July 21, 2016

Marriott Vacations Worldwide Reports Second Quarter Financial Results

ORLANDO, Fla., July 21, 2016 /PRNewswire/ -- Marriott Vacations Worldwide Corporation (NYSE: VAC) today reported second quarter financial results and reaffirmed its guidance for the full year 2016.

Marriott Vacations Worldwide Corporation.

"Our second quarter results, including contract sales, were solid and in line with our expectations," said Stephen P. Weisz, president and chief executive officer. "And even more importantly, contract sales growth gained momentum as we moved through the second half of the quarter. Additionally, tour activations for the second half of 2016 are substantially ahead of this time last year, and four of our six new sales centers are open and gaining momentum, giving us confidence that we will achieve our 2016 goals and are well positioned for solid growth in the years to come."

Second quarter 2016 highlights:

  • Net income was $36.3 million, or $1.26 fully diluted earnings per share (EPS), compared to net income of $34.0 million, or $1.05 fully diluted EPS, in the second quarter of 2015, an increase of 6.7 percent and 20.0 percent, respectively.
    • Adjusted EBITDA totaled $64.2 million, an increase of $2.5 million year-over-year, or 4.1 percent.
    • Adjusted fully diluted EPS was $1.08 compared to $0.91 in the second quarter of 2015, an increase of 18.7 percent.
  • Company vacation ownership contract sales (which exclude residential sales) were $166.0 million, slightly ahead of prior year. 
  • Company development margin percentage was 23.1 percent compared to 21.3 percent in the second quarter of 2015.  Company adjusted development margin percentage was 22.8 percent compared to 21.0 percent in the second quarter of 2015. 
  • During the second quarter of 2016, the company repurchased nearly 1.5 million shares of its common stock for $90.1 million
  • The company completed the disposition of the non-timeshare portion of its Surfers Paradise, Australia property for approximately $50.9 million in gross cash proceeds.
  • The company completed a bulk sale of the remaining 19 residential units at its San Francisco property for $19.5 million in gross cash proceeds.

Non-GAAP financial measures, such as adjusted EBITDA, adjusted net income, adjusted fully diluted earnings per share, and adjusted development margin are reconciled and adjustments are shown and described in further detail on pages A-10 and A-11 of the Financial Schedules that follow.

Second quarter 2016 Results

Company Results

Second quarter 2016 company net income was $36.3 million, a $2.3 million increase from the second quarter of 2015. These results were driven mainly by a $10.5 million gain on the bulk sale of the remaining 19 units at the San Francisco property, $3.0 million of higher resort management and other services revenues net of expenses, $1.7 million of higher financing revenues net of expenses, a $1.7 million reversal of a liability associated with the disposition of a golf course and related assets in Kauai, Hawaii, and $0.7 million of higher development margin. These increases were partially offset by an $8.7 million gain associated with the sale of undeveloped land in Kauai, Hawaii in the prior year, $1.8 million of lower rental revenues net of expenses, $1.7 million of higher general and administrative costs, a $1.5 million loss on the disposition of the non-timeshare portion of the Surfers Paradise, Australia property, $0.7 million of higher acquisition related transaction costs, and $0.6 million of higher royalty fees.

Total company vacation ownership contract sales were $166.0 million, $0.1 million higher than the second quarter of last year. These results reflect increased contract sales of $2.6 million and $2.5 million, respectively, from the company's Europe and Asia Pacific segments, partially offset by $5.0 million of lower contract sales in the company's North America segment, as the first half of the prior year second quarter benefited from enhancements the company made to owner recognition levels. Also contributing to the decrease, the company's Latin America sales channels were down roughly $2.1 million compared to the second quarter of last year, as the company continued to be impacted by a stronger U.S. dollar. 

Development margin was $33.8 million, a $0.7 million increase from the second quarter of 2015. Development margin percentage was 23.1 percent compared to 21.3 percent in the prior year quarter, reflecting $9.1 million of lower product costs driven primarily by $6.9 million of favorable product cost true-up activity year-over-year, offset partially by $3.2 million related to higher usage of Plus Points for sales incentives, $3.0 million from higher sales reserve activity mainly associated with a 30 percent, or 12.5 percentage point, increase in financing propensity, and $2.2 million of higher marketing and sales costs driven primarily from start-up costs associated with the company's new sales distributions.  Adjusted development margin percentage, which excludes the impact of revenue reportability year-over-year, was 22.8 percent in the second quarter of 2016 compared to 21.0 percent in the second quarter of 2015. 

Rental revenues totaled $75.1 million, a $2.4 million increase from the second quarter of 2015. Results were driven mainly by $1.9 million of revenue from the non-timeshare portion of the Surfers Paradise, Australia property the company sold at the end of the second quarter and $1.8 million from a 3 percent increase in transient keys rented, partially offset by $1.6 million from a 3 percent decrease in average transient rate resulting from the mix of inventory available to rent. Rental revenues net of expenses were $9.0 million, a $1.8 million decrease from the second quarter of 2015, primarily reflecting a $0.7 million loss from the portion of the Australia property sold in the quarter as well as higher operating expenses primarily on increased transient keys rented in the quarter.

Resort management and other services revenues totaled $80.9 million, a $6.9 million increase from the second quarter of 2015.  Resort management and other services revenues, net of expenses, totaled $31.6 million, a $3.0 million increase, or 10.6 percent, from the second quarter of 2015.

Financing revenues totaled $28.7 million, a $0.4 million increase from the second quarter of 2015. Financing revenues, net of expenses and consumer financing interest expense, were $18.7 million, a $1.7 million increase, or 10.1 percent, from the second quarter of 2015.

General and administrative expenses were $24.6 million in the second quarter of 2016, a $1.7 million increase from the second quarter of 2015, driven by higher spending related to enhancements to the company's owner facing technology as well as inflationary cost increases.

Net income was $36.3 million, compared to net income of $34.0 million in the second quarter of 2015, an increase of $2.3 million, or 6.7 percent. Adjusted EBITDA was $64.2 million in the second quarter of 2016, a $2.5 million, or 4.1 percent, increase from $61.7 million in the second quarter of 2015.

Segment Results

North America

North America vacation ownership contract sales were $145.6 million in the second quarter of 2016, a decrease of $5.0 million, or 3.3 percent, from the prior year period, as the first half of the prior year second quarter benefited from enhancements the company made to owner recognition levels. Also contributing to the decrease, the company's Latin America sales channels were down roughly $2.1 million compared to the second quarter of last year, as the company continued to be impacted by a stronger U.S. dollar. 

Total tours in the second quarter of 2016 increased 0.3 percent, driven by a 4 percent increase in first time buyer tours, partially offset by a 2 percent decline in owner tours driven in part by the impact of the enhancements to the owner recognition levels in the first half of last year's second quarter. VPG decreased $20 to $3,384 in the second quarter of 2016 from the second quarter of 2015. 

Second quarter 2016 North America segment financial results were $111.7 million, an increase of $7.1 million from the second quarter of 2015. The increase was driven primarily by the $10.5 million gain on the bulk sale at the San Francisco property, $3.0 million of higher development margin, $2.9 million of higher resort management and other services revenues net of expenses, the $1.7 million reversal of a liability associated with the disposition in Kauai, Hawaii, and $0.5 million of higher financing revenues. These increases were partially offset by the $8.7 million gain in the prior year, $1.8 million of acquisition related transaction costs, $0.6 million of higher royalty fees, and $0.6 million of lower rental revenues net of expenses. North America adjusted segment financial results, which exclude the transaction costs in the current year and the gains and other income in both years, were $101.2 million in the second quarter of 2016, a $5.3 million increase from $96.0 million of adjusted segment results in the second quarter of 2015.

Development margin was $36.5 million, a $3.0 million increase from the second quarter of 2015. Development margin percentage was 27.5 percent compared to 23.6 percent in the prior year quarter, reflecting $9.0 million of lower product costs driven primarily by $6.5 million of favorable product cost true-up activity year-over-year, offset partially by $3.2 million related to higher usage of Plus Points for sales incentives, $1.6 million from higher sales reserve activity mainly associated with a 30 percent, or 12.1 percentage point, increase in financing propensity, and $1.3 million of higher marketing and sales costs driven primarily from start-up costs associated with the company's new sales distributions.  Adjusted development margin, which excludes the impact of revenue reportability year-over-year, was $34.1 million, a $1.8 million increase from the prior year quarter. Adjusted development margin percentage was 26.5 percent in the second quarter of 2016 compared to 23.0 percent in the second quarter of 2015.

Asia Pacific

Total vacation ownership contract sales in the segment were $10.5 million, an increase of $2.5 million, or roughly 31 percent, from the second quarter of 2015. Segment financial results were a loss of $2.5 million, a $2.4 million decrease from the second quarter of 2015, driven by a $1.5 million loss on the sale of the non-timeshare portion of the Surfers Paradise property, $1.5 million of lower development margin, and $0.6 million of lower rental revenues net of expenses, partially offset by $1.3 million of transaction related costs in the prior year. The lower development margin reflected the impact of start-up costs in the current year associated with the company's new sales distribution in Surfers Paradise, Australia, partially offset by the increase in contract sales. The lower rental revenues net of expenses were driven by losses from operating the Surfers Paradise property.

Europe

Second quarter 2016 contract sales were $9.9 million, an increase of $2.6 million, or more than 35 percent, from the second quarter of 2015. Segment financial results were $2.2 million, an $0.8 million decrease from the second quarter of 2015, driven by $0.5 million of lower rental revenues net of expenses.

Share Repurchase Program and Dividends

During the second quarter of 2016, the company repurchased nearly 1.5 million shares of its common stock for a total of $90.1 million under its share repurchase program, of which nearly 1.2 million shares were purchased under an accelerated share repurchase agreement. In addition, the company paid a quarterly cash dividend of $8.5 million. Through the end of the second quarter, the company returned nearly $190 million to its shareholders through the repurchase of 2.8 million shares for $163.4 million and more than $26 million in dividends paid.   

Balance Sheet and Liquidity

On June 17, 2016, cash and cash equivalents totaled $97.4 million. Since the beginning of the year, real estate inventory balances increased $33.9 million to $697.9 million, including $296.5 million of finished goods, $76.6 million of work-in-progress, and $324.8 million of land and infrastructure. The company had $746.3 million in gross debt outstanding at the end of the second quarter, an increase of $58.2 million from year-end 2015, consisting primarily of $691.8 million in gross non-recourse securitized notes and $45.0 million in gross debt outstanding under the company's revolving corporate credit facility. In addition, $40.0 million of gross mandatorily redeemable preferred stock of a subsidiary of the company was outstanding at the end of the second quarter of 2016.

As of June 17, 2016, the company had approximately $151.7 million in available capacity under its revolving credit facility after taking into account outstanding letters of credit and approximately $104.8 million of gross vacation ownership notes receivable eligible for securitization in its warehouse credit facility.

Outlook

Pages A-1 through A-11 of the Financial Schedules reconcile the non-GAAP financial measures set forth below to the following full year 2016 expected GAAP results:

Net Income

$130 million to $140 million

Fully diluted EPS

          $4.57 to $4.92

Net cash provided by operating activities 

$136 million to $146 million 


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


Adjusted net income

$126 million to $136 million

Adjusted fully diluted EPS

Adjusted EBITDA

$4.43 to $4.78

$261 million to $276 million

Adjusted free cash flow

$135 million to $155 million

Contract sales

4 percent to 8 percent

Adjusted fully diluted EPS increased from the previous guidance of $4.31 to $4.66 due entirely to a reduction in shares outstanding.

Second 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 13640097. 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 July 21, 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 2, 2016

TABLE OF CONTENTS

































Consolidated Statements of Income - 12 Weeks and 24 Weeks Ended June 17, 2016 and June 19, 2015                                                  

 A-1

















Adjusted Net Income, Adjusted Earnings Per Share - Diluted, EBITDA and Adjusted EBITDA - 12 Weeks and 24 Weeks Ended June 17, 2016 and June 19, 2015

 A-2

















North America Segment Financial Results - 12 Weeks and 24 Weeks Ended June 17, 2016 and June 19, 2015                                            

 A-3

















Asia Pacific Segment Financial Results - 12 Weeks and 24 Weeks Ended June 17, 2016 and June 19, 2015                                            

 A-4

















Europe Segment Financial Results - 12 Weeks and 24 Weeks Ended June 17, 2016 and June 19, 2015                                            

 A-5

















Corporate and Other Segment Financial Results - 12 Weeks and 24 Weeks Ended June 17, 2016 and June 19, 2015                                            

 A-6

















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


    (Adjusted Sale of Vacation Ownership Products Net of Expenses) - 12 Weeks and 24 Weeks Ended June 17, 2016 and June 19, 2015                                          

 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) - 12 Weeks and 24 Weeks Ended June 17, 2016 and June 19, 2015                                          

 A-8

















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

 A-9

















Non-GAAP Financial Measures                                                                                                   


 A-10

















Consolidated Balance Sheets                                                                                                   


 A-12

















Consolidated Statements of Cash Flows                                                                                                   

 A-13

 

A-1

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

12 Weeks and 24 Weeks Ended June 17, 2016 and June 19, 2015

(In thousands, except per share amounts)























12 Weeks Ended



24 Weeks Ended








June 17, 2016


June 19, 2015



June 17, 2016


June 19, 2015

Revenues












Sale of vacation ownership products

$             146,450


$             155,370



$             284,819


$             339,276


Resort management and other services

80,930


74,063



150,559


138,480


Financing

28,654


28,294



57,878


57,346


Rental

75,069


72,642



155,357


148,841


Cost reimbursements

98,842


92,458



206,375


193,764






Total revenues

429,945


422,827



854,988


877,707

Expenses












Cost of vacation ownership products

33,753


45,119



69,370


110,081


Marketing and sales

78,919


77,137



157,331


157,132


Resort management and other services

49,311


45,480



95,108


87,889


Financing

4,864


6,085



9,493


10,990


Rental

66,028


61,835



130,688


121,993


General and administrative

24,588


22,892



49,885


45,669


Organizational and separation related

-


101



-


293


Litigation settlement

-


26



(303)


(236)


Consumer financing interest

5,117


5,248



10,479


11,269


Royalty fee

14,026


13,431



27,383


26,431


Cost reimbursements

98,842


92,458



206,375


193,764






Total expenses

375,448


369,812



755,809


765,275

Gains and other income

10,668


8,625



10,675


9,512

Interest expense

(2,087)


(3,009)



(4,069)


(5,983)

Other





(1,911)


(1,187)



(4,453)


(1,174)






Income before income taxes

61,167


57,444



101,332


114,787

Provision for income taxes

(24,858)


(23,403)



(40,615)


(46,692)

Net income

$               36,309


$               34,041



$               60,717


$               68,095
















Earnings per share - Basic

$                   1.28


$                   1.07



$                   2.11


$                   2.12
















Earnings per share - Diluted

$                   1.26


$                   1.05



$                   2.08


$                   2.08
















Basic Shares


28,345


31,858



28,734


32,078

Diluted Shares

28,834


32,517



29,244


32,760























12 Weeks Ended



24 Weeks Ended








June 17, 2016


June 19, 2015



June 17, 2016


June 19, 2015

Contract Sales











Vacation ownership

$             165,992


$             165,938



$             319,486


$             335,888



Residential products

-


-



-


28,420





Total contract sales

$             165,992


$             165,938



$             319,486


$             364,308


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

 

A-2

MARRIOTT VACATIONS WORLDWIDE CORPORATION

12 Weeks and 24 Weeks Ended June 17, 2016 and June 19, 2015

(In thousands, except per share amounts)
















ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE - DILUTED























12 Weeks Ended



24 Weeks Ended








June 17, 2016


June 19, 2015



June 17, 2016


June 19, 2015































Net income

$            36,309


$            34,041



$            60,717


$            68,095

Less certain items:











Transaction costs

2,005


1,272



4,575


1,272



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

190


-



(275)


-



Litigation settlement

-


26



(303)


(236)



Gains and other income

(10,668)


(8,625)



(10,675)


(9,512)



Asia Pacific bulk sale

-


-



-


(5,915)



Organizational and separation related

-


101



-


293





Certain items before depreciation and provision for income taxes 1

(8,473)


(7,226)



(6,678)


(14,098)



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

188


-



469


-



Provision for income taxes on certain items

3,261


2,804



2,482


3,779




Adjusted net income **

$           31,285


$           29,619



$           56,990


$           57,776
















Earnings per share - Diluted

$                1.26


$                1.05



$                2.08


$                2.08
















Adjusted earnings per share - Diluted **

$                1.08


$                0.91



$                1.95


$                1.76
















Diluted Shares

28,834


32,517



29,244


32,760































EBITDA AND ADJUSTED EBITDA























12 Weeks Ended



24 Weeks Ended








June 17, 2016


June 19, 2015



June 17, 2016


June 19, 2015
















Net income

$            36,309


$            34,041



$            60,717


$            68,095

Interest expense 2

2,087


3,009



4,069


5,983

Tax provision

24,858


23,403



40,615


46,692

Depreciation and amortization

5,052


4,493



10,177


8,558



EBITDA **

68,306


64,946



115,578


129,328
















Non-cash share-based compensation 3

4,332


3,945



6,856


6,588

Certain items before depreciation and provision for income taxes 1

(8,473)


(7,226)



(6,678)


(14,098)



Adjusted EBITDA **

$            64,165


$            61,665



$          115,756


$          121,818


**  Denotes non-GAAP financial measures.  Please see pages A-10 and A-11 for additional information about our reasons for providing these alternative financial measures and limitations on their use.


1  Please see pages A-10 and A-11 for additional information regarding these items. The certain items adjustment for the Adjusted EBITDA reconciliation excludes depreciation and the provision for income taxes on certain items included in the Adjusted Net Income reconciliation. 

  Interest expense excludes consumer financing interest expense.

3   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-10 and A-11 for additional information.

 

A-3

MARRIOTT VACATIONS WORLDWIDE CORPORATION

NORTH AMERICA SEGMENT

12 Weeks and 24 Weeks Ended June 17, 2016 and June 19, 2015

(In thousands)























12 Weeks Ended



24 Weeks Ended








June 17, 2016


June 19, 2015



June 17, 2016


June 19, 2015

Revenues












Sale of vacation ownership products

$             132,473


$             142,148



$             257,157


$             283,876


Resort management and other services

69,357


66,194



131,022


124,769


Financing

26,853


26,354



54,261


53,410


Rental

65,629


65,756



138,137


137,471


Cost reimbursements

90,174


84,037



189,356


176,891






Total revenues

384,486


384,489



769,933


776,417

Expenses












Cost of vacation ownership products

29,080


40,834



59,742


81,335


Marketing and sales

66,911


67,837



135,226


136,854


Resort management and other services

39,337


39,101



77,489


76,069


Rental

55,593


55,128



111,549


109,739


Organizational and separation related

-


115



-


254


Reversal of litigation expense

-


(108)



(303)


(370)


Royalty fee

2,254


1,686



3,940


2,946


Cost reimbursements

90,174


84,037



189,356


176,891






Total expenses

283,349


288,630



576,999


583,718

Gains and other income

12,317


8,658



12,324


9,538

Other





(1,733)


86



(4,013)


102






Segment financial results

$             111,721


$             104,603



$             201,245


$             202,339
















Segment financial results

$             111,721


$             104,603



$             201,245


$             202,339

Less certain items:










Transaction costs

1,829


-



4,137


-


Reversal of litigation expense

-


(108)



(303)


(370)


Gains and other income

(12,317)


(8,658)



(12,324)


(9,538)


Organizational and separation related

-


115



-


254




Certain items

(10,488)


(8,651)



(8,490)


(9,654)






Adjusted segment financial results **

$             101,233


$               95,952



$             192,755


$             192,685






































12 Weeks Ended



24 Weeks Ended








June 17, 2016


June 19, 2015



June 17, 2016


June 19, 2015

Contract Sales











Vacation ownership

$             145,600


$             150,605



$             285,250


$             306,598





Total contract sales

$             145,600


$             150,605



$             285,250


$             306,598


**  Denotes non-GAAP financial measures.  Please see pages A-10 and A-11 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

A-4

MARRIOTT VACATIONS WORLDWIDE CORPORATION

ASIA PACIFIC SEGMENT

12 Weeks and 24 Weeks Ended June 17, 2016 and June 19, 2015

(In thousands)























12 Weeks Ended



24 Weeks Ended








June 17, 2016


June 19, 2015



June 17, 2016


June 19, 2015

Revenues












Sale of vacation ownership products

$                 8,110


$                 7,575



$               16,635


$               43,853


Resort management and other services

4,573


964



8,070


1,827


Financing

1,007


1,043



1,988


2,049


Rental

4,828


1,503



10,449


3,855


Cost reimbursements

685


632



1,558


1,498






Total revenues

19,203


11,717



38,700


53,082

Expenses












Cost of vacation ownership products

1,597


1,803



3,306


23,799


Marketing and sales

6,695


4,432



12,906


9,989


Resort management and other services

4,226


655



7,778


1,505


Rental

6,766


2,794



12,554


5,290


Royalty fee

179


150



325


307


Cost reimbursements

685


632



1,558


1,498






Total expenses

20,148


10,466



38,427


42,388

Losses and other expense

(1,498)


(33)



(1,498)


(30)

Other





(21)


(1,273)



(229)


(1,276)






Segment financial results

$               (2,464)


$                    (55)



$               (1,454)


$                 9,388
















Segment financial results

$               (2,464)


$                    (55)



$               (1,454)


$                 9,388

Less certain items:










Transaction costs

19


1,272



227


1,272


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

378


-



194


-


Losses and other expense

1,498


33



1,498


30


Asia Pacific bulk sale

-


-



-


(5,915)




Certain items

1,895


1,305



1,919


(4,613)






Adjusted segment financial results **

$                  (569)


$                 1,250



$                    465


$                 4,775





















































12 Weeks Ended



24 Weeks Ended








June 17, 2016


June 19, 2015



June 17, 2016


June 19, 2015

Contract Sales











Vacation ownership

$               10,454


$                 7,992



$               19,880


$               16,651



Residential products

-


-



-


28,420





Total contract sales

$               10,454


$                 7,992



$               19,880


$               45,071

**  Denotes non-GAAP financial measures.  Please see pages A-10 and A-11 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

A-5

MARRIOTT VACATIONS WORLDWIDE CORPORATION

EUROPE SEGMENT

12 Weeks and 24 Weeks Ended June 17, 2016 and June 19, 2015

(In thousands)























12 Weeks Ended



24 Weeks Ended








June 17, 2016


June 19, 2015



June 17, 2016


June 19, 2015

Revenues












Sale of vacation ownership products

$                 5,867


$                 5,647



$               11,027


$               11,547


Resort management and other services

7,000


6,905



11,467


11,884


Financing

794


897



1,629


1,887


Rental

4,612


5,383



6,771


7,515


Cost reimbursements

7,983


7,789



15,461


15,375






Total revenues

26,256


26,621



46,355


48,208

Expenses












Cost of vacation ownership products

1,268


1,233



2,559


2,085


Marketing and sales

5,313


4,868



9,199


10,289


Resort management and other services

5,748


5,724



9,841


10,315


Rental

3,669


3,913



6,585


6,964


Royalty fee

118


88



167


164


Cost reimbursements

7,983


7,789



15,461


15,375






Total expenses

24,099


23,615



43,812


45,192

Gains and other income

-


-



-


4






Segment financial results

$                 2,157


$                 3,006



$                 2,543


$                 3,020
















Segment financial results

$                 2,157


$                 3,006



$                 2,543


$                 3,020

Less certain items:










Gains and other income

-


-



-


(4)




Certain items

-


-



-


(4)






Adjusted segment financial results **

$                 2,157


$                 3,006



$                 2,543


$                 3,016






































12 Weeks Ended



24 Weeks Ended








June 17, 2016


June 19, 2015



June 17, 2016


June 19, 2015

Contract Sales











Vacation ownership

$                 9,938


$                 7,341



$               14,356


$               12,639





Total contract sales

$                 9,938


$                 7,341



$               14,356


$               12,639


**  Denotes non-GAAP financial measures.  Please see pages A-10 and A-11 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

A-6

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CORPORATE AND OTHER

12 Weeks and 24 Weeks Ended June 17, 2016 and June 19, 2015

(In thousands)























12 Weeks Ended



24 Weeks Ended








June 17, 2016


June 19, 2015



June 17, 2016


June 19, 2015

Expenses












Cost of vacation ownership products

$                 1,808


$                 1,249



$                 3,763


$                 2,862


Financing

4,864


6,085



9,493


10,990


General and administrative

24,588


22,892



49,885


45,669


Organizational and separation related

-


(14)



-


39


Litigation settlement

-


134



-


134


Consumer financing interest

5,117


5,248



10,479


11,269


Royalty fee

11,475


11,507



22,951


23,014






Total expenses

47,852


47,101



96,571


93,977

Losses and other expense

(151)


-



(151)


-

Interest expense

(2,087)


(3,009)



(4,069)


(5,983)

Other





(157)


-



(211)


-






Financial results

$             (50,247)


$             (50,110)



$           (101,002)


$             (99,960)
















Financial results

$             (50,247)


$             (50,110)



$           (101,002)


$             (99,960)

Less certain items:










Transaction costs

157


-



211


-


Litigation settlement

-


134



-


134


Losses and other expense

151


-



151


-


Organizational and separation related

-


(14)



-


39




Certain items

308


120



362


173






Adjusted financial results **

$             (49,939)


$             (49,990)



$           (100,640)


$             (99,787)


**  Denotes non-GAAP financial measures.  Please see pages A-10 and A-11 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

A-7

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED CONTRACT SALES TO SALE OF VACATION OWNERSHIP PRODUCTS

(In thousands)























12 Weeks Ended



24 Weeks Ended








June 17, 2016


June 19, 2015



June 17, 2016


June 19, 2015
















Contract sales














Vacation ownership




$         165,992


$         165,938



$         319,486


$         335,888


Residential products




-


-



-


28,420



Total contract sales




165,992


165,938



319,486


364,308
















Revenue recognition adjustments:













Reportability1




1,179


1,440



1,965


(73)


Sales Reserve 2




(11,352)


(7,179)



(19,575)


(15,546)


Other 3





(9,369)


(4,829)



(17,057)


(9,413)

Sale of vacation ownership products



$         146,450


$         155,370



$         284,819


$         339,276
















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)




































12 Weeks Ended



24 Weeks Ended








June 17, 2016


June 19, 2015



June 17, 2016


June 19, 2015

Sale of vacation ownership products







$          146,450


$          155,370



$          284,819


$          339,276

Less:















         Cost of vacation ownership products 




33,753


45,119



69,370


110,081

         Marketing and sales






78,919


77,137



157,331


157,132
















Development margin







33,778


33,114



58,118


72,063

         Certain items 1







-


-



-


(5,915)

         Revenue recognition reportability adjustment




(726)


(819)



(1,326)


27

Adjusted development margin**







$           33,052


$           32,295



$           56,792


$           66,175
















         Development margin percentage 2





23.1%


21.3%



20.4%


21.2%

         Adjusted development margin percentage




22.8%


21.0%



20.1%


21.3%


**  Denotes non-GAAP financial measures.  Please see pages A-10 and A-11 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

1   Certain items adjustment in the 24 weeks ended June 19, 2015, represents $5.9 million of development margin from the disposition of units in Macau as whole ownership residential units rather than through our Marriott Vacation Club, Asia Pacific points program.

2   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

NORTH AMERICA CONTRACT SALES TO SALE OF VACATION OWNERSHIP PRODUCTS

(In thousands)























12 Weeks Ended



24 Weeks Ended








June 17, 2016


June 19, 2015



June 17, 2016


June 19, 2015
















Contract sales














Vacation ownership




$             145,600


$             150,605



$             285,250


$             306,598



Total contract sales




145,600


150,605



285,250


306,598
















Revenue recognition adjustments:













Reportability1




3,783


1,942



3,871


(1,502)


Sales Reserve 2




(7,631)


(5,651)



(15,037)


(11,985)


Other 3





(9,279)


(4,748)



(16,927)


(9,235)

Sale of vacation ownership products



$             132,473


$             142,148



$             257,157


$             283,876


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)






















12 Weeks Ended



24 Weeks Ended









June 17, 2016


June 19, 2015



June 17, 2016


June 19, 2015

Sale of vacation ownership products




$              132,473


$              142,148



$              257,157


$              283,876

Less:
















Cost of vacation ownership products 



29,080


40,834



59,742


81,335


Marketing and sales




66,911


67,837



135,226


136,854

Development margin





36,482


33,477



62,189


65,687


Certain items





-


-



-


-


Revenue recognition reportability adjustment


(2,417)


(1,207)



(2,473)


933

Adjusted development margin**




$               34,065


$               32,270



$               59,716


66,620


















Development margin percentage1




27.5%


23.6%



24.2%


23.1%


Adjusted development margin percentage



26.5%


23.0%



23.6%


23.3%


**  Denotes non-GAAP financial measures.  Please see pages A-10 and A-11 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-9
MARRIOTT VACATIONS WORLDWIDE CORPORATION

(In millions, except per share amounts)

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














Fiscal Year
2016 (low)


Fiscal Year
2016 (high)

Net income



$           130


$            140


Adjustments to reconcile Net income to Adjusted net income







Certain items1


5


5



Gain on dispositions 2


(11)


(11)



Provision for income taxes on adjustments to net income

2


2




Adjusted net income**


$           126


$            136










Earnings per share - Diluted 3


$          4.57


$           4.92


Adjusted earnings per share - Diluted**, 3


$          4.43


$           4.78


Diluted shares3


28.5


28.5

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

2   Gain on dispositions adjustment includes the net impact to pre-tax income associated with dispositions in the North America segment and Asia Pacific segment.

3   Earnings per share - Diluted, Adjusted earnings per share - Diluted, and Diluted shares outlook includes the impact of share repurchase activity only through July 21, 2016.


















 

2016 ADJUSTED EBITDA OUTLOOK














Fiscal Year
2016 (low)


Fiscal Year
2016 (high)

Net income


$                  130


$                  140

Interest expense1


9


9

Tax provision


91


96

Depreciation and amortization


22


22


EBITDA **



252


267

Non-cash share-based compensation 2


15


15

Certain items 3and Gain on dispositions4


(6)


(6)


Adjusted EBITDA**


$                  261


$                  276

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-10 and A-11 for additional information.

  Certain items adjustment primarily includes approximately $5 million of non-capitalizable transaction costs.

4    Gain on dispositions adjustment includes the net impact to pre-tax income associated with dispositions in the North America segment and Asia Pacific segment.

 

2016 ADJUSTED FREE CASH FLOW OUTLOOK














Fiscal Year
2016 (low)


Fiscal Year
2016 (high)

Net cash provided by operating activities


$                  136


$                  146


Capital expenditures for property and equipment (excluding inventory):







New sales centers 1


(20)


(18)



Other



(24)


(22)


Decrease in restricted cash


(5)


(5)


Borrowings from securitization transactions


375


377


Repayment of debt related to securitizations

(320)


(318)




Free cash flow**


142


160

Adjustments:







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


(7)


(5)









Adjusted free cash flow**


$                  135


$                  155


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 2015 and 2016 year ends. 

**  Denotes non-GAAP financial measures.  Please see pages A-10 and A-11 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

A-10

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 and 24 weeks ended June 17, 2016 and June 19, 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 and 24 weeks ended June 17, 2016 In our Statement of Income for the 12 weeks ended June 17, 2016, we recorded $8.3 million of net pre-tax charges, which included $10.7 million of gains and other income, $2.0 million of transaction costs associated with acquisitions, and $0.4 million of losses (including $0.2 million of depreciation) from the operations of the property we acquired in Australia in 2015 that we sold in the second quarter of 2016. In our Statement of Income for the 24 weeks ended June 17, 2016, we recorded $6.2 million of net pre-tax charges, which included $10.7 million of gains and other income, $4.6 million of transaction costs associated with acquisitions, $0.2 million of losses (including $0.5 million of depreciation) from the operations of the property we acquired in Australia in 2015 that we sold in the second quarter of 2016, and a $0.3 million reversal of litigation expense.
















        Certain items - 12 weeks and 24 weeks ended June 19, 2015In our Statement of Income for the 12 weeks ended June 19, 2015, we recorded $7.2 million of net pre-tax items, which included $8.6 million of gains and other income, $1.3 million of transaction costs associated with acquisitions, $0.1 million of organizational and separation related costs and less than $0.1 million of litigation expense. In our Statement of Income for the 24 weeks ended June 19, 2015, we recorded $14.1 million of net pre-tax items, which included $9.5 million of gains and other income, $5.9 million of development profit from the disposition of units in Macau as whole ownership residential units rather than through our Marriott Vacation Club, Asia Pacific points program, $1.3 million of transaction costs associated with acquisitions, $0.3 million of organizational and separation related costs, and a $0.2 million reversal of litigation expense.
















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-11 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

NON-GAAP FINANCIAL MEASURES


Earnings Before Interest Expense, Taxes, Depreciation and Amortization ("EBITDA") and Adjusted 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 and Adjusted EBITDA calculations, 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 and Adjusted EBITDA to be indicators of operating performance, which we use to measure our ability to service debt, fund capital expenditures and expand our business. We also use EBITDA and Adjusted EBITDA, as do analysts, lenders, investors and others, because these measures exclude 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 and Adjusted EBITDA also exclude depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets.  These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies. Adjusted EBITDA reflects additional adjustments for certain items, as itemized in the discussion of Adjusted Net Income above, including, beginning with the first quarter of 2016, the exclusion of 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 the excluded 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 and Adjusted Free Cash Flow.  We evaluate Free Cash Flow and Adjusted Free Cash Flow as liquidity measures that provide 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, which cash can be used for strategic opportunities, including acquisitions and strengthening the balance sheet. Adjusted Free Cash Flow, which reflects additional adjustments to Free Cash Flow for the impact of organizational and separation related, litigation, and other cash charges, allows for period-over-period comparisons of the cash generated by our business before the impact of these items.  Analysis of Free Cash Flow and Adjusted Free Cash Flow also facilitates management's comparison of our results with our competitors' results.


 

A-12

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)









(unaudited)






June 17, 2016


January 1, 2016


ASSETS





Cash and cash equivalents

$           97,418


$             177,061


Restricted cash (including $39,395 and $26,884 from VIEs, respectively)

68,340


71,451


Accounts and contracts receivable, net (including $4,112 and $4,893 from VIEs, respectively)

142,864


131,850


Vacation ownership notes receivable, net (including $679,185 and $669,179 from VIEs, respectively)

903,747


920,631


Inventory

702,377


669,243


Property and equipment

228,848


288,803


Other

109,960


140,679


      Total Assets

$      2,253,554


$          2,399,718








LIABILITIES AND EQUITY





Accounts payable

$           74,484


$             139,120


Advance deposits

80,876


69,064


Accrued liabilities (including $1,401 and $669 from VIEs, respectively)

132,733


164,791


Deferred revenue

30,600


35,276


Payroll and benefits liability

75,309


104,331


Liability for Marriott Rewards customer loyalty program

-


35


Deferred compensation liability

57,567


51,031


Mandatorily redeemable preferred stock of consolidated subsidiary, net

39,068


38,989


Debt, net (including $691,845 and $684,604 from VIEs, respectively)

733,828


678,793


Other

56,248


32,945


Deferred taxes

126,093


109,076


      Total Liabilities

1,406,806


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; 36,620,686 and 36,393,800 shares issued, respectively





366


364


Treasury stock - at cost; 9,640,473 and 6,844,256 shares, respectively

(593,052)


(429,990)


Additional paid-in capital

1,139,366


1,150,731


Accumulated other comprehensive income

12,735


11,381


Retained earnings

287,333


243,781


      Total Equity

846,748


976,267








      Total Liabilities and Equity

$      2,253,554


$          2,399,718








The abbreviation VIEs above means Variable Interest Entities





 

 

 

A-13

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



 

24 weeks ended



June 17, 2016


June 19, 2015

 OPERATING ACTIVITIES





 Net income


$60,717


$68,095

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






 Depreciation


10,177


8,558


 Amortization of debt issuance costs


2,559


2,506


 Provision for loan losses


19,591


15,662


 Share-based compensation


6,856


6,588


 Employee stock purchase plan


307


-


 Deferred income taxes


15,792


17,850


 Gain on disposal of property and equipment, net


(10,675)


(9,512)


 Non-cash reversal of litigation expense


(303)


(262)


 Net change in assets and liabilities:






Accounts and contracts receivable


(11,084)


(6,068)


Notes receivable originations


(124,318)


(112,060)


Notes receivable collections


120,548


132,397


Inventory


(13,924)


68,629


Purchase of operating hotels for future conversion to inventory


-


(46,614)


Other assets


26,111


8,154


Accounts payable, advance deposits and accrued liabilities


(78,190)


(66,223)


Deferred revenue


(4,805)


(5,955)


Payroll and benefit liabilities


(27,313)


(18,382)


Liability for Marriott Rewards customer loyalty program


(36)


(9,345)


Deferred compensation liability


6,536


4,858


Other liabilities


20,348


18,013


 Other, net


2,184


1,776

                  Net cash provided by operating activities


21,078


78,665

 INVESTING ACTIVITIES






 Capital expenditures for property and equipment (excluding inventory)


(15,142)


(15,718)


 Decrease in restricted cash


2,969


43,758


 Dispositions, net


69,738


20,346


           Net cash provided by investing activities


57,565


48,386

 FINANCING ACTIVITIES






 Borrowings from securitization transactions


91,281


-


 Repayment of debt related to securitization transactions


(84,040)


(143,374)


 Borrowings on Revolving Corporate Credit Facility


85,000


-


 Repayment of Revolving Corporate Credit Facility


(40,000)


-


 Proceeds from vacation ownership inventory arrangement


-


5,375


 Debt issuance costs


(231)


(30)


 Repurchase of common stock


(163,359)


(66,237)


 Accelerated stock repurchase forward contract


(14,470)


-


 Payment of dividends


(26,067)


(8,085)


 Payment of withholding taxes on vesting of restricted stock units


(3,876)


(9,353)


 Other


572


201

                   Net cash used in financing activities


(155,190)


(221,503)


Effect of changes in exchange rates on cash and cash equivalents


(3,096)


(1,157)

 DECREASE IN CASH AND CASH EQUIVALENTS


(79,643)


(95,609)

 CASH AND CASH EQUIVALENTS, beginning of period


177,061


346,515

 CASH AND CASH EQUIVALENTS, end of period


$97,418


$250,906







 

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