    (Adjusted Sale of Vacation Ownership Products Net of Expenses) - 12 Weeks Ended March 25, 2016 and March 27, 2015

 A-7



EBITDA and Adjusted EBITDA - 12 Weeks Ended March 25, 2016 and March 27, 2015

 A-8



2016 Outlook - Adjusted Net Income, Adjusted Earnings Per Share - Diluted and Adjusted EBITDA

 A-9



2016 Outlook -  Adjusted Free Cash Flow and Normalized Adjusted Free Cash Flow

 A-10



Non-GAAP Financial Measures

 A-11



Consolidated Balance Sheets

 A-13



Consolidated Statements of Cash Flows

 A-14

 

A-1


MARRIOTT VACATIONS WORLDWIDE CORPORATION


CONSOLIDATED STATEMENTS OF INCOME


12 Weeks Ended March 25, 2016 and March 27, 2015


(In thousands, except per share amounts)




























As Reported




As Adjusted



As Reported




As Adjusted









12 Weeks Ended


Certain


12 Weeks Ended



12 Weeks Ended


Certain


12 Weeks Ended









March 25, 2016


Items


March 25, 2016

**


March 27, 2015


Items


March 27, 2015

**


Revenues
















Sale of vacation ownership products

$                  138,369


$            -


$                  138,369



$                  183,906


$   (28,420)


$                  155,486




Resort management and other services

69,629


(1,736)


67,893



64,417


-


64,417




Financing

29,224


-


29,224



29,052


-


29,052




Rental

80,288


(2,056)


78,232



76,199


-


76,199




Cost reimbursements

107,533


-


107,533



101,306


-


101,306








Total revenues

425,043


(3,792)


421,251



454,880


(28,420)


426,460



Expenses
















Cost of vacation ownership products

35,617


-


35,617



64,962


(21,583)


43,379




Marketing and sales

78,412


-


78,412



79,995


(922)


79,073




Resort management and other services

45,797


(1,548)


44,249



42,409


-


42,409




Financing

4,629


-


4,629



4,905


-


4,905




Rental

64,660


(2,060)


62,600



60,158


-


60,158




General and administrative

25,297


-


25,297



22,777


-


22,777




Organizational and separation related

-


-


-



192


(192)


-




Reversal of litigation expense

(303)


303


-



(262)


262


-




Consumer financing interest

5,362


-


5,362



6,021


-


6,021




Royalty fee

13,357


-


13,357



13,000


-


13,000




Cost reimbursements

107,533


-


107,533



101,306


-


101,306








Total expenses

380,361


(3,305)


377,056



395,463


(22,435)


373,028



Gains and other income

7


(7)


-



887


(887)


-



Interest expense

(1,982)


-


(1,982)



(2,974)


-


(2,974)



Other




(2,542)


2,570


28



13


-


13








Income before income taxes

40,165


2,076


42,241



57,343


(6,872)


50,471



Provision for income taxes

(15,757)


(779)


(16,536)



(23,289)


975


(22,314)



Net income

$                    24,408


$     1,297


$                    25,705



$                    34,054


$     (5,897)


$                    28,157























Earnings per share - Basic

$                        0.84




$                        0.88



$                        1.05




$                        0.87























Earnings per share - Diluted

$                        0.82




$                        0.87



$                        1.03




$                        0.85























Basic Shares

29,123




29,123



32,299




32,299



Diluted Shares

29,640




29,640



33,009




33,009





























As Reported







As Reported













12 Weeks Ended







12 Weeks Ended













March 25, 2016







March 27, 2015







Contract Sales

















Vacation ownership

$                  153,494







$                  169,950









Residential products

-







28,420











Total contract sales

$                  153,494







$                  198,370



































































**  Denotes non-GAAP financial measures.  Please see pages A-11 and A-12 for additional information about our reasons for providing these alternative financial measures and limitations on their use.





















NOTE:  Earnings per share - Basic and Earnings per share - Diluted are calculated using whole dollars.

 

A-2

MARRIOTT VACATIONS WORLDWIDE CORPORATION

NORTH AMERICA SEGMENT

12 Weeks Ended March 25, 2016 and March 27, 2015

(In thousands)













































As Reported




As Adjusted



As Reported




As Adjusted








12 Weeks Ended


Certain


12 Weeks Ended



12 Weeks Ended


Certain


12 Weeks Ended








March 25, 2016


Items


March 25, 2016

**


March 27, 2015


Items


March 27, 2015

**

Revenues















Sale of vacation ownership products

$                  124,684


$            -


$                  124,684



$                  141,728


$            -


$                  141,728



Resort management and other services

61,665


-


61,665



58,575


-


58,575



Financing

27,408


-


27,408



27,056


-


27,056



Rental

72,508


-


72,508



71,715


-


71,715



Cost reimbursements

99,182


-


99,182



92,854


-


92,854







Total revenues

385,447


-


385,447



391,928


-


391,928


Expenses















Cost of vacation ownership products

30,662


-


30,662



40,501


-


40,501



Marketing and sales

68,315


-


68,315



69,017


-


69,017



Resort management and other services

38,152


-


38,152



36,968


-


36,968



Rental

55,956


-


55,956



54,611


-


54,611



Organizational and separation related

-


-


-



139


(139)


-



Reversal of litigation expense

(303)


303


-



(262)


262


-



Royalty fee

1,686


-


1,686



1,260


-


1,260



Cost reimbursements

99,182


-


99,182



92,854


-


92,854







Total expenses

293,650


303


293,953



295,088


123


295,211


Gains and other income

7


(7)


-



880


(880)


-


Other

(2,280)


2,308


28



16


-


16







Segment financial results

$                    89,524


$     1,998


$                    91,522



$                    97,736


$   (1,003)


$                    96,733



























As Reported







As Reported












12 Weeks Ended







12 Weeks Ended












March 25, 2016







March 27, 2015






Contract Sales
















Vacation ownership

$                  139,650







$                  155,993










Total contract sales

$                  139,650







$                  155,993


















































































**  Denotes non-GAAP financial measures.  Please see pages A-11 and A-12 for additional information about our reasons for providing these alternative financial measures and limitations on their use.


 

A-3

MARRIOTT VACATIONS WORLDWIDE CORPORATION

ASIA PACIFIC SEGMENT

12 Weeks Ended March 25, 2016 and March 27, 2015

(In thousands)













































As Reported




As Adjusted



As Reported




As Adjusted








12 Weeks Ended


Certain


12 Weeks Ended



12 Weeks Ended


Certain


12 Weeks Ended








March 25, 2016


Items


March 25, 2016

**


March 27, 2015


Items


March 27, 2015

**

Revenues
















Sale of vacation ownership products

$                      8,525


$            -


$                      8,525



$                    36,278


$   (28,420)


$                      7,858



Resort management and other services

3,497


(1,736)


1,761



863


-


863



Financing

981


-


981



1,006


-


1,006



Rental

5,621


(2,056)


3,565



2,352


-


2,352



Cost reimbursements

873


-


873



866


-


866







Total revenues

19,497


(3,792)


15,705



41,365


(28,420)


12,945


Expenses
















Cost of vacation ownership products

1,709


-


1,709



21,996


(21,583)


413



Marketing and sales

6,211


-


6,211



5,557


(922)


4,635



Resort management and other services

3,552


(1,548)


2,004



850


-


850



Rental

5,788


(2,060)


3,728



2,496


-


2,496



Royalty fee

146


-


146



157


-


157



Cost reimbursements

873


-


873



866


-


866







Total expenses

18,279


(3,608)


14,671



31,922


(22,505)


9,417


Gains and other income

-


-


-



3


(3)


-


Other




(208)


208


-



(3)


-


(3)







Segment financial results

$                      1,010


$          24


$                      1,034



$                      9,443


$     (5,918)


$                      3,525



























As Reported







As Reported












12 Weeks Ended







12 Weeks Ended












March 25, 2016







March 27, 2015






Contract Sales
















Vacation ownership

$                      9,426







$                      8,659








Residential products

-







28,420










Total contract sales

$                      9,426







$                    37,079


















































































**  Denotes non-GAAP financial measures.  Please see pages A-11 and A-12 for additional information about our reasons for providing these alternative financial measures and limitations on their use.


 

A-4

MARRIOTT VACATIONS WORLDWIDE CORPORATION

EUROPE SEGMENT

12 Weeks Ended March 25, 2016 and March 27, 2015

(In thousands)













































As Reported




As Adjusted



As Reported




As Adjusted








12 Weeks Ended


Certain


12 Weeks Ended



12 Weeks Ended


Certain


12 Weeks Ended








March 25, 2016


Items


March 25, 2016

**


March 27, 2015


Items


March 27, 2015

**

Revenues
















Sale of vacation ownership products

$                      5,160


$            -


$                      5,160



$                      5,900


$            -


$                      5,900



Resort management and other services

4,467


-


4,467



4,979


-


4,979



Financing

835


-


835



990


-


990



Rental

2,159


-


2,159



2,132


-


2,132



Cost reimbursements

7,478


-


7,478



7,586


-


7,586







Total revenues

20,099


-


20,099



21,587


-


21,587


Expenses
















Cost of vacation ownership products

1,291


-


1,291



852


-


852



Marketing and sales

3,886


-


3,886



5,421


-


5,421



Resort management and other services

4,093


-


4,093



4,591


-


4,591



Rental

2,916


-


2,916



3,051


-


3,051



Royalty fee

49


-


49



76


-


76



Cost reimbursements

7,478


-


7,478



7,586


-


7,586







Total expenses

19,713


-


19,713



21,577


-


21,577


Gains and other income

-


-


-



4


(4)


-







Segment financial results

$                         386


$            -


$                         386



$                           14


$          (4)


$                           10



























As Reported







As Reported












12 Weeks Ended







12 Weeks Ended












March 25, 2016







March 27, 2015






Contract Sales
















Vacation ownership

$                      4,418







$                      5,298










Total contract sales

$                      4,418







$                      5,298


















































































**  Denotes non-GAAP financial measures.  Please see pages A-11 and A-12 for additional information about our reasons for providing these alternative financial measures and limitations on their use.


 

A-5

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CORPORATE AND OTHER

12 Weeks Ended March 25, 2016 and March 27, 2015

(In thousands)













































As Reported




As Adjusted



As Reported




As Adjusted








12 Weeks Ended


Certain


12 Weeks Ended



12 Weeks Ended


Certain


12 Weeks Ended








March 25, 2016


Items


March 25, 2016

**


March 27, 2015


Items


March 27, 2015

**

Expenses
















Cost of vacation ownership products

$                      1,955


$            -


$                      1,955



$                      1,613


$            -


$                      1,613



Financing

4,629


-


4,629



4,905


-


4,905



General and administrative

25,297


-


25,297



22,777


-


22,777



Organizational and separation related

-


-


-



53


(53)


-



Consumer Financing Interest

5,362


-


5,362



6,021


-


6,021



Royalty fee

11,476


-


11,476



11,507


-


11,507







Total expenses

48,719


-


48,719



46,876


(53)


46,823


Interest expense

(1,982)


-


(1,982)



(2,974)


-


(2,974)


Other




(54)


54


-



-


-


-







Financial results

$                   (50,755)


$          54


$                   (50,701)



$                   (49,850)


$          53


$                   (49,797)





















**  Denotes non-GAAP financial measures.  Please see pages A-11 and A-12 for additional information about our reasons for providing these alternative financial measures and limitations on their use.




















NOTE:  Corporate and Other consists of results not specifically attributable to an individual segment, including expenses incurred to support our financing operations, non-capitalizable development expenses supporting  overall company development, company-wide general and administrative costs, and the fixed royalty fee payable under the license agreements with Marriott International, consumer financing interest expense, other interest expense and other charges.

 

A-6

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED CONTRACT SALES TO SALE OF VACATION OWNERSHIP PRODUCTS

(In thousands)
























12 Weeks Ended











March 25, 2016



March 27, 2015
















Contract sales













Vacation ownership






$              153,494



$              169,950



Residential products






-



28,420




Total contract sales






153,494



198,370
















Revenue recognition adjustments:












Reportability1






786



(1,513)



Sales Reserve 2






(8,223)



(8,367)



Other 3







(7,688)



(4,584)


Sale of vacation ownership products





$              138,369



$              183,906
















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

 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)






































Revenue









Revenue












As Reported




Recognition


As Adjusted



As Reported




Recognition


As Adjusted










12 Weeks Ended


Certain


Reportability


12 Weeks Ended



12 Weeks Ended


Certain


Reportability


12 Weeks Ended










March 25, 2016


Items


Adjustment


March 25, 2016

**


March 27, 2015


Items


Adjustment


March 27, 2015

**

Sale of vacation ownership products


$               138,369


$            -


$          (786)


$               137,583



$               183,906


$   (28,420)


$         1,513


$               156,999


Less:





















Cost of vacation ownership products

35,617


-


(104)


35,513



64,962


(21,583)


562


43,941



Marketing and sales

78,412


-


(82)


78,330



79,995


(922)


105


79,178



























Development margin



$                 24,340


$            -


$          (600)


$                 23,740



$                 38,949


$     (5,915)


$            846


$                 33,880






















































Development margin percentage1

17.6%






17.3%



21.2%






21.6%



























**  Denotes non-GAAP financial measures.  Please see pages A-11 and A-12 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.  Development margin percentage is calculated using whole dollars.

 

A-7

MARRIOTT VACATIONS WORLDWIDE CORPORATION

NORTH AMERICA CONTRACT SALES TO SALE OF VACATION OWNERSHIP PRODUCTS

(In thousands)















12 Weeks Ended






March 25, 2016



March 27, 2015










Contract sales








Vacation ownership


$              139,650



$              155,993


Residential products


-



-



Total contract sales


139,650



155,993










Revenue recognition adjustments:







Reportability1


88



(3,444)


Sales Reserve 2


(7,406)



(6,334)


Other 3



(7,648)



(4,487)

Sale of vacation ownership products

$              124,684



$              141,728










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

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

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)






































Revenue









Revenue












As Reported




Recognition


As Adjusted



As Reported




Recognition


As Adjusted










12 Weeks Ended


Certain


Reportability


12 Weeks Ended



12 Weeks Ended


Certain


Reportability


12 Weeks Ended










March 25, 2016


Items


Adjustment


March 25, 2016

**


March 27, 2015


Items


Adjustment


March 27, 2015

**

Sale of vacation ownership products

$               124,684


$          -


$            (88)


$               124,596



$               141,728


$          -


$            3,444


$               145,172


Less:





















Cost of vacation ownership products 

30,662


-


(24)


30,638



40,501


-


980


41,481



Marketing and sales





68,315


-


(8)


68,307



69,017


-


324


69,341



























Development margin


$                 25,707


$          -


$            (56)


$                 25,651



$                 32,210


$          -


$            2,140


$                 34,350






















































Development margin percentage1

20.6%






20.6%



22.7%






23.7%



























**  Denotes non-GAAP financial measures.  Please see pages A-11 and A-12 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.  Development margin percentage is calculated using whole dollars.

 

A-8



MARRIOTT VACATIONS WORLDWIDE CORPORATION



EBITDA AND ADJUSTED EBITDA



12 Weeks Ended March 25, 2016 and March 27, 2015



(In thousands)













12 Weeks Ended










March 25, 2016


March 27, 2015



























Net income

$                24,408


$                34,054



Interest expense 1

1,982


2,974



Tax provision

15,757


23,289



Depreciation and amortization

5,125


4,065





EBITDA **

47,272


64,382















Non-cash share-based compensation 2

2,524


2,643



Certain items

1,795


(6,872)





 ADJUSTED EBITDA **

$                51,591


$                60,153



























**  Denotes non-GAAP financial measures.  Please see pages A-11 and A-12 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   Beginning with the first quarter of 2016, non-cash share-based compensation expense is excluded from our Adjusted EBITDA, and prior period presentation has been recast for consistency. Please see pages A-11 and A-12 for additional information.

 

A-9



MARRIOTT VACATIONS WORLDWIDE CORPORATION



2016 ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE - DILUTED OUTLOOK



(In millions, except per share amounts)


















Fiscal Year
2016 (low)


Fiscal Year
2016 (high)



Net income


$                                123


$                                  134




Adjustments to reconcile Net income to Adjusted net income









Certain items1


5


4





Provision for income taxes on adjustments to net income

(2)


(2)






Adjusted net income**


$                                126


$                                  136














Earnings per share - Diluted 2


$                               4.21


$                                 4.59




Adjusted earnings per share - Diluted**, 2


$                               4.31


$                                 4.66




Diluted shares2


29.2


29.2













**  Denotes non-GAAP financial measures.  Please see pages A-11 through A-12 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

1   Certain items adjustment includes approximately $4 million to $5 million of non-capitalizable transaction costs.

2    Earnings per share - Diluted, Adjusted earnings per share - Diluted, and Diluted shares outlook includes the impact of share repurchase activity only through April 28, 2016.











 


MARRIOTT VACATIONS WORLDWIDE CORPORATION



2016 ADJUSTED EBITDA OUTLOOK



(In millions)


















Fiscal Year
2016 (low)


Fiscal Year
2016 (high)



Adjusted net income **


$                                126


$                                  136



Interest expense1


8


8



Tax provision


90


95



Depreciation and amortization


22


22



Non-cash share-based compensation 2


15


15




Adjusted EBITDA**


$                                261


$                                  276













**  Denotes non-GAAP financial measures.  Please see pages A-11 through A-12 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   Beginning with the first quarter of 2016, non-cash share-based compensation expense is excluded from our Adjusted EBITDA, and prior period presentation has been recast for consistency. Please see pages A-11 and A-12 for additional information.

 

A-10

MARRIOTT VACATIONS WORLDWIDE CORPORATION

2016 ADJUSTED FREE CASH FLOW AND NORMALIZED ADJUSTED FREE CASH FLOW OUTLOOK

(In millions)





























Current Guidance
















Low


High



Mid-Point



Adjustments



Normalized




Adjusted net income **


$  126


$  136



$          131



$                  -



$             131





Adjustments to reconcile Adjusted net income to net cash provided by operating activities:



















Adjustments for non-cash items1


84


84



84



-



84






Deferred income taxes


30


35



33



-



33






Net changes in assets and liabilities:




















Notes receivable originations


(355)


(370)



(363)



-



(363)







Notes receivable collections


239


245



242



-



242







Inventory



(10)


(5)



(8)



8

4


-







Other working capital changes


22


21



22



-



22




Net cash provided by operating activities


136


146



141



8



149





Capital expenditures for property and equipment (excluding inventory):



















New sales centers 2


(20)


(18)



(19)



19

2


-






Other



(24)


(22)



(23)



3

5


(20)





Decrease in restricted cash


(5)


(5)



(5)



5

6


-





Borrowings from securitization transactions


290


292



291



-



291





Repayment of debt related to securitizations

(235)


(233)



(234)



-



(234)







Free cash flow**


142


160



151



35



186




Adjustments:



















Net change in borrowings available from the securitization of eligible vacation ownership notes receivable through the warehouse credit facility 3

(7)


(5)



(6)



-



(6)























Adjusted free cash flow**


$  135


$  155



$          145



$                 35



$             180
























**  Denotes non-GAAP financial measures.  Please see pages A-11 through A-12 for additional information about our reasons for providing these alternative financial measures and limitations on their use.






























1  Includes depreciation, amortization of debt issuance costs, provision for loan losses, and share-based compensation.

2  Represents the incremental investment in new sales centers.

3  Represents the net change in borrowings available from the securitization of eligible vacation ownership notes receivable through the warehouse credit facility between the 2015 and 2016 year ends.   

4  Represents adjustment to align real estate inventory spending with real estate inventory costs (i.e., product costs). 

5  Represents normalized capital expenditures for property and equipment.

6  Represents normalized restricted cash activity.

 

A-11

MARRIOTT VACATIONS WORLDWIDE CORPORATION

NON-GAAP FINANCIAL MEASURES
















In our press release and schedules, and on the related conference call, we report certain financial measures that are not prescribed or authorized by United States generally accepted accounting principles ("GAAP").  We discuss our reasons for reporting these non-GAAP financial measures below, and the financial schedules reconcile the most directly comparable GAAP financial measure to each non-GAAP financial measure that we report (identified by a double asterisk ("**") on the preceding pages).  Although we evaluate and present these non-GAAP financial measures for the reasons described below, please be aware that these non-GAAP financial measures have limitations and should not be considered in isolation or as a substitute for revenues, net income, earnings per share or any other comparable operating measure prescribed by GAAP.  In addition, these non-GAAP financial measures may be calculated and / or presented differently than measures with the same or similar names that are reported by other companies, and as a result, the non-GAAP financial measures we report may not be comparable to those reported by others.
















Adjusted Net Income.   We evaluate non-GAAP financial measures, including Adjusted Net Income, Adjusted EBITDA, and Adjusted Development Margin, that exclude certain items in the 12 weeks ended March 25, 2016 and March 27, 2015 because these non-GAAP financial measures allow for period-over-period comparisons of our on-going core operations before the impact of these items.  These non-GAAP financial measures also facilitate our comparison of results from our on-going core operations before these items with results from other vacation ownership companies.
















        Certain items - 12 weeks ended March 25, 2016.  In our Statement of Income for the 12 weeks ended March 25, 2016, we recorded $2.1 million of net pre-tax charges, which included $2.6 million of adjustments for transaction costs associated with acquisitions ($2.3 million in our North America segment, $0.2 million in our Asia Pacific segment and less than $0.1 million in our Corporate and Other segment) recorded under the "Other" caption, partially offset by a $0.3 million reversal of litigation expense in our in our North America segment recorded under the "Reversal of litigation expense" caption because actual costs were lower than expected, $0.2 million of net adjustments to exclude the results of operations from the portion of the Surfers Paradise, Australia property that we intend to sell, comprised of $2.1 million of Rental revenue and $1.7 million of Resort management and other services revenue, with corresponding adjustments of $2.1 million and $1.5 million to the respective expenses (of which $0.3 million was depreciation) in our Asia Pacific segment, as well as less than $0.1 million on the "Gains and other income" caption in our North America segment. 
















        Certain items - 12 weeks ended March 27, 2015In our Statement of Income for the 12 weeks ended March 27, 2015, we recorded $6.9 million of net pre-tax items, which included a $28.4 million adjustment to exclude the bulk sale of 18 units in our Asia Pacific segment recorded under the "sale of vacation ownership products" caption, with corresponding adjustments of $21.6 million and $0.9 million to the "Cost of vacation ownership products" and Marketing and sales" captions, respectively, a $0.9 million gain associated with the sale of a golf course and adjacent undeveloped land in our North America segment under the "Gains and other income" caption, and a $0.3 million reversal of litigation expense in our North America segment recorded under the "Reversal of litigation expense" caption because actual costs were lower than expected, partially offset by $0.2 million of organizational and separation related costs ($0.1 million in our North America segment and $0.1 million in our Corporate and Other segment) recorded under the "Organizational and separation related" caption. 
















Adjusted Development Margin (Adjusted Sale of Vacation Ownership Products Net of Expenses).  We evaluate Adjusted Development Margin (Adjusted Sale of Vacation Ownership Products Net of Expenses) as an indicator of operating performance.  Adjusted Development Margin adjusts Sale of vacation ownership products revenues for the impact of revenue reportability, includes corresponding adjustments to Cost of vacation ownership products expense and Marketing and sales expense associated with the change in revenues from the Sale of vacation ownership products, and includes adjustments for certain items as itemized in the discussion of Adjusted Net Income above.  We evaluate Adjusted Development Margin because it allows for period-over-period comparisons of our on-going core operations before the impact of revenue reportability and certain items to our Development Margin.









A-12




MARRIOTT VACATIONS WORLDWIDE CORPORATION




NON-GAAP FINANCIAL MEASURES








































Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA").  EBITDA is defined as earnings, or net income, before interest expense (excluding consumer financing interest expense), provision for income taxes, depreciation and amortization.  For purposes of our EBITDA calculation, we do not adjust for consumer financing interest expense because the associated debt is secured by vacation ownership notes receivable that have been sold to bankruptcy remote special purpose entities and is generally non-recourse to us.  Further, we consider consumer financing interest expense to be an operating expense of our business. 



















We consider EBITDA to be an indicator of operating performance, and we use it to measure our ability to service debt, fund capital expenditures and expand our business. We also use it, as do analysts, lenders, investors and others, because it 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 provision for income taxes can vary considerably among companies.  EBITDA also excludes 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. 


Adjusted EBITDA.  We also evaluate Adjusted EBITDA, which reflects additional adjustments for certain items, as itemized in the discussion of Adjusted Net Income on page A-11.  Additionally, beginning with the first quarter of 2016, we exclude non-cash 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. Prior period presentation has been recast for consistency. We evaluate Adjusted EBITDA as an indicator of operating performance because it allows for period-over-period comparisons of our on-going core operations before the impact of these items.  Together, EBITDA and Adjusted EBITDA facilitate our comparison of results from our on-going core operations before the impact of these items with results from other vacation ownership companies. 



















Free Cash Flow.  We also evaluate Free Cash Flow as a liquidity measure that provides useful information to management and investors about the amount of cash provided by operating activities after capital expenditures for property and equipment, changes in restricted cash, and the borrowing and repayment activity related to our securitizations.  We consider Free Cash Flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that can be used for strategic opportunities, including acquisitions and strengthening the balance sheet.  Analysis of Free Cash Flow also facilitates management's comparison of our results with our competitors' results.  



















Adjusted Free Cash Flow.  We also evaluate Adjusted Free Cash Flow, which reflects additional adjustments for organizational and separation related, litigation, and other cash items, as referred to in the discussion of Adjusted Net Income above.  We evaluate Adjusted Free Cash Flow as a liquidity measure that provides useful information to management and investors about the amount of cash provided by operating activities after capital expenditures for property and equipment, changes in restricted cash, and the borrowing and repayment activity related to our securitizations, excluding the impact of organizational and separation related, litigation, and other cash charges.  We consider Adjusted Free Cash Flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that can be used for strategic opportunities, including acquisitions and strengthening the balance sheet.  Analysis of Adjusted Free Cash Flow also facilitates management's comparison of our results with our competitors' results.  



















Normalized Adjusted Free Cash Flow.  We also evaluate Normalized Adjusted Free Cash Flow as a liquidity measure that provides useful information to management and investors about the amount of cash provided by operating activities after capital expenditures for property and equipment, changes in restricted cash, the borrowing and repayment activity related to our securitizations, and adjustments to remove the impact of cash flow items not expected to occur on a regular basis.  Adjustments eliminate the impact of excess cash taxes, payments for Marriott Rewards Points issued prior to the Spin-off, payments for organizational and separation related efforts, litigation cash settlements and other working capital changes.  We consider Normalized Adjusted Free Cash Flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that can be used for strategic opportunities, including acquisitions and strengthening the balance sheet.  Analysis of Normalized Adjusted Free Cash Flow also facilitates management's comparison of our results with our competitors' results.  

 

A-13

MARRIOTT VACATIONS WORLDWIDE CORPORATION

 INTERIM CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)



(unaudited)






March 25,
2016


January 1,
2016


ASSETS





Cash and cash equivalents

$             106,613


$             177,061


Restricted cash (including $24,768 and $26,884 from VIEs, respectively)

55,252


71,451


Accounts and contracts receivable, net (including $4,527 and $4,893 from VIEs, respectively)

131,538


131,850


Vacation ownership notes receivable, net (including $680,888 and $669,179 from VIEs, respectively)

908,587


920,631


Inventory

715,072


669,243


Property and equipment

222,516


288,803


Other 

191,207


140,679


      Total Assets

$          2,330,785


$          2,399,718








LIABILITIES AND EQUITY





Accounts payable

$               80,618


$             139,120


Advance deposits

77,141


69,064


Accrued liabilities (including $292 and $669 from VIEs, respectively)

178,642


164,791


Deferred revenue

28,562


35,276


Payroll and benefits liability

75,749


104,331


Liability for Marriott Rewards customer loyalty program

-


35


Deferred compensation liability

55,437


51,031


Mandatorily redeemable preferred stock of consolidated subsidiary, net

39,029


38,989


Debt, net (including $688,023 and $684,604 from VIEs, respectively)

689,234


678,793


Other

72,582


32,945


Deferred taxes

114,765


109,076


      Total Liabilities

1,411,759


1,423,451








Preferred stock - $.01 par value; 2,000,000 shares authorized; none issued or outstanding

-


-


Common stock - $.01 par value; 100,000,000 shares authorized; 36,564,810 and 36,393,800 shares issued, respectively

366


364


Treasury stock - at cost; 8,171,238 and 6,844,256 shares, respectively

(503,218)


(429,990)


Additional paid-in capital

1,149,442


1,150,731


Accumulated other comprehensive income

12,937


11,381


Retained earnings

259,499


243,781


      Total Equity

919,026


976,267








      Total Liabilities and Equity

$          2,330,785


$          2,399,718








The abbreviation VIEs above means Variable Interest Entities.





 

                 A-14

MARRIOTT VACATIONS WORLDWIDE CORPORATION

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)




 

12 weeks ended




March 25, 2016


March 27, 2015

 OPERATING ACTIVITIES 





 Net income 


$24,408


$34,054

 Adjustments to reconcile net income to net cash provided by operating activities: 






 Depreciation 


5,125


4,065


 Amortization of debt issuance costs 


1,300


1,267


 Provision for loan losses 


8,287


8,437


 Share-based compensation 


2,524


2,643


 Deferred income taxes 


5,549


8,600


 Equity method income 


(28)


(13)


 Gain on disposal of property and equipment, net 


(7)


(887)


 Non-cash reversal of litigation expense 


(303)


(262)


 Net change in assets and liabilities: 






Accounts and contracts receivable


21


(4,643)


Notes receivable originations


(57,524)


(48,946)


Notes receivable collections


60,532


67,518


Inventory


(14,970)


44,883


Purchase of operating hotels for future conversion to inventory


-


(46,614)


Other assets


(5,285)


(8,096)


Accounts payable, advance deposits and accrued liabilities


(27,836)


(25,064)


Deferred revenue


(6,785)


(11,624)


Payroll and benefit liabilities


(28,586)


(19,583)


Liability for Marriott Rewards customer loyalty program


(36)


(4,474)


Deferred compensation liability


4,406


2,921


Other liabilities


39,399


27,937


 Other, net 


(313)


(50)

                 Net cash provided by operating activities 


9,878


32,069

 INVESTING ACTIVITIES 






 Capital expenditures for property and equipment (excluding inventory) 


(6,331)


(10,562)


 Decrease in restricted cash 


16,133


47,103


 Dispositions, net 


9


197


           Net cash provided by investing activities


9,811


36,738

 FINANCING ACTIVITIES 






 Borrowings from securitization transactions 


51,130


-


 Repayment of debt related to securitization transactions 


(47,711)


(78,811)


 Proceeds from vacation ownership inventory arrangement 


-


5,375


 Repurchase of common stock 


(73,228)


(51,281)


 Payment of dividends 


(17,585)


(8,081)


 Proceeds from stock option exercises 


-


90


 Payment of withholding taxes on vesting of restricted stock units 


(3,864)


(9,061)


 Other 


591


80







                 Net cash used in financing activities 


(90,667)


(141,689)








 Effect of changes in exchange rates on cash and cash equivalents 


530


(1,453)







 DECREASE IN CASH AND CASH EQUIVALENTS 


(70,448)


(74,335)







 CASH AND CASH EQUIVALENTS, beginning of period 


177,061


346,515







 CASH AND CASH EQUIVALENTS, end of period 


$106,613


$272,180

 

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SOURCE Marriott Vacations Worldwide

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